Trinity Health's operating income down more than half due to labor costs
All together, Trinity's net income during the period was $878.1 million, down from $2.7 billion during the same period the prior year.
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During the first six months of Trinity Health's fiscal year 2022, which ended on December 31, operating income fell by more than half due to labor costs caused by staffing shortages and wage inflation, recent financial documents show.
In that six-month period, Livonia, Michigan-based Trinity posted $295.8 million in operating income – down 58% compared to the $710.6 million in operating income logged during the same period a year earlier. And the figure for 2022 comes despite gaining $127.2 million on the sale of Gateway Health Plan.
The hit to the health system's operating income naturally had an effect on operating margins, which were 0.4%, down from 1.8% during the first six months of FY21. Trinity attributed this downward pressure on margins to "expense growth outpacing revenue growth, primarily due to pandemic-related labor costs."
Revenue also declined, but not as steeply: The $10.22 billion recorded during the period in question was a less than 1% dip from the $10.28 billion posted during the first six months of FY21. When provider relief fund grants were taken out of the mix, Trinity's revenue was actually up about 3.5% from the previous year.
All together, Trinity's net income during the period was $878.1 million, down from $2.7 billion during the same period the prior year.
WHAT'S THE IMPACT
Salaries and wages at Trinity were impacted by a 1% increase in full-time equivalents (FTEs) and a 4.9% rate increase, while contract labor expense increased $161.9 million, or 156.4. Supplies also increased $57.8 million, partially driven by pandemic personal protective equipment, testing and drug costs.
Total operating expenses of $10.1 billion increased $483 million, or 5%, during the first six months of fiscal year 2022 compared to the same period the year prior, driven by a 7.9% increase in labor costs, of which 72% of the increase was incurred during the second quarter of the fiscal year.
Through its wholly owned subsidiary, Mercy Health Plan, Trinity sold its 50% interest in Gateway Health Plan on August 31, 2021 to Highmark Ventures. That gave Trinity a $62.5 million dividend distribution, and it recorded a gain on the sale of $127.2 million in the first quarter of FY22.
The health system said it "continues to take various actions to mitigate the impact on operations from the COVID-19 pandemic." These include PRF grants under the CARES Act, Paycheck Protection Program and Health Care Enhancement Act; and rural payments under the American Rescue Plan, which can be applied to expenses and lost revenue consistent with PRF grant requirements.
THE LARGER TREND
Labor costs have been a persistent issue during the COVID-19 pandemic. A Premier analysis in October estimated that hospitals and health systems across the country are paying $24 billion more per year for qualified clinical labor than they did pre-pandemic.
Clinical labor costs are up by an average of 8% per patient day when compared to a pre-pandemic baseline period in 2019. For the average 500-bed facility, this translates to $17 million in additional annual labor expenses since the beginning of the public health emergency.
The data also showed that overtime hours are up 52% as of September. At the same time, the use of agency and temporary labor is up 132% for full-time and 131% for part-time workers. The use of contingency labor – positions created to complete a temporary project or work function – is up nearly 126%.
Overtime and the use of agency staff are the most expensive labor choices for hospitals – usually adding 50% or more to a typical employee's hourly rate, Premier found.
A December report from Moody's Investors Service gave the nonprofit and public healthcare sectors a negative credit outlook for this year based largely on nursing shortages and increased labor costs, which are projected to decrease operating cash flow between 2% and 9%, amid comparatively modest revenue gains.
Other factors pushing expenses higher are supply chain disruptions, increased drug costs, higher inflation and increased investment in cybersecurity.
Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com
