CHILLICOTHE, OH (January 19, 2023) – How do retailers react when faced with higher costs? They reduce expenses. They innovate. They raise prices.
We take many of the same steps in health care. Unlike your favorite coffee shop or restaurant, however, we can’t raise prices by simply updating our menu board. That’s because the rates we receive are determined by government agencies, as well as those that are negotiated with insurers. In many cases, and especially now, those rates are fixed and don’t cover the increasing cost of care.
Today, health care systems across the country are faced with challenges like never before. In addition to the imbalance between the cost of taking care of patients and reimbursement rates, health care systems are facing rising labor costs, staffing shortages—most notably, nursing—and dramatic supply chain cost increases.
For more than 125 years, Adena Health System has been a trusted health care provider to the nine counties we serve. To continue fulfilling that mission, we needed to develop an approach that looks across the board at opportunities to reduce costs and to positively impact net revenue. Simply put, Adena’s finances need to remain in good health so that we can continue to help the people of our region to be in good health. Consequently, we gave thoughtful consideration to the opportunity to strategically realign our resources to help reduce costs, remain financially strong, and fortify our commitment to patient care.
As a part of that approach, this week Adena announced a restructuring to bring our business model more in line with today’s challenging health care environment. Eliminating positions is something we don’t take lightly, but we needed to realign our resources to help reduce costs. This resulted in the elimination of 69 positions from our workforce of 4,250. While some positons across the organization will be phased out, Adena will continue to hire in strategic areas and approximately half of the impacted staff are qualified to fill open positions within the system. Employees who do not secure another position within our system will be eligible for severance and outplacement assistance.
Another way in which we modify our business model for cost efficiencies is look at expanded opportunities with vendor partners. With this restructuring, we are transitioning our revenue cycle department to Ensemble Health Partners, a key vendor that has worked with us since 2018. Those 340 employees, many of whom have been under Ensemble management for the last several years and are in remote roles, will join the Ensemble’s payroll March 5. They will maintain their current salaries and seniority as part of this transition.
As most of those employees are in remote roles, they will continue to serve Adena’s needs, but may also be available to serve the vendor’s other clients. As a result, the expense of those staff members will be dispersed across multiple heath care organizations, effectively reducing Adena’s costs.
Furthermore, we are in discussions with all suppliers to identify and implement meaningful and sustainable cost reductions.
According to a November report[i], the operating margin for U.S. hospitals similar in size to Adena was down more than 80 percent, compared to 2019, the year before the pandemic. Why such a big decrease? Total expense per discharged patient was up almost 30 percent during that same time, driven largely by the labor shortage in nursing.
Frankly, we could no longer absorb those soaring costs, nor can we continue to accept inadequate reimbursement for care.
Many Americans have come to view rising health care insurance premiums as nothing less than inevitable. The fact of the matter is that providers, such as Adena, receive little additional revenue from those increases. That’s because the gap between what insurers charge subscribers and what they pay health care organizations continues to widen.
Profits at the nation’s largest health insurer were up 28 percent in the third quarter of last year.[ii] At the same time, health care systems nationwide were on track for their worst financial year in decades.[iii]
Compounding the revenue challenge, Medicare annually issues a fee schedule that determines how much the federal insurance program will reimburse hospitals for specific services. As a result, those fees are in place for the entire year, regardless of economic conditions.
Like many other health care organizations nationwide, Adena is obligated to be both a trusted care resource and a sound financial steward; we simply can’t afford to wait until payers recognize the realities of today’s health care market. That’s why we continue to engage insurers and government officials in discussions about reimbursement rates that reflect the actual cost of care.
Fundamental change is needed, and, through our restructuring, we have undertaken that change so Adena can remain a strong, independent health system and continue to fulfill its mission to serve the needs of our communities, as it has proudly done since 1895.
