Emerging From a Pandemic: Decision-Making Remains Challenging
Double-digit inflation, low reimbursement rates, and staffing shortages present obstacles.
Ae we emerge from 2-plus years of the public health emergency associated with the COVID-19 pandemic, our health systems are facing unprecedented challenges that may affect the survival of some and that will have repercussions throughout many sectors of the economy. While several challenges are combining to create a serious financial crisis for many health systems, the effects run much deeper and affect safety, quality, and clinician well-being. I can speak to the many levers that are affecting our system, but in conversations with colleagues throughout the country, these certainly appear to be common themes.
One of the major contributors is people—or more accurately, a lack thereof. Staffing shortages are significantly affecting our ability to take care of patients, and if we cannot take care of patients, health systems cannot generate revenue. While the nursing crisis is often most visible, there are severe shortages in many other areas, including laboratory technologists, imaging technologists, dietary technicians, nursing assistants, outpatient office assistants, and, of course, pharmacy technicians, to name just a few. All of these positions are essential to a complex health system’s ability to provide usual patient care. To keep beds open, most institutions are engaging contract nurses and other contract labor at considerably higher costs. There have also been significant wage concessions at many health systems in an attempt to retain and engage existing employees (it is arguable that some of these may have been overdue). Wage and benefits are typically about 65% to 70% of the operating costs for a health system and increases of 20% or more in the past year are commonplace, with at least 1 report that labor costs have increased 37% over prepandemic levels.1
Like every other business and household, health care systems are also having to endure near double-digit inflation on medical supplies, nonmedical supplies, food, utilities, and essentially everything else needed to operate a large complex organization. The inflationary trends in the construction industry are having crippling effects on planned and ongoing capital projects. It is very clear that the cost of doing the business of health care has increased annually by double-digit percentages over the past 2 years in an industry that always survived on very thin (or absent) margins prepandemic.
The other major levers affecting the viability of health systems are on the revenue side of the equation. Because of staffing challenges, many organizations have to block beds, thereby reducing overall patient capacity, surgical volumes, and resulting revenue. In addition, many regions are seeing the loss of access to long-term care facility (LTCF) beds due to a combination of understaffing in LTCFs and an overall reduction of remaining facilities during the pandemic. This is resulting in a backup of LTC patients into acute care beds. The backup not only reduces revenue due to being paid alternate level of care rates on those patients, but also decreases new admissions because of the essential loss of those acute care beds. These capacity issues are contributing to sizable revenue losses compared with prepandemic levels.
Even if health systems could maintain prepandemic throughput, reimbursement for care has not kept pace with the changes in operating costs. On July 1, 2022, the full 2% Medicare sequestration went into effect, nullifying any benefit of increased Medicare rates. Medicaid reimbursement rates are considerably lower than the costs of providing care, and many institutions are experiencing growth of Medicaid in their payer mix over recent years, further eroding profitability.2 Commercial rates, while negotiable, have not increased at a rate that can compensate for other losses. For 340B-eligible institutions, the actions taken by 18 pharmaceutical companies to restrict access to contract pharmacy purchases have had a significant negative financial impact on those organizations. Earlier in the pandemic, financial relief from the Coronavirus Aid, Relief, and Economic Security Act delayed some of the impact of these forces, but many organizations are now facing a looming financial crisis without easy solutions being evident.
The fallout will be broad. The cost increases for health care at the governmental and private levels may need to be substantial to prevent a potential collapse of the system. Most large health systems have been forced to cancel or postpone major capital investments, which will not only impact the construction industry and health care equipment and technology vendors but will also put communities at risk of declining or decaying facilities and substandard health care technologies in the future. In many communities, health systems are major employers and an economic engine, and any decline or failure can have profound effects on a community.
Of course, the impact goes beyond the financial. The increased stress on health care workers has been very well documented and has certainly worsened during the pandemic.3 This leads to burnout, loss of talented people from health care, and potentially negative impacts on patient care. The backup of patients into our emergency departments and overall loss of access to acute care facilities is leading to negative impacts on the quality of care, delayed surgical interventions, postponement of care until disease is more advanced, and a general decline in the quality of care provided by our health systems.
The pharmacy enterprise has become a major contributor to the success of large health systems in the past decade, and pharmacy is often a department with a major contribution to the financial and clinical success of the system. You can be certain that our leadership will turn to the pharmacy for additional plans to support the organization’s recovery. In the near future, health-system pharmacy leaders will face a much more difficult environment for decision-making and must take into consideration the many factors that are affecting the viability of our organizations broadly. What has worked in the past may not be adequate for the future, and growth may be replaced by redirection through making smart, difficult, and careful strategic decisions. It will be highly valuable for health-system pharmacy leaders to continue to share successes and failures with our peers through many venues, including the pages of this publication and the many affiliated online resources. We have many challenges ahead, but I am confident we will succeed.
About the Editor
Curtis E. Haas, PharmD, FCCP, is director of pharmacy for the University of Rochester Medical Center in New York.
1. Mensik H. Hospital labor expenses up 37% from pre-pandemic levels in March. Healthcare Dive. May 12, 2022. Accessed October 19, 2022. https://www.healthcaredive.com/news/kaufman-hall-hospital-labor-costs-travel-nurse-pay/623655/
2. King R. Medicaid enrollment increased by 5M during pandemic – but not for reasons you may think. Fierce Healthcare. May 6, 2021. Accessed October 19, 2022. https://www.fiercehealthcare.com/payer/medicaid-enrollment-increased-by-5m-during-pandemic-but-not-for-reasons-you-may-think
3. ASPE Office of Health Policy. Impact of the COVID-19 pandemic on the hospital and outpatient clinician workforce. US Department of Health and Human Services. May 3, 2022. Accessed October 19, 2022. https://aspe.hhs.gov/sites/default/files/documents/9cc72124abd9ea25d58a22c-7692dccb6/aspe-covid-workforce-report.pdf