Financial struggles at Philly-area health systems show no signs of letting up

The last three months of 2022 brought no financial relief to Southeastern Pennsylvania’s nonprofit health systems, as the sector continues its difficult adjustment to higher labor costs and other rising expenses.

Six of the region’s health care systems lost money in the three months that ended Dec. 31 — and often in higher amounts than in the same period the year before — according to recent financial reports.

The local hospital systems that were profitable — the University of Pennsylvania Health System, Thomas Jefferson University, and Children’s Hospital of Philadelphia — either were flat or had steep declines in operating profits compared with the year before.

The national picture is very similar, according to Kaufman Hall, a Chicago consulting firm that tracks health system finances across the country.

“While we have seen a stabilization in operating margins over the past several months, the trend line continues to show that hospitals will be in a tough spot financially for the foreseeable future,” said Erik Swanson, senior vice president of data and analytics with Kaufman Hall. “With future COVID surges possible and challenging financial months ahead for hospitals, managing cash on hand will be critical to weathering the storm.”

Temple University Health System, which has expanded through the acquisition of Chestnut Hill Hospital and the soon-to-open Temple Women’s Hospital, reported a $59.8 million operating loss at the end of 2022 after a gain of $8.5 million in the same period the year before.

What’s worse is that even on an operating cash flow basis, which excludes interest expense and accounting charges, Temple lost money in the first half of fiscal 2023, which ends June 30.

“We are laser-focused on trying to turn that around,” the health system’s chief financial officer, Nick Barcellona, said on Temple’s quarterly earnings call Monday.

Two major factors are persistently higher-than-normal expenses for agency nurses, who fill in when hospitals don’t have enough available staff, and longer average patient stays, Barcellona said. Temple’s average length of stay increased to 6.28 days from 5.96 days. “We’re not getting paid any more to care for those patients that are in the bed for an extra third of a day,” he said.

Losses continued at Tower Health, which recently appointed a new chief financial officer and hired a new investment bank. The nonprofit, which is based in West Reading, and anchored by Reading Hospital, issued an abbreviated earnings report, which did not provide details on its cash reserves and on how many days it could continue to pay its bills without bringing in more money.

Tower said that the abbreviated public disclosure, which also no longer provides details on the performance of individual hospitals, fulfills the requirements of its loan agreements. At the same time, Tower this year started providing more frequent reports to institutional investors and other bondholders, but those are not available to the general public.

The nonprofit reported $320 million in unrestricted cash at the end of September, down more than $400 million over two years. The $320 million worked out to 52 days of cash on hand. Temple, by contrast, had 153 days of cash on Sept. 30.

As of Dec. 31, Tower likely had less than 50 days of cash on hand, given its $56 million operating loss in the quarter. A spokesperson did not confirm that estimate.