Three for-profit health systems predict lower labor costs

Staffing challenges continue to weigh on financial results at for-profit health systems, with leaders fighting to reduce contract labor and navigate wage inflation.

Systems are doling out higher pay and bonuses to attract more employees, dealing with overall expenses that remain elevated and reassessing operations for efficiency opportunities. Executives remain tight-lipped on projections for 2023.

Here’s a look at how three of the largest for-profit systems that which reported results this week performed in the third quarter. 

Community Health Systems

Community Health Systems is in “advanced discussions” about possible divestitures, Chief Financial Officer Kevin Hammons said on a Thursday earnings call with analysts.

The Franklin, Tennessee-based system reported a $42 million net loss in the third quarter, a big drop from the $111 million profit posted a year ago. Revenue came to $3.03 billion, a nearly 3% decrease from last year’s quarter. 

Expenses rose 1.7% to $2.82 billion, driven in part by increases in salaries, wages and benefits. Community Health’s contract labor expenses totaled $100 million, compared with $150 million in the second quarter. The system reduced contract labor each month of the quarter, CEO Tim Hingtgen said on a Thursday investor call.

Earlier this year, Community Health sold its AllianceHealth Seminole hospital operation to SSM Health Oklahoma. Hingtgen said the system is looking to joint ventures and other partnerships to help with growth. 

Universal Health Services

Universal Health Services, based in King of Prussia, Pennsylvania, reported net income of $182.8 million in the quarter, a 16.3% drop year-over-year. Revenue was up 5.7%, to $3.34 billion.

Operating expenses climbed 7.7%, to $3.06 billion. The health system hopes to reduce pay-related expenses in acute care by $15 million to $20 million in the fourth quarter. Pre-pandemic, quarterly premium pay costs were about $35 million.

Earlier this week, the system hired Edward Sim, formerly with Centura Health, as president of the acute care division. Sim replaces Marvin Pember, who plans to retire.

Encompass Health

Birmingham, Alabama-based Encompass Health reported net income of $45.4 million, compared with $100 million in the year-ago period. Revenue increased 7.8%, to $1.09 billion. 

Operating expenses were up 11.5% to more than $941 million, including a 12.8% increase in salaries and wages.

Contract labor cost $24.8 million, plus another $24.2 million for sign-on and shift bonuses, CEO Mark Tarr said on a Thursday earnings call. He expects contract labor costs to continue declining, although at a slower pace than was originally projected, due to wage inflation. Executives expect fourth-quarter wage inflation to be around 3%.

“There is still a lot of volatility out there,” CFO Doug Coltharp said on the call. “[We] don’t know that we’ll be completely normalized [in 2023] because we’re not sure what that means anymore.’