Kaweah Health approves budget projecting unprecedented $11.2 million operating loss

As many other hospitals across California are expected to do this year, the Kaweah Delta Health Care District (Kaweah Health) Board of Directors has approved a fiscal year 2023 operating budget that projects an operating loss for the coming fiscal year – the first time in Kaweah Health’s history. The new budget, which becomes effective July 1, projects an operating loss of $11.2 million for the fiscal year and it comes on the heels of a projected $17.9 million, COVID-driven operating loss for the fiscal year that ended June 30, 2022 ($35.8 million operating loss less $17.9 million in provider relief funds received from the CARES Act and American Rescue Plan Act). Despite the financial challenges, the Board and CEO say they are holding firm on providing annual employee pay increases and are unwilling to reduce employee benefits or to limit access to care.

“We are a compassionate and grateful organization. We want to continue to be a great place to work and we want to continue to attract and retain the very best employees to care for our community. The South Valley is already underserved medically, and we decided against closing services and further reducing access to care, even if some of those services lose money,” said Gary Herbst, Kaweah Health’s Chief Executive Officer. “While we have cash reserves to cover a bad year or two, it reduces our ability to invest in facilities and equipment, as well as our ability to borrow money. These losses are not sustainable in the long term.”

Kaweah Health is not alone. More than 51 percent of California hospitals are losing money.  According to a recent study conducted by national consulting firm Kaufman Hall, California hospitals lost more than $20 billion in 2020 and 2021 due to COVID. These losses were only partially offset by $8 billion in Federal provider relief funds.

“The pandemic has taken a devastating financial toll on the majority of hospitals in California,” said Carmela Coyle, President and CEO of the California Hospital Association. “In communities throughout our state, many hospitals are struggling to provide services for all who need care. It is going to take years for hospitals to recover from these losses, and the truth is some hospitals may not survive.”

The losses are largely attributed to decisions made in California during the pandemic that forced hospitals, including Kaweah Health, to:

  • Shut down non-emergent surgeries and procedures (resulting in significant loss of revenue);
  • Bear the increased cost of caring for COVID patients with only a nominal increase in Medicare payment and no increase in State payments for patients covered by California’s health care program for low-income children and adults (Medi-Cal);
  • Cover unprecedented increases in employment expenses related to contract labor – most notably travel nurses – wage increases to maintain competitive pay, overtime pay, extra-shift incentive bonuses and the State’s increase in minimum wage; and,
  • Purchase unprecedented quantities of personal protective equipment, supplies and medications at exorbitant prices.

Kaweah Health’s forecasted loss assumes it may see an additional $3 million in Federal COVID relief funds this next year, although that is not a certainty as Congress has not yet authorized additional payments to hospitals. The State of California does not currently provide hospitals with financial support due to the pandemic, and has not increased reimbursement to hospitals for Medi-Cal patients since 2014. Approximately 40 percent of the patients treated by Kaweah Health have Medi-Cal coverage.

Kaweah Health expects operating revenue to increase approximately 4 percent during the coming fiscal year, but the increase in revenue is more than offset by unprecedented increases in employment expenses. Last year, Kaweah Health’s employment expenses were an estimated $454.1 million which exceeded budget by nearly $64 million.  Next year, employment costs are projected to increase an additional $2.7 million. These dramatic increases in labor costs have occurred in many respects due to a severe shortage of healthcare workers  (Kaweah Health currently has approximately 550 full-time and part-time vacant positions), requiring us to fill these vacancies with contract labor, overtime and asking our existing employees to work extra shifts.  The cost of contract labor, most notably travel nurses, has skyrocketed in recent years.  According to the American Hospital Association, travel nurse staffing agencies increased their hourly rates by 213 percent between January 2019 and January 2022.

When faced with challenging financial conditions, most organizations look for ways to cut costs including laying off employees or reducing offered services, said Board President David Francis.  “But we want to recognize our employees for continuing to come to work and caring for our community.”  Instead, the new budget maintains the health system’s current 5,100 positions, includes full annual pay raises, and maintains all current employment benefits and 401(k) plan matching funds. Going one step further, Kaweah Health has frozen the health insurance premium rates paid by employees so that they will not pay more for insurance than they did last year, despite inflation and increasing costs to Kaweah Health.

Kaweah Health’s losses last year were absorbed by the organization’s cash reserves, similar to a savings account.  This same approach would be taken if the projected losses occur in the next fiscal year. “Kaweah Health has a long history of great financial strength,” Herbst said, offering suggestions to community members who want to help. “I would encourage people in Tulare County to support your three local hospitals: Kaweah Health, Sierra View Medical Center, and Adventist Health Tulare. There is excellent care available locally, meaning that you don’t always need to leave the community to seek care.  Concerned citizens can also reach out to their Federal and State representatives to let them know that your local hospitals need their support during these unprecedented times,” Herbst said.

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