Area hospitals face massive budget woes

Hospitals in Kings and Tulare counties are bleeding money in the wake of the COVID pandemic, with the area’s major healthcare providers – Adventist Health, Kaweah Health and Sierra View Medical Center – all operating well into the red in 2023, according to publicly available budget data. The local trend is very much in line with negative financial conditions at hospitals and medical districts around the country, according to the latest information from Fitch Ratings, one of the country’s “big three” credit rating agencies.

Kaweah Health’s $11.2M Hole

While Sierra View and Adventist Health both appear to be facing major budget woes in the 2022-23 fiscal year, so far only Kaweah Health has made their struggle to remain solvent public. Earlier this month, the nonprofit public health care district – Tulare County’s largest health care provider – announced it faces operating losses of $11.2 million dollars between now and June of 2023.

The district saw an even larger loss at the height of the COVID-19 pandemic, with Kaweah estimating its loss for 2021-22 at $17.9 million. The district’s actual operating loss for last year – before CARES Act and American Rescue Plan Act funding kicked in – was closer to $36 million.

“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 CEO. “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.”

The Kaweah Health FY 2022-23 budet shows the district plans to reject or defer some $10.4 million in facility maintenance, construction and planning.

Nationwide Cash Flow Problem

Herbst’s assessment is in line with Fitch’s analysis of the national financial situation for larger districts like Kaweah Health.

“The vast majority of our rated credits have strong balance sheets that will offset lower margins for a period of time and allow for operational improvements,” Fitch wrote in its recent white paper the financial health of the nation’s healthcare industry. “Without more substantial changes to the current business model, or with additional coronavirus surges this fall or winter, this balance sheet cushion could eventually erode.”

Kaweah Health is comfortably positioned in terms of its reserves, however its projected surplus cash flow shows a 2022-23 deficit of $1.595 million.

As of the first of this month, Kaweah Health’s cash reserve funds totalled $292.7 million. But, the district’s budget projections approved in June predict a need to spend some $34.5 million of that cash on hand by July 1, 2023.

To address these widespread financial shortfalls, Fitch predicts nonprofit hospitals will be forced to make immediate and “relentless” cuts to their budgets while demanding more productivity from workers. Budget pressures, Fitch advises, will trigger “transformational changes to the business model” for healthcare providers over the longer term.

Bigger Providers No Better Off

The Golden State was very hard hit last year. According to a commissioned study for the California Hospital Association by the consulting group Kaufman Hall that was released this April, FY 2021-22 was an especially nasty one for California’s public medical institutions.

“COVID-19 continued to place a heavy financial burden on California’s hospitals through the second year of the pandemic, as they experienced financial losses of nearly $6 billion on a volume-adjusted basis, more than triple previous projections,” the company reported.

While revenue numbers for the privately-owned nonprofit Adventist Health – which operates locally in Hanford, Tulare, Selma, Bakersfield and Fresno – are not available for its individual facilities, the company does present an overview of its finances and projections for potential investors. Those numbers show Adventist had a rough first quarter of 2022.

Adventist, which owns or manages 23 hospitals and more than 290 clinics nationwide, revealed an unaudited deficit of revenues over expenses of $217 million for the three months ending in March of 2022. Of that, $120 million is losses from its operations, and the rest is a loss of investment income. For the same period last year, when COVID-19 was running even wilder than today, Adventist Health did better, showing just a $36 million revenue deficit.

At the end of 2021, Adventist Health boasted a total revenue of $5.2 billion (with an $8 million net income), yet in September of the same year, Fitch Ratings downgraded its long-term bond rating for Adventist Health on the West Coast from an A+ to an A.

“Fitch believes that Adventist will improve upon their most recent operating results to regain margins more closely aligned to historic levels, such that Adventist generates operating EBITDA (earnings before interest, taxes, depreciation and amortization) margins in excess of 8% in the near to intermediate term. The rating also reflects Fitch’s expectations that Adventist’s leverage profile will continue to improve over the near to long term, continuing to support an ‘A’ category rating,” the company wrote in its assessment.

Sierra View Quietly Bleeding Cash

While Kaweah Health was quick to alert the public to its financial situation, the same cannot be said for the Sierra View Local Health Care District (SVLHCD), which owns and operates Sierra View Hospital and a handful of clinics and labs in and around Porterville.

According to a fiscal calendar for June and July presented to the SVLHCD board of directors in May, the district ran a deficit of more than $5.12 million through April 2022.

That shortfall apparently represents a large jump from March to April. In March, the district’s unrestricted fund loss was $3.53 million, meaning the deficit increased by some $1.6 million in a single month. The combined balance sheet for those two months shows an increase in payroll and related costs of nearly $1.2 million.

This increase in the cost of labor for the same number of hours worked – and the resulting fallout – is also a wider phenomenon in health care. Currently, healthcare providers at Kern Medical – the Level II trauma center operated in Bakersfield by the Kern County Hospital Authority (KCHA) and the only such facility between Fresno and Los Angeles – are planning a three-day strike, claiming unfair labor practices on the district’s part.

The strike was scheduled for July 26, but has since been moved to August.

“Workers are pointing to the patient care crisis in the public hospital system,” said Estevan Gutierrez, of the Service Employees International Union, Local 521, which represents the Kern Medical workers. “Short staffing resulting from the system’s uncompetitive low wages impacts patients, particularly the large number of low-income, medically underserved, underinsured or uninsured residents.”

To prepare for the work-stoppage, KCHA approved a $15 million contract for replacement workers at its July 20 meeting.

COVID Killing Rural Hospitals

With all area hospitals apparently running long-term deficits now, the question becomes one of how long these local facilities can sustain the losses. While those with flush cash reserves, like Kaweah Health, can withstand the pressure longer, a study from the Chartis Center for Rural Health says the current trend will likely push many – up to one-in-four – medical centers to close their doors forever.

“Since 2010, nearly 130 rural hospitals have ceased operations, and the model developed by the Chartis Center for Rural Health revealed that 453 rural hospitals (nearly 25 percent) are vulnerable to closure,” the report states.

Chartis defines a rural hospital as one with 200 or fewer patient beds. Kaweah Health operates nearly three times that many at 581 beds. Sierra View, by contrast, has 163 beds; Adventist Tulare maintains 101 beds, Adventist Hanford has 235 staffed beds and Adventist Selma has just 56.

The report also makes it clear those seeking health care in rural settings are at a growing disadvantage when compared to their city-dwelling contemporaries.

“Research … shows that rural populations are older, less healthy and less affluent than their urban counterparts,” Chartis wrote. “Additionally, these communities face less access to care (e.g., mental health, primary care) and important services such as obstetrics are being eliminated thereby forcing individuals to either forego or delay treatment or travel greater distances for care.”