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State, federal relief boosts Corewell Health’s bottom line as ‘adverse’ conditions persist

More than $100 million in state and federal assistance accounted for much of Corewell Health‘s operating margin during the first nine months of 2022, as results narrowed amid higher labor costs.

The health system — which was recently renamed after going by BHSH System following the Feb. 1 merger between Spectrum Health and Southfield-based Beaumont Health — recorded $159.4 million in net operating income through the third quarter, according to a quarterly financial statement which was posted online on Monday.

The operating results included $100.3 million in state and federal funding that Corewell Health received this year. Minus the pandemic relief funding, Corewell Health recorded just $59.1 million in operating income on $10 billion in operating income, for a margin of 0.6 percent.

In the same period in 2021, before closing the merger with Beaumont, Spectrum Health alone made $321.2 million in operating income on $6.78 billion in operating revenue. State and federal funding of $34.9 million lifted nine-month 2021 results for Spectrum Health to $356.2 million.

“The organization continues to experience YTD (year-to-date) operating results that are unfavorable to target, in part due to lower volumes, unfavorable payer mix and higher agency and critical staff costs in our care delivery departments. Additionally, we experienced higher than normal medical and pharmacy trends in the health plan,” Chief Financial Officer Matt Cox wrote in the quarterly financial report. “Care delivery continues to experience a decline in sharpness across all markets, resulting in lower revenue than projection. We also continue to see lower than expected volumes in the Eastern market.”‘

Corewell Health also recorded a net loss of $1.09 billion on investments during the third quarter of this year.

Markets combined

Unlike previous quarterly reports, the financial statement posted online for the third quarter provides results for the broader health system, including health plan Priority Health, and does not break down results by markets — West Michigan, Southeast Michigan or St. Joseph – as the previous report did for the second quarter.

In a statement emailed to MyBizCox said Corewell Health publicly reports results “based on our two most important business segments: care and coverage.”

“We manage our long-term debt using consolidated credit, making regional, hospital or physician practice location-specific highlights less relevant. The details we provide to our rating agencies and bondholders show our collective strength as an integrated health system across Michigan,” he said.

The third quarter report does indicate that the care delivery side of the health system recorded an operating loss of $24.5 million through the third quarter on $5.4 billion in net patient revenue.

“Along with the decrease in acuity, unfavorable results were primarily due to increased salaries and labor costs, significant spending on agencies and critical staff and continued higher levels of premium and incentive compensation for clinical team members,” Cox wrote in the financial report. “Improvements were made in the second half of the year to reduce agency and critical staff levels, as well as to increase staff productivity.”

Corewell-owned Priority Health, with 1.2 million members nationwide, made $110.9 million in operating income with $4.41 billion in premium income.

‘Very difficult 2022’

By mid-year, the former BHSH system — as the health system was known before the Oct. 11 name change to Corewell Health — recorded $63.5 million in net operating income on $6.58 billion in total operating income. The half-year results for the first six months of 2022 included $93.5 million in operating income at Spectrum Health West Michigan and a $99.7 million operating loss at Beaumont Health in Southeast Michigan, plus a $3.1 million operating loss at Spectrum Health Lakeland in St. Joseph and $91.3 million in operating income at Priority Health, as MiBiz reported at the time.

In September, BHSH announced the elimination of 400 non-clinical, administrative jobs across the state in a move to address rising costs that have hit the health care industry hard this year.

The operating results and reduced margins for Corewell Health reflect financial conditions at many US health systems.

Healthcare management consulting firm Kaufman, Hall and Associates LLC said this month that hospitals and health systems collectively recorded a negative year-to-date operating margin of 0.1 percent through the third quarter. The firm’s monthly report uses data from more than 900 hospitals nationwide.

“Heading into the final quarter of the year, hospitals and physician practices have had little respite during a very difficult 2022 from a financial perspective,” Erik Swanson, a senior vice president of data and analytics at Kaufman Hall, said in A Nov. 3 statement. “Hospitals and physician practices could climb back into the black by the end of the year, but that looks less and less likely as months of negative margins continue to pile up.”

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