How do retailers react when faced with higher costs? They reduce expenses. They innovate. They raise prices.
We take many of the same steps in health care. However, unlike your favorite coffee shop or restaurant, we can’t raise prices just by updating our menu board. This is because the rates we receive are determined by government agencies, as well as the rates negotiated with insurers. In many cases, and especially now, those rates are fixed and do not cover the rising cost of care.
More information: Adena Health System announces layoffs, transfers employees to another company
Today, health care systems across the country are facing challenges like never before. In addition to the imbalance between patient care costs and reimbursement rates, health care systems are faced with rising labor costs, staff shortages – particularly nursing – and dramatic supply chain cost increases.
For more than 125 years, Adena Health System has been a trusted health care provider for the nine counties we serve. To accomplish that mission, we needed to develop an approach that looked at opportunities to reduce costs and positively impact net revenue. Simply put, Adena’s finances need to be in good health so that we can continue to help the people of our region stay in good health. As a result, we considered an opportunity to strategically reallocate our resources to help reduce costs, remain financially sound, and reinforce our commitment to patient care.
As part of that vision, Adena this week announced a restructuring to bring our business model in line with today’s challenging healthcare environment. Eliminating positions is something we do not take lightly, but we need to reallocate our resources to help reduce costs. This resulted in the loss of 69 positions out of our 4,250 workforce. While some positions across the organization will be eliminated, Adena will continue to operate in strategic areas and approximately half of affected employees are qualified to fill open positions within the system. Employees who do not secure another position within our system will be eligible for severance and outplacement assistance.
Another way in which we modify our business model for cost efficiencies is by looking at expanded opportunities with vendor partners. With this reorganization, we are transitioning our revenue cycle division to Ensemble Health Partners, a key vendor we have worked with since 2018. Those 340 employees, many of whom have been under Ensemble management for the past several years and are in remote roles, will join Ensemble’s payroll on March 5. They will retain their current pay and seniority as part of this transition.
Since most of those employees are in remote roles, they will continue to serve Adena’s needs, but may also be available to service the vendor’s other customers. As a result, the expenses for those staff members would be spread across multiple health care organizations, effectively reducing Adena’s cost.
In addition, we are in discussions with all suppliers to identify and implement meaningful and sustainable cost reductions.
Operating margins for U.S. hospitals similar in size to Adena were more than 80 percent lower than in 2019, a year before the pandemic, according to a November report. Why such a huge shortage? While driven largely by labor shortages in nursing, total spending per discharged patient was up nearly 30 percent during the same time period.
Clearly, we can no longer absorb those rising costs, nor can we continue to accept inadequate reimbursement for care.
Many Americans view rising health care insurance premiums as nothing short of inevitable. The fact is that providers like Adena receive little additional revenue from those increases. That’s because the gap between what insurers charge customers and what they pay to health care organizations is widening.
In the third quarter of last year, the profit of the country’s largest health insurance company had increased by 28 percent. At the same time, health care systems nationwide were on track for their worst fiscal year in decades.
Exacerbating the revenue challenge, Medicare annually issues a fee schedule that determines how much the federal insurance program will reimburse hospitals for specific services. As a result, those fees apply for the entire year, regardless of economic conditions.
Like many other health care organizations nationwide, Adena owes itself to being both a reliable care resource and a strong financial steward; We can’t wait until payers recognize the realities of today’s health care marketplace. That’s why we continue to engage insurers and government officials in discussions about reimbursement rates that reflect the true cost of care.
Fundamental change is needed, and, through our restructuring, we have made that change so that Adena remains a strong, independent health system and continues to fulfill its mission to serve the needs of our communities, as it has Proudly done since 1895.