Last March, some four years after COVID-19 overturned the health care apple cart in the U.S. and around the world, more than half of Americans responding to a Gallup poll said they believe the pandemic is over.
Still, six in 10 told the polling firm they were still feeling the impact of the pandemic and more than four in 10 said they do not expect their lives to return to pre-pandemic normal.
Among those still feeling post-COVID aftereffects: the University of Rochester Medical Center, whose UR Medicine system is the region’s largest health care provider.
That the nine-hospital UR system is hardly alone is small comfort to the man in charge of managing the sprawling system’s finances, URMC chief financial officer Adam Anolik.
UR Medicine spans six counties, stretching from the Rochester area to the Finger Lakes and Southern Tier regions, and employs some 26,000. Its Rochester-area facilities include the Strong Memorial, Highland, Golisano Children’s, F.F. Thompson and Geneva General hospitals, and the Wilmot Cancer Institute.
Hospitals and health care organizations traditionally have considered an operating margin—a calculation that shows operating income as a percentage of revenues—of 3 to 4 percent as needed to ensure financial stability.
The UR system’s margins have long fallen short of that measure. Over the last four years—excluding fiscal year 2021, when UR Medicine and other health systems received significant government payments to offset pandemic revenue losses—the shortfall has grown markedly.
In its 2017 fiscal year, ended June 30, 2017, URMC generated $3.34 billion in revenues and had a 2.1 percent operating margin. In fiscal 2023, its revenues had grown to $5.3 billion, but its operating margin shrank to negative 1.5 percent.
Preliminary calculations of URMC’s just-completed 2024 fiscal year project a negative 0.02 percent operating margin on $6 billion in revenues. The system projects revenues of nearly $5 billion and a slightly positive 0.58 percent operating margin in the fiscal year ending next June 30.
Looking on the bright side, Anolik calls the system’s less than 1 percent negative margin in fiscal year 2024 and projected less than 1 percent margin for 2025 “break even.” Still, he concedes, breaking even is not the best financial position for a health care organization to find itself in.
A new normal?
Fitch Ratings Inc. is a Texas-based firm that looks at the financial stability of hospitals and health systems. In a recent comment piece, Kevin Holloran, the head of Fitch’s nonprofit sector division, wrote that the industry’s “long-time ideal range for healthy operating margins (of 3 percent or higher) is in danger of a permanent reset nationally to 1 to 2 percent.” He does not think this will necessarily lead to widespread ratings downgrades. Instead, he described it as a “pain point,” with hospital-specific declines “a real possibility if they can’t afford to defer capital longer and operations never improve.”
He warned that trouble for even the most frugal could lie ahead as the final Baby Boomer cohort reaches retirement age in 2030, increasing strains on provider resources.
In the fiscal year ended June 30, 2020, with service interruptions in the final four months due to COVID’s initial onslaught, the UR system managed to post a 1.5 percent margin. In the following 12-month period, the margin jumped to 7.9 percent.
The UR system’s positive margin in 2020-21 reflected “significant” government payments meant to compensate providers for extraordinary strains as COVID patients crowded hospitals, Anolik explains. Those windfall revenues were further buoyed later as masses of patients who had had to put off procedures and treatments while COVID patients claimed most resources scheduled long-delayed, profitable procedures.
Now, however, the pent-up demand has been satisfied and the government-money spigot has been turned off.
For the foreseeable future, Anolik sees “no one’s coming to my office with a bucket of money.”
At the same time, he adds, pressures on the system that ratcheted up during the pandemic’s peak have hardly abated. Skyrocketing labor costs compounded by a dearth of qualified clinical staff have been added to the list of vexing problems that will not soon go away.
“We are a labor-intensive organization and we will always be labor-intensive,” Anolik notes.
The pandemic’s impact
When COVID hit, a shortage of qualified clinical staff had already long plagued providers here and nationally. The pandemic accelerated and expanded the problem.
At the pandemic’s height, hospitals overflowed with COVID patients. And for some months, few adequate treatments were available. Much of the burden of dealing with the flood of patients fell on nursing staffs.
Many nurses quit. Some left the profession; others went to work as so-called travel nurses, temps who could exercise more control over their schedules yet pull in salaries as much as three times higher than their hospital-employed colleagues.
For the UR system, labor costs rose from $2 billion in 2016-17 to more than $3 billion in 2022-23. They are expected hit nearly $3.5 billion in the system’s current fiscal year.
Over that span of time, Anolik says, travel-nurse bills have accounted for an unsustainably increasing share of the system’s total labor costs.
In 2016-17, the UR health system’s travel-nurse costs of $9.7 million accounted for less than half a percent of the $1.99 billion total. In 2019-20, the start of the pandemic, its travel-nurse spending had climbed to $17.9 million, roughly 0.07 percent of the $2.5 billion total. In the fiscal year ended in June 2023, the system’s travel-nurse spending ballooned to $230.7 million, 7.1 percent of the system’s $3.24 billion labor costs.
To look at it another way, while the UR system’s temporary labor costs increased 84 percent from fiscal 2017 to fiscal 2020, over the pandemic’s course from fiscal 2020 to 2023, the costs soared nearly 1,200 percent. The jump in temporary labor costs represents roughly 20 percent of the total increase in expenses during that period.
Anolik says the system hopes to trim labor costs by partially turning some administrative functions like insurance-claims processing now handled by human workers over to artificial intelligence, but he has small hope of meaningfully bringing travel-nurse costs into line any time soon.
That particular financial squeeze is not unique to the UR system, Anolik notes.
To a greater or lesser extent, he says, it is hitting virtually all U.S. hospital systems “including our friends across town,” a reference to Rochester Regional Health, the area’s second-largest health system. RRH is an eight-hospital, six-county system that provides virtually all Rochester-area health care not covered by the UR system.
RRH did not immediately respond to a request for comment for this article.
In 2022, RRH chief medical officer Robert Mayo M.D. complained that paying travel nurses to fill in for the system’s nursing shortfall had added “a huge premium” to RRH’s nursing costs. A COVID-heightened nursing shortage was being exacerbated by temp agencies’ successful recruitment of RRH-employed nurses, Mayo said.
RRH has since seen nurses at its flagship hospital, Rochester General, unionize with the nurses’ union citing pay and staffing as top issues.
In a 2023 statement, RRH said it had sustained a $145 million 2022 loss and projected a systemwide $150 million loss in 2023.
At the current rate of increase, URMC’s Anolik says, travel-nurse costs will be unsustainable for everyone.
He has some hope of slowing the rate of UR’s travel-nurse cost increases through a program being instituted at the URMC system’s nursing schools in Rochester and Geneva, Ontario County.
Under the initiative, UR will fully pay nursing students’ tuition if the students agree to work in the UR system for three years. Students who quit a UR-system nursing job before the three years are up would have to pay back more than half of their tuition bill.
How much of an effect that program might have has yet to be seen.
Other pressures
In the meantime, Anolik says, other financial pressures continue to bear down on the UR system. While expenses continue to rise, the system calculates that it spends more than $600 million a year providing services and community benefits for which it is underpaid or not paid at all.
Amounts for those services include:
■ $272.6 million in unreimbursed Medicaid services;
■ $21.6 million in free care provided to poor patients;
■ $146 million in subsidized health services; and
■ $3.6 million providing discounted care to needy patients.
URMC says community benefit spending has increased as a percentage of revenue, rising to 14 percent in 2023 from about 11 percent in 2019.
As the Rochester Beacon reported, the state recently compounded already short Medicaid payments by claiming some prescription-drug discounts that had given the UR system’s flagship Strong Memorial Hospital a $90 million annual boost.
While the state is repaying Strong’s one-year loss over three years, it is not reimbursing continuing losses over that period or compensating for other losses across the system. RRH figures its annual loss in the state’s takeover of the 340B discount program to be $35 million.
Despite what seems likely to be a new, post-COVID reality of lower margins for the UR system and the rest of the region’s nonprofit health care providers, Anolik says he remains optimistic. His goal: to boost the UR system’s operating margin from negative territory to 2 percent, performance that only a few years ago was seen by the industry as anemic.
“For the many problems facing health care in a post-COVID world, there’s no one real easy solution,” Anolik concedes. Still, he believes or at least hopes, “there’s more we can do that will be helpful.”
Will Astor is Rochester Beacon senior writer. The Beacon welcomes comments and letters from readers who adhere to our comment policy including use of their full, real name. Submissions to the Letters page should be sent to [email protected].
As a doctor I follow two rules in medicine. The first is do no harm. The second is do no financial harm. High deductibles and copays deter patients from obtaining care due to the dent it puts in their pockets. They even skip preventive care which under Obama Care, that fine republican health plan from Tricky Dick and the Heritage Foundation in the 70’s, is COVERED IN FULL! Strong seems to have forgotten that you can not bleed the patients dry. Now my patients are telling me that they are being charged fees to cover the site of service and lab draws. What is next? A tip jar since the Orange Jesus and now Harris are talking of eliminating tax on tips.
Overall, I largely agree with the comments so far on this article. I feel no pain for this health care system while we pay twice per person than the other 32 high income democracies pay for health care. Please note that unlike these other countries we still exclude millions from affordable comprehensive health care and affordable medicines, and medical costs are our number one cause of bankruptcies. This does not happen in these other 32 high income democracies, and we have the largest, richest economy. Let me address one aspect where I have some experience, labor costs. In this system the nurses do not have the right to collectively bargain (non-union). If Strong had paid their nurses what the marketplace demanded the costs of traveling nurses would have been much less. Much higher wages were necessary to get nurses to travel, plus the costs of lodging and per diem. If you believe the claim that in seven years, the average hospital employee, including doctors and nurses, received wage and benefit increases of 52%, I have a number of bridges to sell. I have been involved in support of SEIU 1199’s fights for a contract over the years thru the leaders of this union, especially my friend and VP in the area AFL-CIO, the late great Bruce Popper. In contract negotiations under Labor Law, when the employer claims an inability to pay what the workers ask for, the union has a right to see the books. Almost all employers fight this right at the NLRB and the courts tooth and nail. When the union does see the books, it is eye opening. One will find all with seven figure and high six figure salaries that treat, care for, and heal no one, but are listed as part of “Labor Costs.” One will often see annual raises in this group where just the amount of their raises far exceeds what the average worker makes in a year. We are the only high-income democracy that does not provide health care and medicine to all its citizens. Unless you are in in the richest 10%, they live longer in those countries than we do as well, about 8 years in Japan to 4 years in Canada. Since Reagan became President, we have seen $50 trillion in wealth transferred from 90% of Americans to the richest 10%. Our health care system has been a significant part of that transfer. U of R
/Strong, let us see ALL the books.
Yah….lets scrap the current system. Lets adopt a single payer healthcare system. We might as well do it now with all the foreign guest who have poured over our borders. Healthcare for all, college for all, free everything. Lets adopt the Venezuela concept. That should be good for a year or two and then…….bust. If those those veterans have been getting free healthcare, why not everybody. We should be good to try this by November.
” Socialism is a scare word they have hurled at every advance the people have made in the last twenty years. Socialism is what they called public power. Socialism is what they called public power. Socialism is what they called Social Security. Socialism is what they called the growth of free and independent labor organizations. Socialism is their name for almost anything that helps all the people.”
Harry S. Truman 1952
Crazy leftist BLM/Antifa
Same as it ever was.
I mean yes. The entire rest of the civilized world is on universal health care. We are currently 36th and dropping in health rankings because we still have commercial health care and commercial insurance.
We’ve had medicare/medicaid now for decades and desptite republicans continously trying to cancel it it’s continued to be sucessful. So no we won’t become a “failed country” by taking care of people’s health. In fact in most cases a country with excellent health care is more successful. As far as I know Canada is still around. And Japan. And Thailand. And dozens of others with universal health care. Y’all continuously confuse “communism” and “social democracy”.
https://www.healthsystemtracker.org/chart-collection/quality-u-s-healthcare-system-compare-countries/
Our system sucks – vs the rest of the world we are falling behind. And dismantling it without replacing it will be even worse – you want zero help with health care. Get ready to pay thousands a month for your medications, and for the poor to die in droves.. The Republicans had control of both houses and the presidency and did…. exactly nothing to improve health care in the US. You are a failed party.
U of R has been expanding buying practices and building new buildings. Meanwhile patients complain that their doctors have less time for them and of course,, charge more. Every month we hear of new grants from the government fro research. No wonder that the least valued employees, the people who care for patients are leaving for greener pastures. Value and priority are put on capital improvement, marketing (Medicine of the Highest Order–Really?), and grant writing. So nurses quit and work “Traveling” so they can both spend more time with their families and support them. Doctors stay a year or two and leave town. They also retire as soon as they can. The problem is bad goal setting, commercialization, and priorities.
I wholly agree with Lee Drake about the U of R’s revenue shell game. I just wanted to add that if we’re going to keep healthcare part of the market economy, we can’t really claim surprise be when we get market corrections to labor costs. Nurses and other non-doctor medical staff have been wildly underpaid for an extended period of time, hence this extensive market correction.
I unfortunately had a family member in the hospital at U of R for a few weeks in 2023, and the nurses told of colleagues who’d recently quit UR, only to return a few months later as “travel nurses,” except now making two or three times their previous hourly rate (and significantly more than their former/current supervisors). This dynamic was extremely disheartening for the people who stayed… Most of whom who were now naturally reconsidering their loyalty.
As long as employers continue to treat employees as commodities, I think it’s difficult to claim surprise when employees respond in kind.
Hi Will,
Might be interesting to know how administrative costs have changed over the same timeframe.
Steve
This subsidiary of the University of Rochester, run as a “non-profit organization”. The U of R has assets of 7.5 billion dollars with total liabilities of 3B. With the assets at their disposal they could fund health care into the next millenia for the entire city for free. Any nubmers they make up as evidence of “being in trouble” financially are purely theoretical – they simply shift money from one place to another to appear as if they received a loss or a profit per what looks good on the books.
A $35M loss in any particular year is literally a flyspeck on their overall financial status. They could solve the issue of not being able to recruit health care personell by paying them fairly and not overworking them. Instead they cry wolf when the health care professionals push back and want reasonable hours and wages. How many executives of this “not for profit” are paid over $1m a year?
I don’t think most people have any concept of how much 7 Billion dollars is.
The problem with using AI to fight claims, si that is exactly what the insurance companies are also doing – so eventually, just like your facebook posts being edited by an uncaring non-human AI bot, your health care will be deetermined the same way. And that’s “progress?. Maybe the problem is the insurance and health care system, not the claims.
This is just their PR department trying to get you to engender some sympathy for a multi billion dollar corporation. Don’t buy their hype. https://projects.propublica.org/nonprofits/organizations/160743209