The Cleveland Clinic, which is struggling to staff its hospitals, posted a first-quarter loss

diving letter:

  • The Cleveland Clinic posted a net loss of $178 million in the first quarter, compared with a net income of $289 million a year ago, amid the pressure of a labor crisis that is also challenging many of its peers. Medical staff shortages are driving up payroll and benefit spending, leading to increased use of temporary workers to meet patient needs.
  • The medical system said increased overtime, bonuses and agency costs needed to adequately staff its facilities caused quarterly operating expenses to rise 14.3% from the prior-year period. Rising costs for medicines and consumables added to the pressure. The higher expenses exceeded an 8% increase in operating income.
  • The hospital operator also said it attended to fewer patients in the quarter as non-essential surgeries and procedures were postponed in January. At the same time, investment returns declined $455.7 million year-over-year for the quarter.

Dive insight:

Some of the country’s largest nonprofit hospitals had a difficult start to the year as they grappled with weaker investment income and rising costs, largely due to a nationwide labor shortage. As in the early days of the pandemic, patients postponed non-essential surgeries in January when the Omicron variant led to a surge in COVID-19 cases, resulting in lost revenue for hospitals.

The Cleveland Clinic, which operates 20 hospitals, is the latest in a line of healthcare systems that posted losses in the first quarter, including Ascension, CommonSpirit Health, Kaiser Permanente, Providence and Sutter Health.

The American Hospital Association warned last month that rising spending on drugs, labor and supplies could strain health systems’ finances and jeopardize their ability to care for patients. Current cost levels and operating margin declines are not sustainable, the AHA said in a report.

Cleveland Clinic’s operating loss was $104.5 million for the first quarter, compared to an operating income of $61.7 million a year earlier. Expenditure rose mainly due to higher staff costs, but consumables, medicines and other non-labor costs also faced inflationary pressures and supply chain challenges, the hospital system said.

Salaries, wages and benefits increased 16.6% year over year to $262.4 million. The healthcare provider increased its full-time workforce by 3.2%, in part to create staff for its new London hospital, which opened in the first quarter.

The Cleveland Clinic announced that acute admissions decreased 3.8%, total surgical cases decreased 3.1%, and outpatient evaluations and management visits increased 2.0% compared to the first quarter of 2021.

The healthcare provider said it is implementing cost management and containment initiatives to counter spending growth, including a comprehensive analysis of its cost structure.

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