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Critical Condition



An “inflection point.” 

That’s what Dr. Robert Roose says hospitals have reached when it comes to their bottom lines and the ongoing challenge of making ends meet at a time when revenues continue to fall and expenses continue to rise. 

Hospitals have perpetually struggled from a fiscal standpoint amid continually rising prices, the need to constantly upgrade technology and innovate, and reimbursement rates from payers that have historically been below 80 cents on the dollar, Roose said. But trends and conditions that existed before the pandemic have only been exacerbated over the past three years, and now, hospitals are at a critical, and extremely challenging, crossroads. 

“There’s no way to sugarcoat it — hospitals and health systems across Massachusetts, and across the majority of the country, are finding themselves struggling in many regards, and at an inflection point where there are going to need to be continued efforts to support hospitals, or there will continue to be systems and hospitals that remain in distress,” said Roose, chief administrative officer at Mercy Medical Center in Springfield, part of Trinity Health Of New England. 

He quantified the situation by noting that Mercy is on a path to lose roughly $25 million for the fiscal year that will end in June, about the same amount as last year. 

“There’s no way to sugarcoat it — hospitals and health systems across Massachusetts, and across the majority of the country, are finding themselves struggling in many regards, and at an inflection point where there are going to need to be continued efforts to support hospitals, or there will continue to be systems and hospitals that remain in distress.”

Dr. Robert Roose

Dr. Robert Roose

“It will be challenging to persist with the current models that are in place in the same ways that we have in the past,” Roose went on. There are a multitude of reasons for that, but the challenges remain significant, and the pathways forward are going to require multiple initiatives and ongoing support from a variety of different angles. 

Dr. Lynette Watkins, president and CEO of Cooley Dickinson Hospital, an affiliate of Mass General Brigham, agreed, noting that COVID put the challenges that all hospitals are facing under a brighter spotlight. 

“The past three years have been particularly challenging,” she said, citing everything from staffing issues to the aging of the population and the pressures they put on hospitals. “What COVID laid bare is that all of these issues are there, and that it’s incumbent on us to be creative, accelerate the solutions, and leverage a lot of the tools that we were in many ways reticent to use, such as telehealth and virtual visits. 

“While this situation has challenged us, it has also provided us with an opportunity to think differently, to treat patients differently, to engage differently — with our patients and with the community,” Watkins went on, adding that she and her team at CDH are working to taking full advantage of that opportunity. 

Spiras Hatiras, president and CEO on Holyoke Medical Center (HMC), concurred. In remarks made to BusinessWest for its annual Economic Outlook, he spoke of both challenge and opportunity, on several fronts, but especially when it comes to workforce issues. 

The ongoing workforce crisis, while it has impacted all sectors, has put healthcare providers, and especially hospitals, at an extreme disadvantage, especially when it comes to nursing and the need to fill vacancies with contract or ‘travel’ nurses, which can cost two or three times what a staff nurse might, Hatiras noted. 

“In healthcare, there is a great deal of concern, and the most concerning part is the continuing shortage of personnel, which has created this market for temporary staffing at rates that are truly outrageous,” he said. “To put things in perspective, we have about 20 nurses on temporary staff that we get through agencies. Those 20 nurses, on an annual basis, cost us $5 million; each nurse costs us $250,000 because the rates are exorbitant — the nurses get a lot of money, but there’s also a middleman that makes untold amounts of money from this crisis. 

“As a nation, the federal government is doing a lot of things — they did some things with railroad workers, they’re helping Ukraine, they’re talking about a lot of things. They should have stepped in and regulated this and said, ‘the pandemic created a tremendous amount of shortage; we cannot allow private companies to go out and profit from that shortage of staffing and bring hospitals to their knees.’ With all this, it’s going to be very difficult for hospitals to cope, and that’s why all our strategy centers around finding a way to attract nurses here.” 

For this issue, BusinessWest takes an in-depth look at the fiscal challenges facing hospitals today, and what must happen for these institutions to weather this severe storm. 


Dollars and Sense 

When asked how hospitals arrived at this inflection point, as he called it, Roose said it was a combination of factors, but, as he and others noted earlier, it comes down to an exacerbation of, to borrow an industry term, some pre-existing conditions. 

These include a trend toward outpatient, rather than inpatient, care, which certainly impacts overall revenues, and also shortages on the workforce front, which increase the cost of doing business in many ways, and sharp rises in prices of … well, just about everything, from medications to PPE. 

“What COVID laid bare is that all of these issues are there, and that it’s incumbent on us to be creative, accelerate the solutions, and leverage a lot of the tools that we were in many ways reticent to use, such as telehealth and virtual visits.”

Dr. Lynette Watkins

Dr. Lynette Watkins

“We’ve been dealing with the aftershocks of one of the most significant public-health crises of our time,” Roose explained. “And it occurred at a point where many shifts in healthcare were already underway, including a shift from inpatient care toward the delivery of care in a lower-cost outpatient, ambulatory setting where the trends of consumers, our patients, were beginning to change, but where the reimbursement for those services had not been able to keep up with those changes. This was layered on top of an existing healthcare-workforce shortage. 

“So, the pandemic caused a significant challenge amidst what was already several headwinds that were providing stiff challenges for smaller hospitals across the country to overcome,” he went on, “forcing them to transform, to look differently, to meet those challenges and the needs of our community.” 

Elaborating, he turned the clock back to late 2019 for perspective. He said that there was already significant movement in how healthcare was being delivered. More services were being provided in settings outside hospitals, he explained, with surgeries taking place in outpatient, ambulatory settings. Meanwhile, insurance companies were adjusting as well, covering certain types of procedures, such as joint replacements, only if they took place in those lower-cost settings. 

“With that, inpatient volume was beginning to decline by a few percentage points,” Roose said, adding that those shifts were beginning to accelerate when the pandemic hit. Overall, there has been movement away from the fee-for-service model that had dominated healthcare delivery for decades and a shift toward promoting wellness, he explained, but not enough movement to shelter hospitals, especially smaller community hospitals, from those headwinds he described earlier. 

“It has certainly not kept pace with the dramatic impact on volume and the lack of reimbursement for fee-for-service care that has occurred to make up that gap,” he went on, adding that staffing shortages already existed before the pandemic, but they, too, were exacerbated by COVID and its many side effects. 

Watkins agreed, and, like others we spoke with, she said revenues have certainly improved since the depths of the pandemic, but they are still not at pre-COVID levels. 

And there are many other forces at play that are challenging hospitals, she added, including a shortage of workers at post-acute facilities such as nursing homes, which often leaves patients who are otherwise ready for discharge with no place to go, putting more pressure on hospitals. 

“We have two, three, or sometimes more patients who are ready for medical discharge, but when we don’t have a place to send those patients, so they stay with us,” Watkins said. “And that means that some patients who need to in an acute-care facility are in the emergency room or cannot get in; that’s been a huge, huge challenge.” 


Work in Progress 

One of the factors greatly impacting hospital finances is the ongoing workforce crisis, which has certainly increased the cost of providing care. Roose told BusinessWest that, while Mercy’s overall workforce is down perhaps 20%, due to a variety of factors, its workforce costs are still 7% to 8% higher than before the pandemic. 

Indeed, with many positions, not just nurses, hospitals have had to rely on contract employees, which are considerably more expensive than those on staff. 

“In healthcare, there is a great deal of concern, and the most concerning part is the continuing shortage of personnel, which has created this market for temporary staffing at rates that are truly outrageous.”

Spiros Hatiras

Spiros Hatiras

But there are other factors as well, said Watkins, including additional overtime, bonuses needed to attract job candidates, shift bonuses, and more. 

“It’s a huge challenge, and it significantly affected our financial performance, as well as that of other systems in the Commonwealth and across the country,” she said. “And we have to make sure that we are staffed to take care of the patients here that are sicker and that are staying longer.” 

Elaborating, she explained that Cooley Dickinson used very few contract nurses prior to the pandemic, but the need for such personnel has risen dramatically due to retirements, burnout, and individuals simply leaving the profession to do something else. 

These forces have left hospitals to fill the gaps as best they can and, for the long term, focus energies — or even more energies, as the case may be — on attracting and retaining personnel across the board. 

Indeed, Hatiras told BusinessWest that closing the staffing gap is critical because it will bring down the overall cost of doing business and help hospitals cope with lower amounts of COVID relief and revenue levels still below those from before the pandemic. 

“With ARPA funds drying up, we’re going to have pull ourselves up by our bootstraps. So our emphasis is on closing the staffing gap,” he said. “If we can do that, and not bleed money on the expense side, I think we’ll be OK; I think we’re poised to have a good year, as long as we’re able to attract nurses here.” 

Elaborating, he said closing this gap involves making HMC a preferred place to work, one where applicants with choices will want to go — and hopefully stay, thus reducing the high cost of continually filling vacancies. 

“We’re doing OK because we had to respond to what was going on in the market by creating even more attractive reasons for coming here — we raised our rates, we’re enhancing benefits, and at the same time, we’re looking at economic assistance for the lower-earning employees,” he said. “Where it’s more difficult is with the professionals because the dollars are significantly more, so competing just on price is difficult. The key for success — what keeps people here and makes them come here — is the culture of the place, so we put a tremendous amount of effort in the 10 years I’ve been here on creating a good culture. Now, it’s become a differentiator, and we’re pushing it even more. We’re an employer that listens to employees, responds to their needs, and cares. That’s what people want.” 

Roose concurred, and told BusinessWest that the recent challenges that hospitals have faced have put even more emphasis on the importance of people in the overriding task of providing quality care to patients — and the overall success of a provider. 

“Never has it been more apparent, and critical, to realize that people are the vehicles through which we deliver healthcare,” he said. “We do not deliver services that can be provided by machines; we’re reliant upon the great skills of care providers — and we don’t take that lightly.” 


Bottom Line 

Moving forward, Roose said, as hospitals cope with these various challenges — and, again, there are many of them — state and federal governments need to step up and continue to provide needed support. 

“The ARPA funding and other sources of relief through the pandemic and beyond, which is greatly appreciated, is not enough to close the gap from the challenges that we have encountered,” he noted. “The cost structure for delivering care has increased so dramatically, the models for fee-for-service care have not shifted quick enough, and the rates from commercial and other payers has not kept up with inflation. 

“So even with all that support, hospitals like Mercy Medical Center are expected to lose about $25 million this year, which is very similar to what it was the year before, and Trinity Health Of New England lost $65 million in fiscal 2022 from operations,” he went on. “And that puts incredible stress on hospitals.” 

Indeed, it does, and these losses, and the forces behind them, explain why hospitals are at an inflection point, and why change is needed if they are to move from critical condition fiscally to something far more sustainable.

Cover Story

The Rising Cost of … Everything

To understand what’s happening in today’s global economy, one UMass economist said it’s helpful to picture it as a grid filled with connected nodes. When one of those nodes — manufacturing, distribution, shipping, you name it — is disrupted, the impact is felt by everyone. These days, those disruptions are occurring across the supply chain, and for many different reasons, causing costs to soar — both for businesses and their customers. It’s a major concern with no simple solution, and some worry that rising prices may derail what is otherwise looking like an economy in recovery.

When people sit down at a restaurant, Bryan Graham says, they don’t usually consider how their favorite meals and ingredients get there. They just expect them to be there.

It’s not always a smooth process, and the last couple months, especially, have been a challenge.

“There have been shortages on everything — things you wouldn’t think about, everything from the beverage side to the food side,” said Graham, regional manager for the Bean Restaurant Group, which boasts a family of 11 eateries throughout the region, from Johnny’s Tavern in Amherst to the Boathouse in South Hadley to the Student Prince in Springfield.

And those shortages have a financial impact, he went on. “Increases in prices have gone through the roof — to the point where we’ve moved some things off the menu because we can’t keep up with the prices; we’re losing money.”

The company has taken to switching menu items or brands of ingredients to keep up with price fluctuations, Graham added. “We’d always purchase one brand of canned tomatoes or one brand of ketchup, but we’re seeing brands being short, so we have to switch brands to get by without running out of product day to day.”

It makes for an odd market, he said. “You place your order, and you don’t really know if it’s all coming in until you open the truck and you’re short one or two items.”

It’s not something customers typically notice — until their favorite appetizer is suddenly unavailable. “Ninety percent of our customers are really understanding. The other 10% are like, ‘what do you mean I can’t have this?’ Unfortunately, we don’t want to charge you $40 for 10 chicken wings. Most people are pretty good about it.”

Bryan Graham says high food prices have forced the occasional menu change

Bryan Graham says high food prices have forced the occasional menu change because the Bean Restaurant Group doesn’t want to pass exorbitant costs to customers.

Nationally, food prices rose 0.4% in April, both at restaurants and on grocery shelves. Prices are up 2.4% from May 2020.

But it’s not just food. Rising prices for … well, almost everything have become one of the leading economic stories of 2021. One reason is a positive of sorts — the economy is reopening at high speed. Unfortunately, in some cases, supply chains have been slow to respond to growing consumer demand.

For example, American steel manufacturers all but shut down production last spring as the pandemic took hold and the economy imploded. But as the recovery ramped up, mills were slow to resume full production, creating a massive steel shortage, one that has severely impacted building costs.

Meanwhile, sawmills also shut down lumber production last spring to brace for a housing slump that never arrived — and now, with the housing market on fire, both in new construction and home improvement, lumber shortages have sent consumer prices soaring. In fact, the median sale price of existing homes nationwide surged by 17.2% in March to a record $329,100.

Anna Nagurney, the Eugene M. Isenberg chair in Integrative Studies at the Isenberg School of Management at UMass Amherst, said soaring prices in construction are a natural result of home-improvement activity increasing during the pandemic, while home buying never really slowed.

“People haven’t been traveling or anything, so they’ve been improving their homes, building decks, and so on,” she said. “Now we’ve seen the price of lumber has escalated dramatically in the last couple of months.”

The pandemic messed with supply and demand in unexpected ways, but now that the economy is reopening and consumers want to go out and spend (and, in many cases, have been saving those stimulus checks for that purpose), supply has run into a number of roadblocks, from the slow ramp-up of the lumber and steel industries to serious delays in freight shipping (more on that later) to a shortage of workers putting additional strain on businesses.

“People want bigger homes, better homes, they have more money, the federal government has been pretty good to people … there’s just much more demand for products,” Nagurney said.

Anna Nagurney

Anna Nagurney

“People haven’t been traveling or anything, so they’ve been improving their homes, building decks, and so on. Now we’ve seen the price of lumber has escalated dramatically in the last couple of months.”

She noted that the Trump administration was more overt about pursuing trade wars, and while back-and-forth tariffs haven’t been as much of an issue lately, the U.S. is still not on great terms with China, which significantly impacts the cost of steel, aluminum, and rare-earth metals. “The geopolitics is scary.”

Gas prices are on the rise as well, which impacts every sector of the economy, said Peter Picknelly, chairman and CEO of Peter Pan Bus Lines.

“Rising fuel has an effect on everyone — people have to ship things, produce things … it’s not just gas, but everything we buy,” he said. “Chicken and beef and produce, they all need machinery to harvest; that’s all fuel. You have to transport it; that’s all fuel. Rising fuel costs are a significant hit to the average consumer.”


Easing the Burden

In the case of lumber, the shortage has been exacerbated by existing tariffs. In the spring of 2017, the Trump administration hit Canada with tariffs of up to 24% on lumber. During the final months of his presidency, those tariffs were slashed to 9%, but the National Assoc. of Home Builders is calling on the Biden administration to temporarily remove the 9% tariff on Canadian lumber to help ease price volatility.

Supply-chain issues aren’t helping, from the six-day Suez Canal shutdown in March to clear the container ship Ever Given to the cyberattack that shut down the Colonial Pipeline earlier this month, to a critical shortage of shipping containers worldwide, particularly in Asia. Companies are waiting weeks for containers to become available and paying premium rates to secure them, causing shipping costs to skyrocket.

Peter Picknelly says fuel prices affect more than the transportation sector he works in

Peter Picknelly says fuel prices affect more than the transportation sector he works in, impacting everything from manufactured goods to the processing and delivery of food.

“The containers are not where they’re supposed to be,” Nagurney said. “It’s like a puzzle. We need to move them. That’s one of the reasons we can’t get some of the goods from China, like furniture. The prices of shipping containers have gone up as a result because they’re not where they should be.”

Margeaux MacDonald knows that well. As imports manager for East Coast Tile, which supplies Best Tile in Springfield, she is dealing with significant delays in bringing material in from Europe and Asia.

“There are huge delays right now,” she said. “We could have a booking on an actual boat and might not have a container to put the material in. Or, we’ve been bumped from boats because the vessel is overbooked. It’s frustrating — it’s taking four weeks, depending on where the stuff is. In Portugal, the booking is awful; it’s taking forever to get on the boat.”

The backups are affecting shipping costs — significantly. As one example, she cited a container from Turkey that currently costs four times as much to book as it did only a few months ago. “That’s just to pay for the container to get on the ocean carrier.”

Not all locations have gone up as dramatically, MacDonald added, noting that rates from Italy have more or less doubled — not as bad as the Turkey situation, but not ideal. “And we’re not the only ones seeing delays,” she said, citing a company she works with that’s trying to get a container of material from Brazil to New York, and has been delayed more than a month.

“I’m relatively new in this position, but I’ve definitely picked the brains of veterans across the industry, and a lot of people have said to me, ‘I’ve never seen this — I’ve been in the industry for 25 years, and I’ve never seen the volume and delays coming right now.’”

“I’m relatively new in this position, but I’ve definitely picked the brains of veterans across the industry, and a lot of people have said to me, ‘I’ve never seen this — I’ve been in the industry for 25 years, and I’ve never seen the volume and delays coming right now.’”

The problem doesn’t end when the product is shipped, she added. With huge backups in ports, truckers are sometimes waiting hours to load, and instead of hauling two or three loads a day, they might get only one. And returning empty containers to port has become more difficult as well. All these factors raise prices down the supply line. “There are a lot of moving pieces.”

It’s helpful to think about supply chains holistically to convey what’s going on, Nagurney said, describing the global economy as a grid of connected nodes representing manufacturing sites, warehouses, freight service providers, distribution centers, and demand points. A disruption at any of those nodes reverberates throughout the grid — and the economy has endured many such disruptions over the past year, on both the supply and demand sides.

“We’ve seen all sorts of shocks — supply shocks, different kinds of demand shocks, and, more recently, what’s happening with freight issues, from port congestion to the Ever Given blocking freight in the Suez Canal.

“With lumber, some of it has to do with higher tariffs on Canadian lumber,” she went on. “We don’t have containers in the right places to ship lumber. Freight costs are going up, and there’s all sorts of demand on imports from Europe.”

In short, things are chaotic right now, and that globally connected grid is under plenty of stress.


Inflation Spikes

Which brings us back to rising prices on, again, almost everything. U.S. consumer prices in April increased 4.2% from a year earlier, more than the 3.6% economists had predicted, and the largest 12-month increase since September 2008.

The biggest driver of last month’s inflation jump, CNN reported, was a 10% increase in used cars and trucks, which accounted for more than one-third of the overall inflation increase. Over the past year, used-car prices rose 21%, due in large part to a spike in demand — as people sought to travel last year without relying on public transit — just as car manufacturers were closed or running at diminished capacity.

Other factors in April’s inflation report include rising costs for furniture — a casualty of the shipping backlog — and hotels, airline tickets, and recreational activities, a trend that speaks to growing demand among Americans to get back to normal life.

Restaurants are feeling that demand, and are struggling, in many cases, to staff up to meet it.

“More places are reopening, and restrictions are being lifted,” Graham said. “That goes to supply and demand — demand was down for so long, and now it’s back up.”

However, he noted, federal unemployment benefits have kept service workers — who are in some cases, being paid more for not working — away from available jobs.

Bob Bolduc knows this story well. The CEO of Pride Stores said he recently shuttered four stores because he didn’t have anyone to staff them — and he blames unrealistically generous unemployment benefits.

“We’ve been competing with the government for 15 months now, and we’re not getting through to them,” he said. “The real story is how much the government is paying, and how that’s driving prices up unrealistically.

“We’re all paying the same people, for the same labor, two to five dollars an hour more than we normally do, and the definition of inflation is when you pay a lot more but don’t get anything more for it,” he went on. “The biggest factor is that we’re competing with the government for labor — the government is paying people to stay home, and we’re trying to get them to come back to work.”

The frustration is palpable, Bolduc said. “People say they can’t get a job, but we offer them jobs, and they don’t show up. They just want to come in and apply to say they applied. And nobody checks; they’re just giving it away. It’s been that way for 15 months now, and it’s worse than you realize. People have no idea.”

State officials have heard such complaints from business owners, however, and announced last week that, starting in mid-June, Massachusetts will more diligently require proof of genuine job-search activity as a condition of accessing unemployment benefits.

At the same time, Bolduc said, “other prices are going crazy — on everything. Convenience items and food are up at least 10%, maybe pushing 15%, and I don’t see an end in sight.”

For some industries, rising prices can be a benefit.

“We always view our largest competitor as passenger automobiles,” Peter Pan’s Picknelly said. “Historically, when fuel starts going over $3.50, we see a significant increase in passengers because it’s just too expensive for people to travel, so they look for alternatives in the bus.”

If anything, rising fuel prices — married to a desire among people to get away this summer — has benefited Peter Pan’s business, Picknelly explained, noting that Cape Cod trips are almost 100% booked, while he sees similar interest in destinations like New York and Washington, D.C. The reason is that people are looking to travel a little closer to home — in range of a drive, not a flight — and see bus travel as an affordable, low-stress option.

High gas prices should also benefit the company’s commuter buses by making public transit more attractive, he said, noting that the average city bus gets about 280 passenger miles to the gallon, as opposed to about one-tenth of that for cars.


The Struggle Continues

That makes for an environmentally friendly byproduct of a challenging economic season. And Nagurney doesn’t separate the economy from the environment — in fact, she believes business and industry leaders need to adopt techniques from disaster management because climate change remains a factor in the global economy.

“Things aren’t going to get better — we’ll see more storms, more floods, more hurricanes, sea levels rising, even more things like the fires we had on the West Coast. Climate change will lead to a greater frequency of natural disasters, and that will affect global supply chains, and it’ll take longer to get products.”

For now, though, most businesses are just focused on when the short-term stress will end. And no one really knows the answer to that.

“In January, we thought this will probably last until March,” MacDonald said of the shipping delays. “In March, we heard it might fizzle out by the summer. We’re almost to summertime, and I’m releasing things from Spain that can’t get a booking until the beginning of July.

“And we’re seeing a huge increase in sales, too,” she added. “There’s a huge need in the United States, and we’re trying to pump as much material as we can into the States, but it’s a struggle.”


Joseph Bednar can be reached at [email protected]