Hospitals cut jobs and services as budgets strain from rising costs

Bozeman Health had a problem that officials at the health system, including hospitals and clinics in southwestern Montana, said had been months in the making.

It made it through the toughest tests of the Covid-19 pandemic but lost staff and paid a premium for workers who traveled to fill the void. Inflation has also increased operating costs.

The system, which serves one of the state’s wealthiest and fastest-growing regions, was losing money. It spent about $15 million more than it brought in from January to June of this year, said President and CEO John Hill. On August 2, Hill announced that Bozeman Health had laid off 28 people in leadership positions and would not fill 25 open leadership jobs. The system has about 2,400 employees and a budget of about $450 million for the year.

The pandemic has exacerbated a long-standing health care worker shortage that has hit large, rural states like Montana especially hard, where there are few candidates to replace departing workers. Expensive stopgaps – including traveling nurses – cause hospital costs to rise. Staff shortages have left patients with longer waits for treatment or fewer providers to care for them.

In addition to Montana, hospitals in California, Mississippi, New York, Oregon and elsewhere have laid off staff and scaled back services this summer. Health systems point to lower surgery volumes, higher equipment costs, sicker patients, and struggling investments. Parallel to these problems, the hospital’s biggest expense — salaries — is skyrocketing.

“If you talk to any hospital leader across the country, they put workforce as their top one, two and three priorities,” said Akin Demehin, senior director of quality and patient safety policy at the American Hospital Association.

Workers left the healthcare industry in droves during the pandemic, citing low pay and burnout. Nationwide, hospitals competed for contract workers to fill the void, which drove up prices. This leaves hospitals with an awkward balancing act: keep existing staff and fill essential roles while cutting costs.

Bozeman Health Chief Financial Officer Brad Ludford said the system went from spending less than $100,000 a month on short-term workers before the pandemic to $1.2 million last fall. That number is now close to $1.4 million a month. Overall, the system’s labor costs are about $20 million per month, an increase of about 12% over this time last year.

Hill said the health system took other measures before the job cuts: It stopped all out-of-state business travel, cut executive compensation and readjusted workloads. At the same time, it tried to convert contract workers into full-time employees and retain existing workers even after the minimum wage increase. Hill said there has been some progress in the hospital system, but it has been slow. As of mid-August, it had 487 vacancies for essential workers.

“It’s still not enough,” Hill said.

Vicki Byrd, a registered nurse and CEO of the Montana Nurses Association, said the nationwide shortage means nurses are being asked to do more with less help. He wants to see more hospitals use the same incentives to hire long-serving employees, such as paying nurses a premium for picking up extra shifts or bonuses for longevity.

“It’s not just about recruiting — you can get anybody in the door for a $20,000 bonus,” Byrd said. “But how do you keep them there for 10 or 20 years?”

Hospitals’ financial challenges have developed since the beginning of the pandemic, when concerns focused on Covid response costs and revenue that didn’t come in as people delayed other care. In 2020, with federal support and a return to more normal service levels, many of the nation’s wealthiest hospitals made money.

But hospital officials said the financial picture has changed by early 2022. Some hospitals were hit hard by the Omicron increase, as well as rising inflation and staffing challenges.

Hospitals have received millions of dollars in pandemic relief from the government, but industry officials say that has dwindled. For example, Bozeman Health received about $20 million in federal aid in 2020. It received $2.5 million last year and about $100,000 in 2022.

John Romley, a health economist and a senior fellow at the University of Southern California’s Schaefer Center for Health Policy and Economics, said some hospitals are now losing money as federal aid dries up and inflation stops. But he cautioned that more data is needed to determine how hospitals performed overall compared to previous years.

Providence, a health system with 52 hospitals across the West, reported a net operating loss of $510 million in the first three months of the year. In July, Providence announced it was putting in place a “risk executive team.” The system operates Providence St. Patrick Hospital in Missoula, Montana’s largest provider.

Kirk Bodlovic, Providence Montana’s chief operating officer, said the new structure has not yet affected local locations, although he said hospital leaders are scrutinizing open jobs that are not essential to patient care. He said the hospital is trying to reduce its reliance on contract workers.

“Recruitment efforts are not keeping pace with demand,” Bodlovich said.

Hospital job cuts across the country have pushed out some health care professionals who were stuck in their jobs during the pandemic’s stress. And the cuts mean some patients will have to travel further for treatment.

In Coos Bay, Oregon, Bay Area Hospital faced community backlash after announcing it was cutting the contracts of 56 travel workers and ending its in-house behavioral health services. Hospital officials cited the high cost of filling open positions quickly.

St. Charles Health System, headquartered in Bend, Oregon, cut 105 layoffs and 76 vacant positions in May. The system’s CEO at the time, Joe Sluka, said in a news release that labor costs had “skyrocketed” due to the need to bring in contract clinical staff. He said the hospital ended up with a $21.8 million loss in April.

“It took two pandemic years to get us into this situation, and it will take us at least two years to recover,” Sluka said in the release.

In Montana, Bozeman Health hasn’t been able to offer inpatient dialysis at its largest hospital for months, so patients who need that service have been sent elsewhere. Hill said he expects some delays for services outside of critical care, such as lab testing. Ludford said the system is expected to begin to break down in the second half of this year.

About 100 miles away, Shodair Children’s Hospital in Helena has cut its patient population in half due to staff shortages. It is the only inpatient psychiatric hospital for children in Montana and is building a $66 million facility to increase bed capacity.

CEO Craig Asved said the 74-bed hospital was downsized about two years ago instead of adding contract staff so it could free up space to isolate patients in the event of a Covid outbreak. Asved says he is scrambling to open another unit. Shodair, which historically has not relied on travel workers, has hired four travel workers in recent months, he said.

“It’s a double whammy: We’ve lost revenue because we’ve closed beds, and then you’ve got additional costs for travelers on top of that,” Asved said. “The goal is no layoffs, no furloughs, but we can’t stay in what we’re doing forever.”

He said the hospital raised salaries for some employees and started a nurse residency program about six months ago to bring in new people. But these measures did not provide immediate relief.

Nearby, Wade Johnson, CEO of St. Peter’s Health, said the hospital has closed parts of its inpatient unit and scaled back some services due to staff shortages. Some beds are out of use.

Administrators are exploring more service automation — such as patients ordering food via iPads instead of hospital staff. They are allowing more flexible schedules to retain existing employees.

“Now that we’ve adapted to life with Covid in many cases in the clinical setting, we’re dealing with the repercussions of how the pandemic affected our staff and our community as a whole,” Johnson said.

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Along with policy analysis and polling, KHN is one of the three main operating programs of the KFF (Kaiser Family Foundation). KFF is a non-profit organization that provides health information to the nation.

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