PCMC and healthcare industry face financial woes

“The month of April was not the greatest, compared to our month of March.” That’s how Pipestone County Medical Center (PCMC) CFO Sandra Schlechter described the previous month’s finances during the May 30 PCMC Board meeting.

PCMC showed an operating loss of $339,476 for the month and a total net loss of $241,009 after other income and expenses were factored in. The loss pushed PCMC into the red for the year to date, creating a loss for the year of $36,078.

Schlechter said she had been working on the fiscal year 2024 budget, which begins July 1 and that “it’s going to be a very, very tough budget.” She said she’d developed three preliminary budgets so far and they had deficits of between $2 million and $6 million. The fiscal year 2023 budget included a projected operating loss of $1,064,698, but a projected net profit of $739,644 after factoring in non-operating income, including a subsidy from Avera for joint operation of the clinic and investment income.

“I don’t know how long we want to continue to project losses because eventually that’s going to start cutting into our cash flow and everywhere else,” Schlechter told the board.

Avera McKennan Regional Administrator Bryan Breitling said PCMC is not alone in its financial struggles and that Avera was “tightening its belt in a lot of areas.” He and PCMC CEO Brad Burris said the financial challenges hitting the health care industry are part of a new post-pandemic normal.

“There’s a certain amount of a reset that’s going to have to occur because the structure of health care prior to COVID no longer financially works,” Burris said.

Schlechter, Burris, Breitling and PCMC Board members cited several factors contributing to the financial challenges facing PCMC and the industry as a whole. Among them were the increasing costs of supplies and staffing, and a trend in recent years of prior authorization requirements by private insurance companies. If providers don’t get prior authorization, Schlechter said, they might not get paid for services.

In short, Breitling said, revenue is not keeping up with expenses.
According to the Minnesota Hospital Association (MHA), the challenges started affecting the healthcare industry last year. An MHA analysis of acute care hospitals in the state found that the median hospital and health system operating margin for the first and second quarter of 2022 was -1.5 percent versus 2.2 percent in 2021, a 172 percent drop year over year. That was estimated to be more than $200 million in losses.

MHA, which represents Minnesota’s hospitals and health systems, reported when that information was released last fall that some factors leading to what it called “plunging hospital and health system financials” were exponentially rising labor and supply costs, a labor shortage and the need to rely on temporary staffing, and financial effects of the pandemic. MHA plans to release an updated finance report for Minnesota’s hospitals and health systems in the next few weeks.

Meanwhile, Schlechter asked the PCMC Board members for some budgetary direction. Board Chair Dan Wildermuth said PCMC was fortunate to have reserves on hand that could be utilized, but couldn’t just sit back and watch those reserves disappear. Schlechter said PCMC has $25,162,032 in investments, which are its reserves and that some of that is designated for loan commitments and different projects.

PCMC Board member Dallas Roskamp said he was comfortable with a budget that included a projected $1 million loss.

“We’re a community hospital,” he said. “We’re providing a service to the community and if it costs us some money to do that, I wholeheartedly agree with that.”

Board member Doug Nagel said he’d like to look for areas to save some money and asked Schlechter if she could bring recommendations about what costs could be cut to the June board meeting. Schlechter said she would bring recommendations and other departmental budget information for the board to review.

Breitling said he looked over PCMC’s finances and that locum provider costs appeared to be significantly higher than budgeted. He said hospitals pay three to four times as much for locums as they do for in-house staff, so eliminating locum contracts could make a significant impact. Burris said PCMC was working on recruiting an obstetrician/gynecologist, which could help reduce locum costs. Other cost saving measures, he said, might have to be more wide spread, or as he described it, “picking change up off the ground.”

“There’s not going to be any magic bullet,” Burris said. “It’s probably going to be a mixture of a number of things.”