Sparrow Health System plans to lay off hundreds of workers after recording a $90 million loss during the first six months of the year, even as it struggles with worker shortages.
The hospital system said in a statement that rising costs have left it no choice but to part with staff reductions mostly in leadership and non-patient care roles. Some eliminations will be in clinical roles where patient volumes have declined.
The system would not comment beyond its statement and would not define the exact number of job losses.
“Expenses have risen across all categories, including supplies and salaries, wages, and benefits, while patient volumes have declined, and the cost of contracting agency labor has skyrocketed,” the system wrote in the statement. “In effect, the COVID pandemic may be over clinically, but it has caused a financial pandemic for the nation’s healthcare providers. As a result, we are implementing staff reductions that impact several hundred roles at the health system.”
Sparrow is not alone in the financial conundrum that is causing systems to lay off non-clinical workers while also desperately attempting to fill patient-facing roles like nursing.
Beaumont-Spectrum announced earlier this month it would lay off roughly 400 management and non-patient care roles statewide as part of a cost-cutting measure.
The health system attributed the layoffs to “significant financial pressures from historic inflation, rising pharmaceutical and labor costs, COVID-19, expiration of CARES Act funding and reimbursement not proportional with expenses.”
Beaumont lost nearly $100 million in the first half of this year, a negative 5 percent margin. Those losses were offset by the stronger financial performance of BHSH’s Southwest Michigan operations and its insurance arm, Priority Health.
An analysis released earlier this month by the American Hospital Association found more than half of all U.S. hospitals are losing money in 2022, with projected margins down between 37 percent and 133 percent compared to before the pandemic.
Expenses for health systems are projected to increase by nearly $135 billion in 2022 over 2021 levels, largely due to labor costs. The AHA analysis projects labor costs to rise by more than $57 billion over last year with contract labor accounting for more than $29 billion of that total. Contract labor costs are 500 percent higher than before the pandemic, the analysis said. The remaining costs are attributed to equipment costs due to inflation.
Sparrow told Crain’s its labor costs have risen more than 22 percent this year to a projected $832.3 million from $682.1 million in 2019. Contract labor there has risen 369 percent to $50.2 million this year.
Legislation supported by the healthcare industry was introduced earlier this month in Lansing to try to reign in travel nurse costs.
Republican Rep. Sarah Lightner introduced House Bill 6364, which would limit travel nurse agencies to charging hospitals no more than 25 percent above what the agencies pay their nurses. The intention of the legislation is not to punish nurses, but to limit how much money these contracting agencies can make off them, Lightner told Crain’s.
Though it’s unclear whether the legislation will get to the voting floor before the legislative session ends in Lansing later this year. And it’s also fuzzy what impact the law would have on hospitals’ bottom lines.
Sparrow said plans to restructure operations to alleviate the burden of the costs, but did not specify what method that restructuring will take.
“Sparrow will adapt to this changing world and will do so quickly,” the system said in a statement. “We will fundamentally change how we operate our business and how we are structured so that we are positioned to serve our community for another 126 years.”
This story first appeared in our sister publication, Crain’s Detroit Business.