Zoe Berg, Senior Photographer

Yale-New Haven Health lost $240 million in the last fiscal year. They were not alone — in 2022, Connecticut hospitals faced their worst financial year since the start of the COVID-19 pandemic.

On March 7, the Connecticut Hospital Association, which represents hospitals and health-related organizations across the state, released an analysis of the pandemic’s impact on the financial health of the hospitals they represent. Commissioned by the American Hospital Association, the report revealed that the median operating margin dropped nearly 67 percent from pre-pandemic levels across Connecticut hospitals, compared to a national average decline of 20 percent.

“This is not a sustainable situation,” Syed Hussain, chief clinical officer of Trinity Health of New England, told the News. “Ultimately … we will be forced to look at programs and offerings and initiatives that we’re currently able to offer to the community and say, ‘Okay, what can we not offer?’ Because we can’t continue running in the red.”

Trinity Health of New England, Yale New Haven Health System and Hartford Healthcare are the three largest health systems in Connecticut, controlling the majority of acute care hospitals in the state. Citing the economic repercussions of the COVID-19 pandemic, Connecticut Health Association explained how plateauing revenues and soaring labor expenses have resulted in unprecedented financial strain for these health systems. 

While Connecticut Health Association leaders argued that under-reimbursement for Medicaid and Medicare, inflation and expensive temporary labor were to blame for the losses, health policy experts weighed in with alternate perspectives on the situation. 

First year of deficits

After 50 years of profit, Yale New Haven Health System faced their first financial deficit in FY 2022. Last year, former YNHH vice president Vin Petrini said that YNHH was budgeting for a $250 million deficit in 2023. Dana Marnane, YNHH director of public relations and communications, confirmed that Yale New Haven Health System projected a deficit for FY 2023, but declined to comment on the specific estimate. 

“I cannot speculate at this point on how the year might end, but we are working hard to reduce costs to mitigate the deficit,” Marnane said.

According to Marnane, Yale New Haven Health System’s mitigation efforts include reducing the numbers of more expensive traveler employees, such as traveling nurses. She also cited the Prospect acquisition of three hospitals as an example of the health system’s investment in long-term growth and expansion of their clinical services across a broader geography. Some health advocates have expressed concern about this hospital consolidation, while Yale New Haven Health System continues to seek state approval of the transaction. 

Marnane cited COVID-19’s negative impact on the hospital system’s finances, pointing to increases in labor costs, supply costs, average lengths of stay in the hospital and medical complexity of patients who may have deferred care during the pandemic. 

However, Paul Kidwell, Connecticut Health Associations’ senior vice president of policy, explained that hospitals negotiate commercial contracts to acquire pharmaceuticals, medical supplies and goods like electricity on a three to five year basis, meaning quick rises in inflation are not immediately factored in.

Additionally, hospital losses were driven by the erosion of federal relief funds. While government policymakers formerly provided hospitals with CARES act funding and disaster relief payments from the Federal Emergency Management Agency, relief funds have now “dried up,” according to Hussain. 

In the case of Trinity Health, the Catholic health system operating 92 hospitals nationally, total revenue from the Provider Relief Fund grant decreased from $618 million in 2021 to $141 million in 2022. Kidwell emphasized that the lack of federal assistance will continue to drive margins downward in 2023. 

Trinity Health of New England, which is housed under the national organization and comprises four Connecticut hospitals and one Massachusetts hospital, emphasized challenges with workforce retention. Trinity’s dependence upon contract labor has been costly — traveling nurses, according to Hussain, can be paid up to three times the salary of normal nurses. 

While revenue has remained mostly flat, increased costs associated with sicker patients, labor shortages and inflationary supply chain costs have taken their toll on the hospitals’ operating margins.

Hussain declined to provide the specific deficit amount for Trinity Health of New England. Nationally, Trinity Health’s FY 2022 audit reported a net loss of $1.4 billion, compared to its $3.8 billion net profit in FY 2021. 

Hussain emphasized the need to invest in workforce growth and retainment. Leveraging newer forms of health delivery, such as telehealth and home-care service, has allowed Trinity Health of New England to supplement and support its current workforce. Hussain also pointed to a recent partnership with local colleges and schools to create a stronger recruitment pipeline. However, such investments require collaboration with the larger communities they serve, Hussain said. 

“We need all folks at the table to be able to ensure that we’re able to continue to invest in our healthcare systems and services and programs that ultimately benefit the community,” Hussain said. 

Hartford Healthcare did not respond to multiple requests for comment.

Some health policy experts expressed skepticism about the factors cited by Yale New Haven Health System and Trinity Health of New England. One study attributed the bulk of hospitals’ financial struggles to poor investment performances. As the economy declined in 2022, large health systems, which invest heavily in stock markets, faced similar losses. Nationally, Trinity Health, which saw positive returns of 26.0 percent in fiscal year 2021, ran a negative 8.4 percent investment return in fiscal year 2022. 

As a result, the Health Affairs report urged caution in pursuing large-scale policy decisions to offset health systems’ losses from “risky” investments, which it stated will likely be recovered in future years.

Hospitals, policy experts debate Medicaid/Medicare reimbursement

According to the Connecticut Health Association’s report, Connecticut hospitals lost $1.12 billion from Medicare and $993 million from Medicaid, with Medicaid paying hospitals “68 cents on the dollar” for healthcare costs. In a press release, Connecticut Health Association further argued that Medicare and Medicaid payment updates are not matching inflation rates, while commercial insurance contracts will take years to catch up to increases in expenses post-pandemic. 

Nonetheless, Henry Dove, lecturer in health policy and former director of Yale University-West Haven Veterans Health Services Research program, cautions against taking the Connecticut Health Association’s numbers at face value. While Medicare/Medicaid reimbursements indeed pay less than those of private insurance companies, the discrepancy may be “overstated” in the report, according to Dove.

As Dove explained, each hospital sets a gross charge for each service provided to a patient, which they tally in the bill submitted to insurers. However, insurers have their own allowed amount that they negotiate with the hospital, representing the maximum amount they are willing to pay. As a result, the gross charge is hardly ever paid in full — it becomes a “meaningless number,” Dove said, which hospitals can set arbitrarily. 

“The hospital will claim ‘Oh, this patient cost $20,000,’” Dove explained. “It makes it look like they lost a ton of money on these patients … While they truly did lose money on the Medicaid patients, whenever they count up their losses, they often use gross charges, which is a fictitious number.”

According to Connecticut Health Association’s March 7 press conference, Connecticut ranks 48th in the nation for Medicare/Medicaid reimbursements. Kidwell argued that hospitals compensate for financial loss to Medicaid/Medicare by negotiating with commercial insurers to subsidize the deficit. As Dove explained, they depend heavily upon these privately-insured individuals to turn a profit. 

However, this means that hospitals that cater to underserved patient populations find it more difficult to cover their costs, according to Hussain. He noted that the problem would worsen with the May 11 expiration of the federal Public Health Emergency, declared under Section 319 of the Public Health Service Act, as some individuals auto-enrolled in Medicare may lose access to insurance altogether.

“We need increases both from a payer side, as well as other key players that are part of this problem,” Hussain said. 

However, Ted Doolittle, the state healthcare advocate, said that “significant scholarship” has shown that increasing the price of Medicaid “does not ever” result in a decrease in commercial prices. He cited an article that showed that a 10 percent reduction in Medicare rates in a given region reduced private insurance prices.

Further, unlike commercial reinsurance rates, Medicare reimbursement rates are “rooted” in the hospital costs, Doolittle argued. Medicare sets its rates based on annual cost reports filed by all hospitals in the program. 

“It is very often the case that [when] negotiating rates, the insurance companies really don’t care that much about the hospital costs,” Doolittle said. “In fact, the insurance companies generally, by the larger systems, get dictated what the price will be.”

Kidwell additionally emphasized the impact of low reimbursement rates on access to care. Specialists, for example, may not accept Medicaid patients based on pay, he explained. Kidwell reasoned that patients without access to specialty care may end up using emergency departments more frequently as opposed to seeking a continuum of care at the hospital.

“For a long time, the state has very proudly talked about how they have limited the growth of their Medicaid program,” Kidwell said. “And that means really restricting payment for hospital and specialty care. That’s how you maintain such a low spending rate in your Medicaid program.”

The deficit continues

Kidwell said the first fiscal quarter of 2023 is “not looking better” than 2022. Hussain alluded to having to cut programs and initiatives in the future, if the deficit were to continue indefinitely. However, he said that Trinity Health of New England has not made any immediate changes because of the deficit. 

YNHH wrote to the News that they have made significant investments in “recruitment and retention” as a result of staffing shortages, but did not specify if the deficit had forced them to change operations in any way. Likewise, Connecticut Health Association called for financial assistance to meet workforce needs across the state’s healthcare systems.

Kidwell emphasized that a positive margin allows systems to go beyond just maintaining current operations. Prolonged deficits threaten the ability of hospital systems to expand services offered to the community, he said. 

However, Doolittle called the extent of the financial strain into question, pointing to the raft of new facilities that continue to be built across the state.

“Does that scream of a system that is strapped for cash? I don’t think so,” Doolittle said. “If I start seeing ‘for sale’ signs in front of those buildings, then I’ll start to believe that there’s a financial strain that they are coming under.”

Doolittle said he regarded skyrocketing healthcare prices as a problem in itself, noting the heightened revenue expectations of large systems. He contrasted this with the small independent hospitals in the state that run their hospitals “more efficiently” while charging lower prices. While large hospital systems may emphasize their deficits, Doolittle urged them to learn from these smaller institutions. 

The Connecticut Hospital Association represents 27 of Connecticut’s acute care hospitals.

Correction 3/27: A previous version of this article incorrectly stated that financial figures from the national Trinity Health system were from Trinity Health of New England.