In nearly 17 years as a physician and executive at Providence Health and Services and another decade-plus before that at Kaiser Permanente, Bernie Klein says he has never seen a set of fiscal challenges as deep and difficult as what Providence – and other – hospitals face today in Southern California.
Since 2013, Klein has served as the chief executive of Providence Holy Cross Medical Center in Mission Hills, a 377-licensed bed acute care hospital that provides level 2 trauma care and has centers for heart care, cancer treatment, orthopedics, neurosciences, rehabilitation and women’s and children’s services. He oversees a staff of 2,200 employees and about 750 physicians at the North San Fernando Valley hospital, which had nearly $558 million in net patient revenue in 2021.
Klein served as board chair for the Hospital Association of Southern California.
Klein discussed with the Business Journal the combination of high costs and low reimbursement rates that has severely crimped the margins of so many hospitals in Southern California.
Has the financial condition of Providence Holy Cross Medical Center and Providence’s five other hospitals in L.A. County improved since the pandemic began easing a year ago?
As I talked with my fellow hospital leaders towards the end of last year, we all thought this year would be a return to a more normal year. Instead, it has turned out to be the most challenging year financially that I can remember, both for this hospital and the vast majority of hospitals in the region. Just about all of the Providence hospitals in Southern California are operating in the red.
Why is that?
First, we’re coming off two very challenging years in 2021 and 2022 that put tremendous financial strains on all hospitals. We saw significant surges of Covid patients and the federal support that saw us through 2020 in the form of CARES Act dollars was no longer there. And then we started to see staffing shortages and skyrocketing costs.
Where have staffing shortages hit the hardest?
Nurses, of course. We’ve had to bring in travel nurses at much higher cost. But we’ve also seen shortages of respiratory therapists, and more recently physicians and radiologists. It costs us several million dollars a year to attract and retain physicians and radiologists, not to mention the travel nurses. And we’ve had to spend more money to train the new hires.
I’ve heard about shortages of nurses and physicians, but not radiologists. What’s going on there?
In the last few years, that practice has completely transformed with the spread of telemedicine. Many radiologists now prefer to view the images on their home computer screens and avoid coming into the hospital altogether. But there are procedures that must be done in the hospital setting, especially fluoroscopies, where contrast dyes must be injected into the patient’s bloodstream just prior to the test. And with so many radiologists now working from home, it’s sometimes hard to find enough of them at the hospital to conduct these procedures.
What other shortages have you seen?
Supply chain issues continue to plague our hospitals. Of course, we all remember the scramble to get personal protective equipment early in the pandemic, along with other equipment. But once we got a handle on those, other supply chain problems started cropping up. Things have eased ever so slightly since a year ago, but now we have constant medication shortages. It’s like whack-a-mole: as soon as we get our hands around one shortage problem, another one pops up.
You mentioned that training costs have gone up. How so?
Hospitals are now taking new graduates and training them at our expense. Pre-pandemic, we did this on a small-scale basis – maybe 10 to 15 trainees per year. Now we’re doing 50 at a time multiple times a year. None of this is reimbursed. We also have to provide additional training when we have to transfer nurses and other practitioners to plug in gaps where we have the greatest need, such as the intensive care units and labor/delivery units. This is also one of those things we did occasionally before the pandemic but now are having to do it constantly.
On the revenue side, we all remember when surgeries were curtailed in the early days of the pandemic. But surely that’s recovered?
Not as much as you would think. Remember, even after those initial months of the pandemic, we had surges throughout 2021 and into 2022, and every time we had a surge we had to curtail scheduled surgeries to make room for the Covid surge patients. Also, patients were still scared to come in during those (Covid) surges. Again, we’re not talking about things like heart surgery that’s considered vital to patient survival. But other procedures, like hip or joint replacements, those could be and were frequently curtailed. And every time surgeries are curtailed, that’s less revenue coming in.
What about reimbursements? You’ve not been as hard hit as safety net hospitals, where more than half the patients are on Medi-Cal, correct?
At all of Providence’s Southern California hospitals, about 21% of our patients are on Medi-Cal. At Providence Holy Cross, it’s more like one-third of our patients. But Medi-Cal is one of the worst payors in terms of reimbursement rates. The California Hospitals Association is now in conversation with the state on trying to get those raised. But we’re also having problems with private insurers. We’ve seen tremendous delays in payments by health plans. And that of course puts further strain on hospital finances.
What are some of the steps Providence Holy Cross and Providence Southern California are taking to address this growing fiscal crisis?
Each of our hospitals is reviewing services we are providing and determining whether we drop the service, partner with another provider to help shoulder the costs or consolidate with another Providence hospital. We haven’t had to drop services yet, but we are looking at consolidating services among the three Providence hospitals in relatively close proximity to each other in the San Fernando Valley.
What services are you looking to consolidate?
Things like bariatric surgery, pediatric care or trauma care. If we can minimize duplication of services, that will save considerable dollars. However, we’re lucky in that we have hospitals in such close proximity. Hospitals in rural areas or independent hospitals don’t have that option.
Any other steps you’re looking at?
We are also looking at closing or selling assets that don’t fit well into our model. We may have a building or some real estate that we’re not using to full potential. It’s cheaper to sell and lease back space. But once the assets are sold, you can’t keep doing that. As of now, I can say we haven’t sold any assets yet.