Higher staff costs drive Cleveland Clinic’s Q2 loss

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  • The Cleveland Clinic reported an operating loss of $183.5 million in the second quarter, compared to revenue of $339.5 million in the year-ago period, primarily due to sharp increases in labor costs to address staffing shortages, the hospital system said in its report With financial records. Operating margin fell to minus 5.9% from 10.5% a year ago.
  • Costs of salaries, wages, benefits, overtime pay and increased use of agency nurses and other temp workers caused the system’s operating costs to increase 15.1% year over year in the second quarter, the Cleveland Clinic said.
  • Consumables, pharmaceuticals and other non-labor costs have also become more expensive, while a slight recovery in volumes after patients postponed non-essential treatments during the Omicron surge earlier in the year also weighed on operations. The Cleveland Clinic said its second-quarter revenue fell 2.7% to $3.13 billion.

Dive insight:

Soaring labor costs have become a well-known reason for the sharp decline in operating profits across the hospital sector in the first half of the year. Successively systems like Advocate Aurora Health, Mayo Clinic, Intermountain Healthcare, Sutter’s health, Kaiser Duration, providence and Mass General Brigham have reported weaker results for the second quarter.

With staffing costs still rising and federal relief no longer available to offset falling revenue, hospitals across the country are reporting some of their worst operating margins since the COVID-19 pandemic began, consulting firm Kaufman Hall said in a report this week. Fitch Ratings, in revise his outlook for the hospital sector to “deteriorate” earlier this month, the biggest obstacle said labor.

The Cleveland Clinic reported that its increased spending was primarily due in the second quarter to higher personnel costs. Salaries, wages and benefits rose 15.8% year over year, with salaries alone up 16.7%, driven by higher overtime, bonuses and agency costs. The system increased the number of full-time employees by 4.4%, while annual pay increases averaged 3%.

Utility costs increased 11.5% in the second quarter and PhDefense costs rose 11.7%, reflecting both inflation and greater use in ambulatory settings, including retail and specialty pharmacies. Purchased services and other fees increased by 26.2%, mainly related to IT initiatives.

The system’s non-operating loss was $603.5 million for the second quarter, primarily due to lower investment returns, which reversed a non-operating gain of $564.9 million in the prior-year period.

Net patient care revenue rose 1.1%, benefiting from rate increases on managed care contracts that went into effect this year. Acute admissions fell by 4.1%, The total number of surgical cases increased by 1.9% and outpatient examinations and management visits increased by 2.9%.

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