Hospitals across the state of Washington suffered a total of $2.1 billion in operating losses in 2022, data compiled by the Washington state Hospital Association shows.

The two largest health care organizations that operate in the Inland Northwest—Renton, Washington-based Providence and Tacoma, Washington-based MultiCare Health System—are contributors to that figure.

“In ’22 and into ’23, … we really shifted from a lot of pandemic costs to significant inflationary pressures, particularly in the labor area,” says Shelby Stokoe, Providence’s chief financial officer for the Inland Northwest.

Providence, the state’s largest health care provider, reported an organizationwide operating loss of $1.7 billion in 2022. Its Inland Northwest region, which includes Providence Sacred Heart Medical Center & Children’s Hospital, Providence Holy Family Hospital, and Providence St. Luke’s Rehabilitation Medical Center, accounted for $175 million in operating losses, according to data provided by Providence.

Those figures more than double the operating losses from the year prior, when Providence posted an organizationwide operating loss of $714 million. Providence’s Inland Northwest region reported an operating loss of $21 million in 2021, although it would have been $52 million if not for $31 million received through CARES Act funding, Providence’s data shows.

MultiCare reported an organizationwide operating loss of $287.4 million in 2022, a year after reporting a $65.5 million gain. For its Inland Northwest region, which includes Deaconess Hospital, Valley Hospital, and Rockwood Clinic, the organization reported a loss of $32.6 million.

Both health care organizations have continued to operate at a loss in the beginning of 2023, although they say there have been significant signs of improvement.

Through the first quarter of this year, Providence reported an organizationwide operating loss of $345 million, compared with a $510 million operating loss in the year-earlier period for 2022. Its Inland Northwest region tallied a $36 million operating loss in this year’s first quarter, an improvement from a $47 million loss in the year-earlier quarter, Providence’s data shows.

MultiCare reported an organizationwide operating loss of $59.9 million through the first quarter of 2023, almost cutting in half the operating loss of $117.7 million in the first quarter of 2022. According to data provided to the Journal, MultiCare has recorded a $96 million loss through the first four months of 2023, with the Inland Northwest region accounting for almost $14 million of that loss. 

Bill Robertson, CEO of MultiCare, also cites inflation and labor-related challenges as some of the main contributors to the increase in operating losses over the past 1 1/2 years.

“There’s been very dramatic inflationary pressures in the economics. We’ve seen 26% inflation in pharmaceuticals, we’ve seen dramatic inflation in the cost of wages,” he says.

Robertson says some of those increased labor costs have come from full-time employees transitioning to traveling roles with higher rates of pay. Additionally, higher pay rates that were negotiated for nurses and support staff have also increased labor costs, he says.

Labor shortages have created another challenge for hospitals, Stokoe says, including shortages of nurses, physicians, and all employees that work directly with patients. Providence is trying to help address the workforce shortage by creating educational partnerships to get more students working in the health care field.

Stokoe says that, while inflationary pressures may be here to stay, she doesn’t expect the same levels of operating losses to continue for Providence, because a new budget has been built to account for new, higher costs.

“Our mantra is: Every quarter should be better than the last quarter,” Stokoe says.

Robertson also views 2023 as the time to make adjustments to get back to a more stable economic position, he says.

“We will be adjusting (MultiCare’s) cost structure and looking at how to better serve our communities in a more viable way,” Robertson says.

Another factor contributing to higher-than-normal operating losses, Robertson says, is that inflationary costs have been higher than the revenues brought in by commercial insurance, Medicare, and Medicaid.

He says that government programs, like Medicare and Medicaid, make up the majority of the revenue that MultiCare and most health systems bring in.

“During COVID, about 900,000 people left the commercial insurance rolls, with 700,000 of them ending up in Medicaid,” Robertson says. “Commercial insurance in the state of Washington pays substantially more than Medicaid.”

Robertson says that this happened because the federal government loosened the requirements to qualify for Medicaid during the pandemic.

“We saw a very interesting shift between commercial insurance and government payers during COVID, and that has not gone back to pre-COVID levels,” he says.

Stokoe and Robinson both point to new legislation that will help alleviate some of the financial challenges related to Medicaid, however.

The Safety Net Assessment Program, which was negotiated between WSHA and the Washington state Legislature, will raise Medicaid rates to cover more of the costs that hospitals are taking on to care for Medicaid patients.

“Our Medicaid rates for urban hospitals have not been updated for about 20 years,” Stokoe says.

Beginning Jan. 1, Medicaid rates will cover about 80% of the costs for hospitals in Washington, which is closer to what Medicare pays, says Stokoe. Medicaid rates currently cover about 63% of hospitals’ costs, she says.

Robertson adds, “2024 is looking more positive as we experience the lower cost structure that we’re working toward, as well as the new revenue streams that this legislative action has created.”

In the past, when MultiCare faced economic challenges, it was due to a lack of patients in hospitals. Since the pandemic, however, patient volume has remained at 100% occupancy, he says.

MultiCare serves some patients who shouldn’t be in hospitals, Robertson says. “But there’s no way to get them out of a hospital because there’s not enough post-acute care,” he adds.

Stokoe says Providence hospitals and other hospitals statewide and nationwide also have dealt with what she calls long length-of-stay patients.

“Those patients who are stuck in the hospital. They’ve been cleared of all medical reasons they’re in a hospital, but we’re having trouble finding a discharge placement,” Stokoe explains. “Many of our post-acute-care settings also have labor challenges, so they’re not always able to accept as many patients as they’d like to.”

Providence is taking steps to resolve some of these discharge challenges, Stokoe says.

A year ago, there were 90 to 100 such patients on any given day in Providence’s Spokane hospitals. Providence was spending an average of about $50,000 per day in 2022 to care for these patients—costs that the hospitals had to absorb. Since then, the number of long-length-of-stay patients has been cut in half.

Despite the financial challenges, both Robertson and Stokoe say that their respective health care organizations haven’t had to cut back on care due to losses.

Stokoe says that she expects all health care systems will see improvement in 2023, but becoming more financially healthy will be a long-term challenge.

“We’re not going to be completely where we want to be for a couple of years—labor is an example of why not,” she says. “I also see this work continuing into 2024 before any of us are back to where we feel like is a more sustainable level long term.”