As Peoria, Ill.-based OSF HealthCare emerges from the COVID-19 pandemic, CFO Michael Allen told Becker's that the task ahead is 'margin repair.'
The health system has been dealing with the high costs of labor as well as the difficulties of providing care in rural America.
Becker's caught up with Mr. Allen to find out more about OSF's financial situation:
Question: What financial priorities are you focused on going into the next fiscal year?
Michael Allen: Like a lot of the country's health systems, we're just going to call it margin repair mode. We were taken back seriously with our margins in 2022, mostly on the backs of high labor costs. Labor costs escalated very quickly, some supply and pharmaceutical costs as well, but it was largely our labor costs that escalated. We've been able to move off and away from using travel nurses to the extent we had. We're not quite back to pre-COVID-19 levels, but we're a lot closer to that on our cost structure. Meanwhile, our internal labor costs had to go up just to address the labor and the supply and demand in the labor market. So, while we were able to get travel costs down, we've added other labor costs and the cost of doing business overall has gone up. Revenues did not go up at the same pace, so 2022 was rough. In 2023, we are in repair mode and going into 2024, we will continue that work.
Q: Are you exploring digital health tools, such as virtual nursing, as a way to help get labor costs down?
MA: OSF has a very advanced digital platform. It's called OSF OnCall. We do remote patient monitoring. We have a hospital-at-home program. We have a pretty significant footprint there, particularly for the size of the health system we are. So we're pretty well down that path. It is a partial solution today and will become a complete solution as it evolves and as the market and patients catch up to it. Not everybody's on board with it or comfortable with it or uses those kinds of services.
Remote patient monitoring services and electronic visits continue to grow slowly. It's a plus and a minus on the labor market side. It allows us to onboard mission partners (OSF's term for employees) who don't live in Illinois. That also means that we're competing with labor from the entire country, not just here. We do OK competing with labor in our own market. We are a big employer and a good employer, but now our mission partners can work anywhere through remote work. They can live here and work for somebody else, and vice versa, and then we're now up against the labor market across the country. It's generally working out okay for us. If it does anything for OSF, it expands our workforce to more locations. It is a double-edged sword as well because that also means we compete with everybody across the country for that same labor.
Q: Do you see any positive financial signs or opportunities for healthcare as the industry emerges from the COVID-19 pandemic?
MA: It is getting more positive for OSF. This year is better, and we expect 2024 to be better. We can use our labor and workforce as smart as we possibly can, but our labor and wage rates are set by the market. We don't get to dictate that. We will be a price taker on the market. Then we have to say, this is our new cost structure, it is higher than it used to be. How do we sustain ourselves as an organization? How do we work on the revenue side to make sure that we can generate all the revenue possible to cover the cost and give us a little bit of margin so we can continue to sustain the organization?
This was a big reset of the cost structure and it's not going back. Our cost per discharge has come back slightly lower in 2023, but not much compared to 2022. So, it stabilized. Now, it is about how we best position all our healthcare assets and resources. We can deliver care to all of our markets within the cost structure we have and try to find the revenue streams that will cover it, plus a margin. We're working on the cost side, so it's a little bit of everything now, but it's a new set of economics.
Q: OSF has been looking to take over the shuttered St. Margaret's Health-Peru (Ill.) location. How are you approaching potential transactions and acquisitions in this financial environment?
MA: OSF has never been a growth for growth's sake style health system or pursued mergers and acquisitions just to get bigger. We need to learn how to operate with the size we are now and as opportunities become clearer or needed in our markets or adjacent markets, we are willing to step in and try to find the right solution, like with what happened in the Peru, Ill. area. We have never been an aggressive acquirer. We've just been about building relationships with other health systems and other hospitals and other markets that we serve today and that sometimes feed into our bigger hospitals. When the time is right, and it makes sense for another market or another facility that is looking for a partner that will start having those discussions.
Q: After the COVID-19 pandemic, is there anything you are doing to build financial stability or resilience for future unforeseen events?
MA: To look at the resilience of the healthcare business side of a system, we started manufacturing some of our own PPE. We looked at redundancy in our supply chain and made sure that we had options and became more self-sufficient. We learned that maybe not in an all situations do we want the lowest price because if they're coming from China, that'll get disrupted really easily. We learned it might be better to have domestic delivery options closer to home. We also saw the labor dislocation that happened not so much due to the virus. It was because people started making life decisions differently when we all started seeing life look differently. People were working remotely, changing locations, changing jobs and retiring. Those decisions all at once totally disrupted our labor market. Then, it started putting pressure on smaller hospitals. It changes all those economics and then, as a health system, we're saying, where can we deliver care? Where can we not deliver care? Well, where can we improve providers? As the CFO, I remind the organization we have lots of abundance of resources, that they're finite, and there's only so much to go around and we have to make the best use of one.