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Reductions in labor expenses helped drive up profits for Tennessee-based Community Health Systems (CHS) in the second quarter of 2023, the company announced in its earnings call on August 3.
The large hospital chain’s net operating revenues reached $3.12 billion in Q2, up 6.2% from $2.93 billion in the same period last year. Contract labor expense, benefits, and wages decreased by about $40 million sequentially, CHS President and CFO Kevin Hammons said during the call. The for-profit company’s fiscal year ends on December 31.
“We were very pleased with our financial and operating performance in the second quarter. As expected, results reflected notable sequential improvement as demand remains strong, driving continued solid volume trends and better payer mix and reductions in contract labor helped drive margin expansion,” Hammons said.
During the Covid-19 pandemic, staffing shortages drove a contract labor boom. Contract labor costs across health systems grew 258% between 2019 and 2022, according to an American Hospital Association and Syntellis analysis published in March.
But the boom times are over. CHS’s contract labor expenses decreased 15% to $74 million in Q2 2023, down from the peak of $190 million in Q1 2022, Hammons said. The exec attributed the decline to CHS hiring more foreign-born nurses, who “come at a little lower cost.”
“They also have longer contracts, and we hope to make them full-time employees eventually,” he said.
CHS, however, had some unexpected labor costs this quarter.
Medical staffing company American Physician Partners (APP) closed its doors on July 31 due to financial challenges following the No Surprises Act, a 2022 law that protects patients from unexpected bills from out-of-network providers or at an out-of-network facility, Bloomberg reported. CHS hired more than 500 APP providers to prevent disruptions to care, CHS CEO Tim Hingtgen said.
“While insourcing such a large number of providers in approximately one quarter of our market and all at once was not in our immediate plans, we view this as an attractive opportunity to stand up a scalable in-house solution with long-term benefit for CHS,” Hingtgen said.
The revenue that the insourced APP employees generate from medical specialty fees, however, largely cancels out the costs of adding 500+ employees to the payroll, Hammons said.
“It is somewhat of a net zero impact, but then what we’re not having to incur is the markup that we’re paying a third party for,” Hammons said. “So we’re removing that drag from the EBITDA calculation.”