A message from John Neil, MD, EVP, chief physician executive and network strategy officer: 

As I’ve previously communicated, the healthcare industry, and particularly the healthcare provider (e.g. health systems, hospitals, clinicians) ecosystem, is undergoing dynamic and tumultuous change, as the reverberations of the COVID-19 pandemic continue to be felt.

HonorHealth, like nearly all health systems around the country, is experiencing substantial degradation in our operating margin. This is multifactorial, with predominant drivers being hyperinflation in the labor market, inflation of supply costs/pharma costs, less “pent up demand” volume versus what had been projected, and continued displacement of care away from the hospital/hospital outpatient department (HOPD) settings and into lower cost and more convenient settings.

In most industries they are able to immediately pass escalating costs along to the consumer (i.e. they just raise prices). Given a public payment system that accounts for a significant portion of health system revenues, coupled with employer challenges of covering healthcare costs for their employees, we have little ability (and frankly little desire) to rapidly pass along the inflating expenses to the patients we serve.

Upon review of July financials, I can share the following:

• HonorHealth has now had three months in a row of material negative EBIDA margin variances to target. At this point, the outlook for the year is we will fall short of our targeted financial goals. The industry in AZ and nationally shows similar stress on operating performance, so we are not alone, but still need to deal with the reality of less operating cash flow versus what had been anticipated. This means that the pace of some programmatic a/o facility investments may be impacted.
• We are dialing up our scrutiny on adding any new employee positions that aren’t directly tied to meeting clinical care needs based on the volume of patients we are serving.
• Our Executive Operations Committee has expanded on the pre-existing Financial Rebuild plan, with a growing list of tactics that represent more of a frontline/grassroots effort to improve our financial position.
• That Executive Operations Committee is also accelerating efforts with our Human Resources Department to replace contract labor with a permanently employed workforce. From an expense standpoint, contract labor is a big driver of expense variance, because contract workforce is often dramatically more expensive than health system employed workforce.

Given the austere environment, I would offer up these additional thoughts in terms of what the Medical Staff may do to assist in our efforts:

• When making requests for new equipment, additional team members, etc., please focus on things that are “have to have” in order to deliver high quality, safe patient care, versus things that are “nice to have.”
• Be patient and realistic with your administrative partners. They are doing everything they can to respond to your requests, but some things may need to be deferred given the current circumstances.
• Be receptive to our supply chain team when they seek collaboration to decrease supply costs by limiting vendors, preferred vendor relationships, etc.

Please remember that this is our community hospital system, and it is up to all of us to work together to enhance the financial sustainability of HonorHealth; ultimately it is our collective stewardship that defines our ability to improve the health and well-being of those we serve. The financial ecosystem in which health systems operate tends to cycle, but many of the current challenges are likely to persist, and we simply can’t be certain if/when a more favorable environment will return.

Thanks as always for your collaboration as we work together to serve the healthcare needs of our community.

John