Overview
On May 13, we spoke with a senior finance executive at a ~$2B not-for-profit in the South who has nearly 20 years' experience in health care in and around the Dallas-Forth Worth area, including a decade as CFO within a for-profit, as well as roles with JVs and in Private Equity-backed facilities. We heard clear feedback that things are changing rapidly on contract staffing rates in 2Q22 as hospitals are in a better position to push back on rates. Also, the margin difference between COVID and surgical volume is hugely in favor of surgical volume, which should pick up from here. Even with a 20% COVID add on payment, even when COVID was incidental to the admission, COVID admissions are low to no margin, and potentially worse for longer length of stay cases. With non-COVID procedure volume, such as surgical cases and imaging, there is generally enough capacity to add an additional patient without a substantial need for more for staffing. We were early on HCA, but it sounds like the general case mix and cost dynamics have been improving this quarter, and 3Q22 will be even better as the more expensive labor contracts signed in 1Q22 roll off. HCA remains a Best Idea Long, AMN remains a Best Idea Short.
Highlights
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Our contact would take a clean commercial knee "every day of the year" due to shorter length of stay and lower costs vs. a COVID case that is likely break even, and worse for longer length of stay, which is common
- Providers have recently been able to wait on hiring contract staff; the ability to push back on agency/contract rates has increased over the last few weeks
- In our contact's opinion, contract rates for nurses could decline toward ~$125/hr. over the remainder of the year; while this is still +10-15% vs. 2019 for the same nurse, it's a + trend
- Base pay rates for permanent staff are up 10-20% vs. pre-COVID
- Looking to repurpose Hologic platform which was purchased to run COVID testing in-house
CALL NOTES
Edited lightly for length and clarity.
The two things we're trying to figure out are excess COVID payments – the 20% premium/add on that some people refer to as "free money" - and how often that’s utilized, as well as COVID testing (Hologic/Genprobe). A lot of that money has gone to staffing, we think, equipment and PPE, but what happens when the excess funds dry up? Also, the second thing, electives have been subdued, but those high value, high margin procedures are now making their way back. Can you talk to us about swapping a COVID patient, even with add-on and testing, for a total knee?
- Starting w/ the first part- the “free money;” I’ve heard scuttle about that with people adding the COVID modifier. Like, dead of a gunshot wound, had COVID, extra 20%.. But we and many others have taken a conservative approach. We ensure that patients are COVID positive before a COVID modifier is added on. Also, regardless of whether the patient came in for COVID care or not, a lot of the same precautions have/had to be taken if they test + like isolation, extra protocols, additional PPE, etc. The costs are really high to move and care for these patients.
- COVID testing – I know a lot of people hit by the costs. Even our physicians… I had COVID, and my doctor here told me not to come to office to get tested - "go to CVS."
- We don’t want to charge people $100 for it when they can get a test or free or cheaper.
- We do have a lab though, and we bought a Panther from Hologic (we were sending out at first). We brought it in-house not to make money on COVID testing but for serving the organization (eliminate lag times, test employees, pre-surgical testing, etc.).
Hologic has a pretty good test menu – we hear women’s health is a good use. Is that your intention or would you use it for other?
- We are hoping to use it for that and other stuff, but we haven't made a decision, yet. We are still doing a lot of pre-procedure testing.
- Assuming the same on ventilators – but with that we can retire some of the older equipment, for example.
How long planning to do pre-procedure testing?
- Unknown – our medical governance committee meets weekly (it used to be monthly pre-COVID). I think we came close to eliminating it, but then we started to notice the spike in cases in the Northeast related to the new Omicron variant. Everyone is trained on the standard process, so we're keeping things the way they are for now with the hope that it’s not another huge wave in July across the South.
OK, and what if you swap out a COVID case for a total knee? Can you describe the general swing in cost, revenue?
- Oh, it’s positive – without a doubt. Looking at COVID w/ 20% add on, the short-term moratorium on the 2% Medicare reduction… even with CARES ACT allocating out portions of it, COVID is net even or a loss on average. We've lost money on a lot of patients, made money on others, but it's basically break even. The issue is w/ Medicare we're seeing well over a 10-15% increase in length of stay ("LoS") and higher costs of care. It's not like there were a lot of profits. I’d take a clean Blue Cross total knee over COVID every day of the year.
- Just off the dynamics of it – the public doesn’t see it – the knee patient is in and out in 48 hours, even a Medicare knee is usually out within 3 days. COVID patients can be here 6-7-20 days. The more of them are here, it’s more beds, more capacity concerns, etc. More COVID patients also equals we can’t care for other patients through the ED.
- It’s a DRG... we’re not getting paid more - I don't think people understand that. Even if they come in for a stroke, completely unrelated, but have COVID, that patient may need post-hospital therapy, can’t discharge them, can’t find post-hospitalization care, etc. so the stay is longer and there are complications with the whole downstream push.
On that swap – any kind of average or dollar value you can put to revenue, cost or reimbursement… the generalities of it would be helpful.
- Average LoS on a COVID case over the past year is 9-10 days locally (the range is from 24 hours to a lot longer). A surgical case is maybe 2-3 days, on average.
- A lot of total joints are handled outpatient – 1-3 days. CABG, open heart – might be in house for 3-4 days.
- Net revenue w/ COVID early on - first wave - patients were sicker, higher mortality, more vent usage, net revenue was a lot higher. Unfortunately, that didn’t end w/ good results because patients were sicker.
- More recently, lower reimbursement. The third wave – equivalent of bad pneumonia. The DRG is not that much - $10k-$20k for non-trach. Knock on wood it doesn’t happen, but that quadruples if on a vent – Medicare w/ and w/out, that next step up, there's no category for major complications.
- Average COVID patient inclusive of everyone – probably $35k tops. There were some outlier cases w/ very high reimbursement in 2021.
- $35k sounds like a lot vs. a knee...
- Medicare is $12k-$13k and then it can be $50k or more w/ commercial. The average total joint nationwide is in the $30k - $40k range, but then spine cases can be a lot higher.
- The revenue impact isn’t what’s important – it’s cost and bed congestion.
- The cost basically break even for COVID.
- The numbers are roughly: Medicaid at 10% negative margin (but could be -5%, depends what’s included), Medicare is slightly better than break even (surgical makes 3-5%, maybe), and then managed care is 40-50%, which helps offset charity/no pay.
- A total knee - $15k in reimbursement (Medicare) – disproportionate share hospitals – that changes reimbursement. But, $4k-$5k implant, another couple grand for operating room labor, the overall cost is in the $10k-$12k range vs. having that $30k COVID case that you’re spending at least $25k - $30k on. A Blue Cross patient - you can get $40k for the procedure w/ same costs.
Labor – has that been a big issue for you?
- Labor ebbed and flowed. Early on in the pandemic, issues were related to supplies (cost of PPE, equip, etc.). Last 6-8 months, especially, it’s the cost of labor that's the issue.
- Supply shortages, paying multiples for supplies, that has been worked through. Even some as drugs not as heavily used - Remdesivir is less per-unit now because it's more common.
- The average hourly rate skyrocketed for labor. Even as hospitalizations in the DFW area have fallen. We might have 40-50 patients in-house (COVID), but costs are still through the roof. Now that I think about it more, it's possible that COVID cases lose money now.
Labor side – if you had to go buy contract staffing, that surgical nurse $125+, up to $200/hr., you pay that all day?
- Yes. If the nurses are available. The big thesis is it's the same group of people, and we're all stealing from each other and paying more.
- That desire in most regions is changing. As the COVID patients and sick patients change over, most places are starting to push back on contract services – in the last couple of weeks: "We'll no longer pay the $200; we’ll hold out for $150."
You couldn’t hold out before, could you?
- No, no way.
What % of the nurse scarcity problem is fear of the workplace, lure of travel, or plenty of cash? We've been trying to think through the source of the issue. It seems like "unemployed and looking" nurses has been low, but it's rebounding…
- I think initially the fear of returning was significant – maybe 15% of it right now, but we're even having trouble hiring for some remote positions. Everyone is having trouble hiring the same group of people. You’ve got to have a nursing license… if you’re afraid, you work from home, still an issue.
- The rest of it, a large number of people did see the lure of money on travel side.. Not sure what % to put on it.
- How many nurses did you lose to staff just staying home?
- Strangely enough, and it's not a huge number, but I do know a few nurses that took their families with on the road. Mid-40s, working in another state, negotiated that they’d pay for a rental home vs. a hotel, kids home schooled, husbands work remote. The fear issue that hit the school systems... that helped. I do think we need to get kids back to school.
- Over the next 6 months, a lot of the pool of travel will be back in their home areas, I think. We probably lost 5-10% of the workforce to travel. We maybe lost 2%-3% to vaccine mandates.
- In DFW, there’s another unique thing – before moratorium on physician-owned facilities, short-term surgical hospitals (not medical) offer a lot easier work – we lost some employees to them.
15% of people scared – who are they? Will they come back?
- I don’t know when, but a lot of people were scared when COVID first hit, and many of them came back… several came from physician offices. Some are still scared.
Capex?
- Most hospitals were looking at furloughs, deferring capex. We never did and more recently we've been digging into what we’ll look like coming out of it knowing that positive volume – ortho, colonoscopies, etc. - is coming through
- That said, I do not foresee huge unmet demand because of short-term surgical hospitals. In other markets around the country, that demand is definitely there.
- GI as an example, a lot of people need to have a colonoscopy, but they'll go to an endoscopy center. Same w/ total knees – they don’t go to hospital all the time, they'll go to an ortho specialty hospital and get it done.
So you think pent-up demand has largely been serviced / got taken care of?
- There's a pool of demand, I just don’t think it’s as substantial as some people hope.
- Someone with a torn rotator cuff that put it off for a year and a half might be "fine" now - total knees and spine, there’s probably a pipeline for spine now. On the cardiac side, some procedure volume to work through too. But if they were serious, they probably had a heart attack.
How's acuity?
- Non-COVID acuity is up. On the inpatient side, it’s up - if you include COVID it muddies the water, makes it look flat to down, but that's not real.
- Inverse of that, ER volumes lower acuity with "normal" ER patients returning to hospitals. That could be leading to an increase in observation levels of care.
Contract rates, on average?
- They are on the way down. All over there are systems working together to help provide a unified push on agencies. I'm seeing the same shift as your other contact. ICU got up to $200-$210/hr. and it's now ~$135/hr.
- We haven’t seen the fruits of it because of 12-week agreements, but for people starting now, we're seeing the average hourly rates come down as of late April and May and June as the contracts turn over. The big drop could be in 3Q22…
- Where do you think rates will settle out to exit the year? Best guess?
- My hope is $125-ish; for the same nurse that's +10-15% over 2019 – it's frustrating but better.
- 2018-2019 there was a big push to get rates lower, and now we're targeted to be there again.
- Base rates up 10-20% vs. pre-COVID; we're still paying some specialty bonuses to employees, etc.; it's hard because we must stay in line w/ competition (another way to do that is increasing benefits to attract/retain people)
Please reach out to with feedback or inquiries.
Thomas Tobin
Managing Director
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