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Maine’s hospital systems are working to recover from a tough financial year

Maine hospitals endured a tough year in 2022, according to a variety of recent data and financial disclosures.

The picture has somewhat improved for them in recent months, but it will be hard for them to fully bounce back from the deep-rooted problems that have driven many into the red since the start of the pandemic, including staffing gaps, inflated costs for labor and supplies, and drops in revenue resulting from a variety of industry-wide challenges.

Maine’s bigger hospitals have borne more of the brunt for treating sick people during the pandemic and, in general, aren’t reimbursed as well as small, rural hospitals. That’s clear from the heavy operating losses sustained by the state’s two biggest health care organizations, MaineHealth and Northern Light Health, which each run some of the biggest hospitals in the state.

Similar challenges have been faced by hospitals throughout Maine and the rest of the country. About two-thirds of Maine hospitals reported negative operating margins during the first half of 2022, according to the Maine Hospital Association.

And according to data analyzed by the firm Franklin Trust Ratings — which provides health care insights to a range of clients — the median operating profit margin for many Maine hospitals was negative 17.74% in the most recently reported fiscal year, down from negative 11.1% in the prior year.

Hospital officials and experts point to a variety of reasons for the troubles, including a shrinking of Maine’s hospital workforce from a recent high of more than 34,000 in 2017, down to 31,000 by early 2021, according to state labor data.

At MaineHealth, president and CEO Andy Mueller says two of the biggest financial challenges have been wage increases that the system offered to keep up with inflation and the need to hire more clinical workers from private staffing agencies — so-called travel nurses — to fill in gaps, often at much higher rates than they once charged.

“Those two things together really conspired to raise costs,” Mueller says.

Other challenges included expenses that outpaced reimbursement rates, and ongoing nursing home staff shortages that have made it harder to discharge hospital patients and admit new ones, Mueller says. Besides making patients wait longer for necessary care, those backlogs have cut into the revenue that hospitals collect from admitting new patients.

John Morrow, a veteran hospital analyst who serves as managing director of Franklin Trust Ratings, says the picture is not entirely grim. Despite the slew of financial setbacks, he notes that the state’s two biggest hospitals — Maine Medical Center in Portland and Northern Light Eastern Maine Medical Center in Bangor — have each made notable improvements on a variety of quality, safety and health measures that his company analyzes.

"Both organizations are to be recognized for their progress during tough clinical and financial times,” Morrow says. “It shows that in spite of economic headwinds and a public health emergency, progress is being made to improve care in our communities.”

The financial and operating challenges for Maine hospitals might be ebbing slightly. The rates charged for travel nurses have dropped, and fewer hospitals had negative margins during the last quarter, according to Jeffrey Austin, a lobbyist at the Maine Hospital Association.

That easing is being felt at Northern Light Health. It was hit especially hard by the challenges of last year, losing $131.7 million in the fiscal year that ended last September and recently seeing a downward shift in its assessment by two credit rating agencies. But those agencies noted that Northern Light performed more strongly than expected in the first quarter of the current fiscal year.

To improve their financial picture further, Maine hospitals say they will need to strategically reduce costs, recruit more workers and find better ways to meet the pent-up demand for patient care, among other measures.

One of the ideas MaineHealth is now considering to improve the flow of patients is converting some of its acute care hospital beds to offer more long-term care, which could help deliver care to more sick patients, according to Mueller.

Northern Light has recently reduced costs by outsourcing laboratory and administrative functions to a pair of outside companies, Quest Diagnostics and Optum. It has also hired a consulting firm to guide its business decisions going forward.

Cutting administrative costs is an easy decision for a hospital group that’s trying to improve its financial standing, according to Morrow, the hospital analyst.

He says that a group such as Northern Light might now be considering how to improve its care delivery even further, and whether there are health services such as obstetrics that are becoming too expensive to keep offering at its smaller, more rural hospitals.

Northern Light has recently scaled back some of its other services, including closing a primary care practice in Orono and a specialized rehab program at EMMC. And some other Maine hospitals have already downsized their own maternity services, including most recently Rumford Hospital.

“Will they eliminate the emergency room? No,” Morrow says. “But it’s harder to keep some of those high-risk, high-cost services out in the field.”

Asked whether Northern Light might be considering other big operating changes in the coming months, spokesperson Suzanne Spruce said that, “In the course of any year, it is not unusual for there to be changes in offerings, providers, or locations, etc. But I am not aware of any larger scale opportunities like with Quest Diagnostics or Optum.”