Since the outset of the COVID-19, the pandemic has taken a significant toll on hospitals and health systems and placed enormous strain on the nation’s health care workforce. Financial and operational challenges, including historic volume, revenue losses and skyrocketing expenses, coupled with rising inflation, have been detrimental to hospital finances and have led to billions in losses and many hospitals operating on negative margins for months.
Salem Health is not immune to these financial difficulties and for months now, our expenses have exceeded our revenue. We are taking proactive steps to ensure the longevity and financial health of our organization.
As providers, you are experiencing some of these same challenges. I know many of you have questions and concerns. I wanted to take this opportunity to share some information about our current financial situation, as well as the work we have underway to address and resolve the challenges.
Salem Health’s operating margin for the past three months has been negative. Reimbursement from Medicare and Medicaid has not kept pace with costs, and is exacerbated by rising inflation. The proposed reimbursement increase from Medicare of 3.2% is far short of what we need to keep pace with inflation. Salem Health’s rate of inflation is estimated at 20% for FY22. In addition, the levels of contract labor, which are necessary as a result of the tight labor market and high occupancy rates, is not sustainable at two to three times the pay rate of employed staff. In the near-term, we must continue to pay market rate for contract labor to secure resources to continue to provide for the increasing demand for care in our community. In short, what it costs to provide care to our community is far greater than what we are getting reimbursed.
Years of careful financial planning and management over the last decade has allowed Salem Health to weather these financial difficulties thus far. We did not lay staff off early in the pandemic, which meant we had fewer open positions than many other health systems when staffing shortages hit, but due to an extremely high census and an increasing length of stay, labor costs have increased significantly. This, combined with supply chain disruptions and double digit inflation poses a significant financial challenge. In September, we made the difficult decision to sell investments equaling about $100 million to cover expenses.
We know that decreasing length of stay and eliminating costly contract labor are the two best paths to financial recovery. We are hyper focused on these strategies and are beginning to see excellent progress, although we know it will take time to see the impact on our organizational finances.
There is still a significant amount of work ahead and we know it won’t be easy. We remain fully committed to being the best possible stewards of our precious health care dollars, providing the highest quality care for our patients, preserving the jobs of our current employees and providers, and preparing for the future needs of our community. Thank you for your ongoing commitment and partnership.