Dismissal of Sparrow Health: management functions not related to patient care affected

Sparrow health care plans to lay off hundreds of workers after posting a $90 million loss in the first six months of the year, even as it struggles with a workforce shortage.

The Lansing hospital system said in a statement that rising costs have left it no choice but to part ways with staff cuts, mostly in management and non-patient care positions. Some exceptions will be in clinical roles where the number of patients has decreased.

The system will not comment beyond its own statement and will not determine the exact number of jobs lost.

“Spending has risen across all categories, including supplies and wages, wages and benefits, while the number of patients has declined and the cost of wage labor has skyrocketed,” the system said in a statement. “Essentially, the COVID pandemic may be clinically terminated, but it has caused a financial pandemic for national healthcare providers. As a result, we are making staff cuts that affect several hundred positions in the healthcare system.”

Sparrow is not alone in the financial conundrum that sees systems lay off non-medical workers as well as desperately trying to fill patient-related duties like nursing.

Beaumont-Spectrum announced earlier this month that it would lay off about 400 managerial and non-hospital positions across the state as part of a cost-cutting measure.

The healthcare system attributed the layoffs to “significant financial pressure due to historical inflation, rising drug and labor costs, COVID-19, the expiration of CARES Act funding, and reimbursement out of proportion to costs.”

Beaumont lost nearly $100 million in the first half of this year, a negative 5 percent margin. These losses were offset by the stronger financial performance of BHSH in Southwest Michigan and its insurance arm, Priority Health.

An analysis published earlier this month by the American Hospital Association. found that more than half of all US hospitals will be unprofitable in 2022, with projected margins down 37-133% from pre-pandemic levels.

Spending on healthcare systems is projected to increase by almost $135 billion in 2022 compared to 2021 levels, largely due to labor costs. An AHA analysis predicts labor costs to rise by more than $57 billion year-over-year, with contract labor accounting for more than $29 billion of that amount. The analysis showed that contract labor costs are 500 percent higher than before the pandemic. The remaining costs are charged to the cost of equipment due to inflation.

Sparrow told Crain’s that its labor costs are up more than 22 percent this year to a projected $832.3 million from $682.1 million in 2019. Contract labor is up 369 percent this year to $50.2 million.

Legislation supported by the healthcare industry has been presented earlier this month in Lansing to try to reign in nurse travel expenses.

Republican Rep. Sarah Lightner introduced House Bill 6364, which limits nurse travel agencies to charging hospitals no more than 25 percent more than the agencies pay their nurses. The goal of the law is not to punish nurses, but to limit how much money these contracting agencies can make from them, Lightner told Crain’s.

Although it’s unclear if the bill will get to a vote before the end of the legislative session in Lansing later this year. And it’s also unclear what impact the law will have on hospital profits.

Sparrow said he plans to restructure operations to reduce the cost burden, but did not specify what method would be used for this restructuring.

“Sparrow is adapting to this changing world and will do so quickly,” the system said in a statement. “We will revolutionize the way we conduct our business and how we are structured so that we can serve our community for another 126 years.”

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