Even without a COVID surge, state’s largest hospitals suffer multimillion-dollar losses

The corporate offices of Massachusetts General Brigham hospitals in Assembly Square in Somerville.Lane Turner/Globe Staff

The state’s two largest health systems reported multimillion-dollar operating losses for the three months ending in June, a troubling bellwether of the immense financial strain facing hospitals just weeks after the Massachusetts Legislature failed to approve critical relief funding.

Mass General Brigham, the state’s largest health system and its largest private employer, reported a $120 million operating loss for the quarter ending in June, compared to $128 million in operating gain in the same period last year.

And, Beth Israel Lahey Health reported a $60.5 million operating loss for the quarter ending in June, compared to a $59.9 million operating gain in the same quarter last year.

The losses are notable, coming during a period when hospitals were not in a COVID surge, which had previously shut down elective surgeries to free up resources for COVID patients.

They also underscore just how deeply hospitals have been affected by labor shortages. On the one hand, they are paying extraordinary rates for temporary staffing, particularly for nurses; meanwhile, they are not able to discharge patients as quickly as before because there is less availability at skilled nursing and rehabilitation centers that have their own staffing problems.

Those issues have been exacerbated by caring for sicker patients, who require longer hospital stays. Hospitals are paid per patient discharge and not for the days patients spend in a bed, so fewer discharges mean less revenue.

The losses at the state’s larger hospitals are a concerning sign for what is to come for smaller and independent hospitals, which have even fewer resources and levers to pull to make up for substantial losses. Other hospitals are expected to release financials for the quarter in the coming weeks, and Ellen Murphy, president of a hospital consulting firm, expects the trend of losses to continue.

“Hospitals that are not part of systems, that don’t have large reserves, and hospitals that are far flung from a major metropolitan community are at risk,” Murphy said.

Many hospitals in the state had been anticipating help from the Legislature, which had earmarked hundreds of millions of dollars in aid for them as part of an economic development bill. However, lawmakers concluded formal sessions for the year on Aug. 1 without passing that legislation, so now hospitals are hoping the Legislature can figure out a resolution quickly.

“Given the ongoing and growing divergence between revenue and dramatically rising costs, additional relief will be needed to help us stabilize and recover,” said John Kerndl, chief financial officer for Beth Israel Lahey Health, in a statement. He noted the state’s hospitals continue to lobby ”state leaders and are confident that they will be prioritizing this essential support.”

Lora Pellegrini, president of the Massachusetts Association of Health Plans, acknowledged that hospitals are under pressure from staffing and inflation costs, but noted that the business community has many of the same concerns and can’t shoulder higher health care costs. While additional state or federal relief might be warranted, she said, hospitals looking for higher reimbursements from insurers should provide more information about their labor costs.

“As we try to keep and make health care premiums affordable, we need to be conscious that the hospitals have pressures, but so do the business community,” she said.

At Mass General Brigham, chief financial officer Niyum Gandhi said losses at the system’s hospitals were driven by unexpected labor costs, mostly for temporary nurses. And while the high hourly rates for temporary labor are starting to come down, Gandhi said, it hasn’t been enough to make a meaningful dent in spending.

Labor costs have grown at a time when hospitals are busier than ever. Patients are coming in sicker after delaying care earlier in the pandemic, and hospitals have struggled to find the capacity to care for them. High demand hasn’t translated into higher revenue, as sicker patients stay longer. Mass General Brigham said its number of discharges had dropped 5 percent, eclipsing revenue gains the health system made in other areas.

MGB has become more aggressive in holding down its spending and even reducing budgets in some administrative areas, such as by not filling vacancies. It has consolidated vendors for supplies to get more favorable pricing. The system is also exploring partnering with skilled nursing and rehabilitation centers to move patients out of hospital beds while expanding its home health program to open up more in-patient capacity.

At Beth Israel Lahey Health, Kerndl also blamed workforce disruptions for the losses. Salary and benefit costs topped $1.1 billion, a 11.5 percent increase compared to last year. Beyond advocating for state funds, Kerndl said the system was scaling up recruitment and was investing in training to fill vacancies, while it was trying to increase its volume.

As hospitals deal with losses even when they aren’t in a COVID surge, executives are thinking about how they might navigate this environment were a surge to come on top of it.

“We have to as a society plan for the capacity of pandemic-related surges,” Gandhi said. “We have not done that.”