Washington state hospital system ‘very fragile’ after two years of losses

Hospitals in Washington state continue to deal with daunting financial difficulties.

While hospitals generally fared a bit better in 2023 than in 2022, most hospitals are continuing to lose money, according to a survey by the Washington State Hospital Association. Some are cutting services and reducing beds.

During a media call Tuesday, Washington hospital leaders say some organizations are on the brink, and some aren’t poised to handle more financial pressures. Cassie Sauer, president and CEO of the Washington State Hospital Association, also pointed to financial difficulties from the Change Healthcare cyberattack, which has affected hospitals and healthcare providers nationwide.

“What we really see is that the state of Washington's hospital system remains very fragile after experiencing more than two years of significant losses,” Sauer said. “And these losses are now being compounded by delayed payments from insurers and the impact of the cyber attack on Change Healthcare.”

‘Unprecedented, unsustainable’

Cumulatively, the state’s hospitals lost $3.8 billion in 2022 and 2023, said Eric Lewis, chief financial officer of the Washington State Hospital Association.

“These losses are unprecedented, unsustainable, and represent a huge-post COVID financial challenge,” Lewis said.

In 2023, the state’s hospitals had a -5.2% operating margin, which actually represents a bit of improvement from 2022, when the margin was -7%. Lewis said 85% of the state’s hospitals are losing money.

The state’s hospitals ran in the red during the first half of 2023, and the losses mounted as the year progressed. Washington’s hospitals took in more revenue in 2023, but the revenues were outpaced by higher expenses.

The net operating losses for Washington’s hospitals totaled $1.7 billion in 2023, compared to $2.1 billion in 2022.“The losses, though not as massive, continued,” Lewis said. He noted that the state’s hospitals have seen significant losses for eight consecutive quarters. 

Adding to the difficulties, more residents in Washington are relying on Medicare and Medicaid, Sauer noted. Fewer people are using commercial insurance, which typically provides better reimbursements to hospitals.

“That piece of the pie that's commercial has really diminished quite a lot,” she said.

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‘A large hole’

Ettore Palazzo is the CEO of EvergreenHealth, a community-owned, two-hospital system based in Kirkland. He said, “These terms, unprecedented and unsustainable, are absolutely true. And there are other adjectives that we're trying to come up with because it almost doesn't seem like those words are really appropriate anymore.”

EvergreenHealth has lost $158 million over the past two years, he said.

To cut expenses, EvergreenHealth has had to reduce some positions, including some non-clinical positions and an executive role, Palazzo said. Some services have had to be cut, including a “helpline,” where residents could call nurses with health questions. The helpline had been operated for 30 years.

While EvergreenHealth has made some headway in reducing losses, Palazzo said the system still faces a difficult road.

“We have a large hole to climb out of,” Palazzo said. “And the thought of any other disruption, whether it be self-imposed, or as a result of another pandemic, or anything that changes the current, really delicate balance of how healthcare finances work now, could put all that in jeopardy. And I do worry about how hospitals will be addressing their capital needs as they work towards improvements.”

Closing delivery services

Cathy Bambrick, administrator of Astria Toppenish Hospital, a 63-bed community hospital, outlined some of the sober challenges her organization has faced. The hospital lost nearly $8 million in 2023, after losing $7.3 million in 2022.

The hospital serves one of Washington’s most impoverished and ethnically diverse regions, including a large Native American population. The hospital is the only one in the state located on a reservation.

Lawmakers are working with the hospital to sustain emergency and acute care services, but Bambrick said some services have had to be cut.

In December 2022, the hospital closed its labor and delivery unit, leaving local women with a drive of more than 30 minutes, even in good weather. “And you know, in eastern Washington, we have very difficult driving conditions in the winter,” Bambrick said.

The hospital typically delivered a baby a day, she said.

“We couldn’t have felt worse about closing that delivery unit,” she said.

In 2023, the hospital had to close its MRI service. “We are one of two hospitals in the state that doesn't offer MRI services to its patients,” she said.

Needing a long-term remedy

Elise Cutter, CEO of Island Health in Anacortes, an independent, public hospital district, including a 43-bed facility, along with primary and specialty care clinics. Island Health is at a -12% margin over the past two years, she said.

“Over the past two years, we've seen an unprecedented increase in costs, yet have not seen corresponding increases in the payment for care,” Cutter said.

Even though Island Health operates a small hospital, Cutter noted that it’s “too big” for enhanced funding for rural providers from the federal government.

Despite the financial hurdles, Island Health’s hospital has received a 5-star rating from the Centers for Medicare & Medicaid Services for the past two years, she says.

“We need to find a long-term solution to ensure that independent, rural public hospital districts like Island Health can continue to be the safety net for our community, and provide 5-star care close to home,” Cutter said.

‘Heartbreaking decisions’

In addition to the losses, Sauer pointed to the gut-wrenching decisions some hospitals have had to make to reduce services in order to stay afloat. Even seemingly minor decisions, such as reducing a couple of beds, matters to people who are seeking care, she said.

“Over the course of the last year, we've seen hospitals make both what seemed like mundane, but also heartbreaking decisions, about service reductions and closures that are done to preserve access to other hospital services,” Sauer said.

And some of those decisions mean patients are waiting longer for the care they need, whether it’s closing a unit or even a couple of beds, she said.

“If you're someone who's looking for care, it can be a really big deal that your hospital now has less capacity,” Sauer said.