Here’s an alarming list:
Ascension St. Vincent Dunn in Indiana; Franciscan Health in Indiana; Saint Luke’s Community Hospitals in Olathe and Shawnee; Cleveland-based St. Vincent Charity Medical Center; Hazel Hawkins Memorial Hospital in California; Wellstar Health System’s downtown Atlanta Medical Center; El Segundo, Calif.-based Pipeline Health System; Berwick Hospital Center in Pennsylvania; Blessing Health System’s hospital in Keokuk, Iowa; Borrego Community Health Foundation in Borrego Springs, Calif.; Community Health Systems’ ShorePoint Health Venice, Fla.; Santa Cruz Valley Regional Medical Center in Green Valley, Ariz.; Patients’ Hospital of Redding, Calif.; Wellstar Health System’s Atlanta Medical Center South; Cleveland (Texas) Emergency Hospital; Audrain Community Hospital in Mexico, Mo. and Callaway Community Hospital in Fulton, Mo.; Brandywine Hospital in Coatesville, Pa.; Jennersville Hospital in West Grove, Pa.; Galesburg (Illinois) Cottage Hospital.
These are the 19 hospitals that filed for bankruptcy, closed or announced plans to close last year. And the tough times continue in 2023. For the second quarter this year, for-profit community health systems reported a net loss of $38 million.
Meanwhile this summer, Intuitive Surgical, the leading manufacturer of surgical robotic instruments, also reported its second quarter financial results. Revenues were up 15 percent year-over-year to $1.76 billon. The company expects its gross margin for 2023 to be 68-69 percent.
In electrophysiology, Biosense Webster’s sales of electrophysiology devices were up 26 percent in the second quarter, and Abbott, another manufacturer of electrophysiology devices, saw sales grow by 17% percent.
There are winners and losers in all markets and industries. But when technology manufacturers win big and hospitals lose big, the real loser is not the shareholder or the hospital’s administrator. (He or she can probably find another job.) The real loser is the patient.
In electrophysiology, manufacturers’ costs go up 10 percent per year between price increases and the launch of new products at a higher price level. Reimbursement does not. In her October 2019 article, “Change and Challenge: Understanding the Finances of the Electrophysiology Lab,” Corazon consultant Carol Wesley pointed out that “reimbursement rate increases in general are often below inflation rates, and do not keep pace with the rising costs of EP’s advanced technology and devices.”
She continues, “Our clients are continually looking for ways to solve the high-quality/low-cost equation without sacrificing patient access. Understanding the economic impacts on the EP lab can lead to more informed decision-making and better strategies for the future of this dynamic subspecialty.”
However, the economics are actually very easy to understand: When prices keep going up and revenue (reimbursement) goes up by less, procedure profits head toward zero (and beyond). There are, of course, several things the hospital can do when revenues can’t keep up with costs. They can address process flows, operational inefficiencies, reduce staffing and labor costs, or improve quality to reduce readmissions. But most hospitals today have reduced their staffing to the absolute minimum and implemented every operational efficiency available—to the point where the engine simply cannot run any leaner.
When prices go up disproportionate to reimbursement, the simple reality is that the labs must reduce costs somewhere else. It’s a zero-sum game. If they don’t do that, the lab will start losing money on procedures. When a hospital service line loses money, hospitals in reality must consider closing down that service line. When a service line, such as an electrophysiology lab, closes, this means patients will be unable to have procedures.
When the hospital math doesn’t work out, the patient always pays in the end.
There are several things the hospital can do when revenues can’t keep up with costs. For example, hospitals spend hundreds of thousands of dollars—if not millions—every year buying new instruments, like endoscopes. Endoscopes can cost $60,000 or more. Instead of throwing endoscopes away and buying new ones, they can be repaired. Advanced instrument repair companies can fix almost any instrument.
At the same time, hospitals lose literally tens of millions of dollars every year by mishandling their inventory of medical devices. Par levels are set too high by the manufacturers, and supply rooms are full of devices that are no longer used—but could be used elsewhere. They expire on the shelf sometimes. An UDI-based inventory management technology can eliminate this waste.
Likewise, hospitals use far too many disposables. Many disposables can be reused or redesigned by the manufacturer to become reusable devices. This can save hospitals millions—and reduce the impact on the environment.
Most hospitals have value analysis committees. They make decisions about what technologies and devices are being used at the hospital. But all too often, they don’t have the power to stop excessive technology investments from jeopardizing profitability.
This is the bottom line: Hospitals in general, and electrophysiology labs specifically, will not fix the cost-income problem without addressing how medical devices and instruments are used. This means reducing waste in the supply chain. It means demanding manufacturers design reusable products or products that can be reprocessed. It means maximizing reprocessing savings (which can reduce device costs by 30 percent per procedure). And it means using advanced instrument repair companies to ensure the lab is not unnecessarily purchasing new equipment.
These are examples of deliberate resource utilization, and it is a critical strategy in the hospital’s ability to remain profitable and provide the best possible care for as many patients as possible.
Right now, manufacturers are thriving. Hospitals are failing. And patients are suffering. We must stop this trend in its tracks by becoming better stewards of hospital resources and supply chains.