Corewell Health operations finish 2022 profitable after Beaumont-Spectrum merger

Corewell Health’s operations finished 2022 in the black despite escalating costs for labor, supplies and drugs, but the health system reported an overall net loss as the market deeply affected the performance of its investments.

The largest in-state health system in Michigan recorded nearly $157.8 million in net operating income on $13.8 billion in total operating revenues across all business units. That equates to a 1.1-percent operating margin, well below the 2.8 percent budgeted for 2022 but “a great result when we compare it to other places across the country,” CFO Matt Cox told Crain's sister publication MiBiz.

Related: Health systems in 2022: 'The worst operating income' year ever?

Given the financial pressures health systems face today, Cox said he’s “never been so proud” to finish the year short of the financial results that Corewell Health initially planned going into 2022.

“Overall for 2022 for Corewell Health, we had a wonderful result,” Cox said. “We finished the year positive from an operating margin perspective, which in this environment is amazing.

“We’re well-positioned when we look at how we started the year (in 2023) compared to others.”

About half of the health systems nationwide finished 2022 with a negative margin, according to health care management consulting firm Kaufman, Hall and Associates LLC.

Median hospital operating margins nationally started 2022 at negative 3.4 percent in January and negative 3.6 percent for February, according to Kaufman Hall data. Operating margins improved throughout the year, but remained negative, reaching negative 0.7 percent in December 2022 before slipping to negative 1 percent in January of this year.

“Hospitals entered 2023 on more stable footing, following the worst financial year since the start of the pandemic. However, they still face a range of persistent challenges, including higher labor expenses, lower patient volumes, and a fundamental shift in where patients access care services,” according to Kaufman Hall’s latest monthly report on U.S. hospital performance that uses data from more than 900 hospitals nationwide.

Created by the merger of Grand Rapids-based Spectrum Health and Southfield-based Beaumont Health that closed Feb. 1, 2022, Corewell Health has 22 hospitals and more than 300 outpatient locations and post-acute care facilities. The organization employs more than 60,000 people and 11,500 physicians and advanced practice providers. The health system also includes the 1.3 million-member health plan Priority Health.

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The 2022 results detailed in an audited financial statement that Corewell Health provided to MiBiz included 11 months of operations since the merger closed. The financial report does not break down results by geographic markets.

Because Corewell launched in February, year-over-year comparisons are not available. However, the financial report notes that Spectrum Health alone recorded $291.6 million in net operating income on $9.17 billion in total operating revenue in 2021, the last full year prior to the merger.

Corewell Health started this year with a positive margin for January and budgeted to return to a 2.8-percent operating margin for 2023 on projected revenues of nearly $14.7 billion, Cox said.

“We’re optimistic that we’re on the right track for 2023,” he said. “But we’re still challenged by persistent inflation.”

However, Corewell posted an overall $595 million net loss for 2022, driven in part by a $815 million loss on investments that stemmed from “negative investment market fluctuations due to higher inflation, rising interest rates and economic uncertainty,” Cox wrote in the quarterly financial report.

“But we really look at investments over the long term, so we still have faith that the investments will come back. We’re not shaken to our core as a result of what happened,” he said.

Operationally, Corewell Health’s care delivery businesses, including hospitals, recorded $7.5 billion in operating revenue on patient care and operating income of $86.1 million. That equated to a 2.1-percent operating margin that was bolstered by the $106.1 million Corewell Health received during the year in state and federal pandemic-relief assistance.

The money through the federal CARES Act covered additional expenses that include labor, supplies and pharmaceuticals, Cox said. The health system’s 2023 budget does not include additional CARES Act funds, he said.

The operating results were $162.9 million less than what Corewell Health projected for 2022. The weaker results stemmed from higher salaries and wages the health system paid to attract and retain employees, particularly nurses; the “significant” spending on nursing agencies to address staff shortages; and continued high levels of incentive compensation for clinical personnel, Cox said.

Corewell Health made improvements in the second half to reduce the reliance on high-cost travel nursing agencies to fill staff shortages, he said, noting the health systems also made gains in productivity and critical staffing levels. Corewell Health has about 7,000 open positions across the state.

The health system still uses temporary nurses to close the gap, even as the pandemic moderated and it attracted longer-term talent, Cox said. 

“Things are definitely not back to pre-pandemic levels, but they’re headed in the right direction,” he said.

To address the nursing shortage, Corewell Health last spring committed $19 million toward increasing the talent pipeline for nurses who earn their degree at Grand Valley State University. Under the scholar program, the health system is supporting up to 500 additional students over six years at the GVSU Kirkhof College of Nursing.

In forming the partnership with GVSU, Corewell “came up with a solution that’s going to help provide more nurses in Michigan,” Cox said.

Priority Health had $5.88 billion in premium revenue in 2022 and recorded $56 million in operating income, for a 0.9-percent margin.

Cox noted in the financial statement that Priority Health’s operating income was $77.6 million less than originally planned for 2022. Medical claims trends for Priority Health “were high during the first quarter related to a COVID-19 surge, improved in the second and third quarters, and increased again in the fourth quarter due to respiratory illness and influenza,” Cox wrote in the report. Pharmacy trends for Medicare members were also high, he added.

From MiBiz.