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March 15, 2023 02:45 PM

Michigan-based Sparrow Health reports $171.5 million loss in 2022

Crain's Detroit Business
Dustin Walsh
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    Dale G. Young / Crain's Detroit Business
    Sparrow Health was hardest hit by rising wages for its staff. Compensation and benefits expenses grew by more than $55.2 million in 2022 over the year prior.

    Sparrow Health reported Wednesday a $171.5 million loss for 2022, adding to a growing list of poor financial performers across the healthcare industry.

    The eighth-largest health system in the state reported a loss on revenue of $1.47 billion, compared to a loss of $67.8 million on revenue of $1.5 billion in 2021, according to the Lansing-based system's annual reporting.

    Related: Michigan Medicine to buy Lansing-based Sparrow Health

    The system was hardest hit by rising wages for its staff. Compensation and benefits expenses grew by more than $55.2 million in 2022 over the year prior. Coupled with a more than $65.4 million reduction in reimbursement year-over-year put Sparrow in a tough financial position.

    Representatives from Sparrow declined to comment on the loss beyond its basic annual report.

    Healthcare companies across the country have reported steep losses in 2022 after federal dollars that buoyed them through the pandemic ran out.

    For its 2022 fiscal year, Livonia-based Trinity Health reported a $1.4 billion loss, compared to an income of $3.9 billion in the 2021 fiscal year.

    Trinity blamed the losses on "unprecedented levels" of contract labor, resulting in labor costs that were 8.2 percent higher for the 12-month period. Comparatively, Sparrow's labor costs for the year rose by less than 7 percent.

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    Due to labor shortages across the industry, healthcare has been forced to rely on travel nurses and other high-priced contractors.

    Trinity employs 24,000 in Michigan at eight hospitals and many ambulatory centers.

    Detroit Medical Center parent company, Dallas-based Tenet Health, reported positive income in 2022, but down significantly from 2021. Tenet reported income of $411 million on revenue of $19.17 billion in 2022, compared to income of $914 million on revenue of $19.4 billion in 2021.

    Tenet has 21 facilities throughout Michigan, including DMC Detroit Receiving Hospital, Children's Hospital of Michigan locations in Southeast Michigan and several surgical centers in West Michigan.

    Corewell Health, formerly Spectrum and Beaumont, also felt the sting last year. The state's largest health system reported income of $157.8 million on revenue of $13.8 billion. The merged system topped that in the first three quarters in 2021 with income of $159.4 million.

    But unlike the others, Sparrow is receiving a lifeline.

    University of Michigan's Michigan Medicine announced in December it plans to acquire Sparrow. Under the deal, UM will invest $800 million into Sparrow over eight years.

    The combined health system will become a $7 billion health system that operates more than 200 locations.

    That deal is expected to close by July of this year.

    This story first appeared in Crain's Detroit Business.

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