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'Insurance folks are printing money' while hospitals suffer, Pardee CEO says

Buying personal protective equipment, creating isolation wards and other measures cost Pardee Hospital more while profitable procedures like knee replacements plunged.

By Lightning Reports, Published: September 27, 2020

Pardee Hospital, which had been cruising along with a healthy profit margin before the coronavirus, limped to the end of its 2019-20 fiscal year in the black only because it received federal stimulus money, Pardee President and CEO Jay Kirby told the Board of Commissioners this month.

"The (Covid) impact to health care has been almost catastrophic," Kirby told commissioners Sept. 16, but would have been worse "had it not been for the federal government and the dollars they provided hospitals across America to deal with the challenges associated with Covid. Caring for the Covid patients once we got the processes sorted out were much like caring for any others. The issue is we had to isolate so hard" that profitable procedures plunged.

"What happened is that elective procedures, such as hip and knee replacements, were put off. Those happen to be the more profitable areas for most hospitals"

A recent Moody and Fitch report forecast hospitals in the U.S. will have margins of minus 5 to minus 7. "Contrasting that, though, United Health Care has doubled its earnings and anticipates it to be stronger. So these two headlines highlight the conundrum facing hospitals right now. Fewer people are utilizing health care because of where we are with Covid. So until a vaccine is widely available, we do not expect hospitals to come back" to full capacity. "As it relates to that, our insurance folks are printing money — even more money than they usually do. So  for United Health Care to double its second quarter earnings during a time when hospitals are struggling so is tough."

Kirby also thanked the commissioners for their vote to approve a rezonng request for 700 houses and townhomes on the former Tap Root dairy farm property, saying new housing is needed. Although Pardee has an annual payroll of $124 million, less of that money is spent in Henderson County than might be the case if the county had more housing.

"Unfortunately, only 60 percent of the people who work at Pardee Hospital live in Henderson County," he said. "That's in excess of $40 million that is leaving this county that is being generated here."

Pardee's chief financial officer, Jeff Rush, told commissioners that Pardee finished the 2019 fiscal year with a strong operating income of 2.8 percent "and when we went into the year 2020 we were having a pretty good year as well up until Covid came in about the first part of March.

"From March on," he said, "we had to put on quite a bit of initiatves for savings, salaries, supplies, and had to manage quite heavily as you might expect the Covid situation."

The hospital ended FY 2020 with a 1.6 percent operating margin, staying in the black only with the help of a $5.8 million CARES Act grant from the federal government. Without that, Rush said, Pardee would have lost $1.6 million in FY 2020.

The budget for the year ending next June 30 projects a net operating margin of 1 percent, an average charge increase of 3 percent, merit pay increases averaging 2.5 percent effective Jan. 1, 2021, and a cap on capital projects of $15 million.

"Hopefully we've erred on the side of Covid being longer but hopefully it won't be and our numbers would grow accordingly," Rush said.

Commissioner Michael Edney asked Kirby about Pardee's relationship with UNC Health Care. As a unit of a large public system, Pardee has more leverage in negotiating insurance payments and more buying power to lower costs for equipment and supplies. With hospitals as far west as Hendersonville and as far as east as Jacksonville, "we truly are the state's health care system," he said. That role also means Pardee carries a substantial load of charity care. "We consider ourselves the safety net for the state," he said. "Pardee provides the most generous charity care policy for all of Western North Carolina."

County Manager Steve Wyatt also praised the management agreement.

"This is a model for the way things need to be run," he said. "We really appreciate the relationship and the community partnership with everybody involved."