Butler Health System losses nearly doubled in 2023, according to financial statements

Butler Health System’s losses almost doubled in the fiscal year ending June 30, according to newly released financial documents.

The system, which in January merged with Excela Health to create Independence Health System, lost $43.3 million in fiscal year 2023. Butler Health reported $22.8 million in losses in the fiscal year ending June 30, 2022.

Revenues fell slightly, to $396.4 million in 2023 from $399.2 million in 2022. Total operating expenses jumped to $439.7 million from $422 million in 2022.

The system noted that its 2023 data includes four months of Clarion Hospital financials, a difference from fiscal year 2022.

The losses, combined with Excela’s losses of $36.2 million in the fiscal year ending June 30, mean that Independence Health lost more than $79 million in the past fiscal year. That’s over $34 million more than last year’s losses.

Excela and Butler file their disclosure reports separately despite being subsidiaries of Independence.

System leaders blamed covid-19 aftershocks, inflation, low reimbursements from Medicaid and Medicare, and an aging regional population for many of the challenges.

“What has happened with covid-19 and the pandemic has been pretty hard on health systems and hospitals across the country, and Butler Health System is no exception,” Independence President and CEO Ken DeFurio said on a call with bondholders. “This team, this board, is well aware that we continue to have some structural issues to work through, but we really are excited about the long-term benefit, and our ability to continue to be locally controlled, locally managed and take care of the patients we serve in our local communities. That really is our focus.”

Officials said they are working with FTI Consulting on addressing the system’s financial challenges.

During the call with bondholders, DeFurio said that, at the time of the merger, the Butler Health and Excela organizations were fully aware that both were “in a turnaround situation.”

“We just knew that by combining, the turnaround was going to be that much more of a challenge,” he said. He emphasized that the system has never missed any of its debt and interest payments.

Difficult time for health systems

Tom Albanesi, Independence’s chief financial officer, cited challenges with the balance of how much revenue comes into the system from commercial insurers versus government insurers.

Because the population of Western Pennsylvania is aging and fewer young people are moving in, he said, more patients are relying on Medicare and Medicaid, which do not reimburse health systems as much as commercial insurance.

“All of this is exacerbated by Medicare and Medicaid rates not keeping pace with the inflationary rises associated with providing care, including labor, supplies, and pharmaceuticals,” Albanesi said in a statement. He noted that the balance of what types of medical cases are coming into the health system can also pose issues, especially as fewer covid cases have required hospitalization.

DeFurio also pointed to the aging population, specifically in Independence’s coverage areas, as a challenge. Part of the system’s long-term strategy is to engage with local business leaders to bring more people to the region, he said, as well as to negotiate with payers to get more favorable reimbursement.

“I think it’s fair to say that those demographics are of concern,” he said. “The reality of what is happening is we have an aging population and not a lot of population growth.”

Plans to get back on track

By working with FTI, Butler Health has put together a plan for getting the system back to more favorable finances, officials said. The system expects to stanch some of the bleeding in fiscal year 2024 and plans to see losses of $22.9 million during that period.

Independence as a whole has cut 226 positions this year. According to DeFurio’s presentation to bondholders, those “workforce management” initiatives are expected to save the system $10.2 million in fiscal year 2024.

DeFurio noted that Butler Memorial Hospital significantly reduced its use of contract employees such as agency nurses.

“We use it very sparingly and only if absolutely necessary,” he said.

The plan also expects negotiations with payers to show results in early 2024. Other money-saving initiatives are in place, including moving from more brand-name to generic drugs and reevaluating supply chain contracts and vendors.

Independence Health System’s two hospital presidents, Brian Fritz and Karen Allen, confirmed in August that all five of the system’s hospitals — Westmoreland, Frick, Latrobe, Butler Memorial and Clarion — would be part of the system’s future despite the ongoing financial challenges.

The health system has more than 1,000 physicians and advanced practice providers and employs 7,300 people.