Kenneth P. DeFurio: Independence will overcome financial challenges

The recently reported financial challenges facing Independence Health System are a result of the impact of the covid-19 pandemic. This is true for Independence Health and every health care provider in the U.S.

Despite it not being long ago, it can be hard to recall the realities of the pandemic, which began in early in 2020. People began getting sick very quickly, and government officials shut down parts of the economy and ordered people to stay home. They stopped elective procedures. Surges of extremely sick patients came and went, and hospitals were providing care through it all.

We were “health care heroes.”

During that period — and through today as we enter year 5 of covid-19 — our costs increased significantly. Remember the worldwide supply chain crisis, and with it worries about and shortages of drugs, masks, disinfectants, even ventilators? What resulted was classic demand outstripping supply, and prices increased fast. What really took off was the cost of the staff we need to care for patients. There were not enough nurses, respiratory therapists, lab techs, housekeepers, about all necessary health care personnel. There were huge spikes in “incentive pay” and base salaries. Competition for these professionals became intense.

We see the real effects of inflation every day: If crude oil goes up, the price of gas goes up. If the price of meat goes up, grocery stores and restaurants charge more. All businesses must do this to survive.

It is not that simple in health care.

For years, the payments we receive for services have fallen far short of inflation. We are dependent on government payments from Medicare and Medicaid, and payments from employer-sponsored health insurance. Add to this that regardless of ability to pay, we treat every patient who seeks care at our hospitals. Unlike other businesses, we cannot simply raise prices in response to increased costs. To be paid adequately, we rely on adequate government payments, and we must negotiate contracts.

Butler Health System and Excela Health came into this relationship with existing, publicly traded debt. We are required by regulators to publicly report financial results every quarter. The news you have heard about Independence’s finances stem from these disclosures. Losses expressed in multiples of tens of millions may appear large and perhaps impossible to overcome, but one must remember that Independence Health System is a $1.13 billion organization. One percentage point equals $11.3 million.

We are executing a financial improvement plan to return to strong economic health. Our goal is a 14% improvement. We have already achieved about a third of that. We have about a 10% improvement to go. Not small, but possible. These challenges happened over years. We will not fix them in months. But we will fix them.

Most importantly, the care that we provide and the outcomes we produce are second to none. Notable accolades like those from Healthgrades and U.S. News and World Report reflect this, based upon objective data that places us among the best. Our residents want expert health care in their communities, and we provide just that.

The respective and experienced boards of legacy Butler Health System and Excela Health made an informed and resolute decision to join forces and become Independence Health System. These proud organizations have served their communities for over a century. Independence allows them to continue to serve their communities. We have achieved scale that allows us to remain essential and relevant in the region while still being community-based, community-focused and locally controlled. Independence Health System is the third largest health system in the region and the largest employer in Westmoreland and Butler counties. Through synergies, economies of scale and greater negotiating leverage with vendors of all types, Independence is in a much stronger position for the future.

Our doctors, nurses and all our staff care. They care for patients, and they care about our community. We live and work here. We want outstanding care for our families, just like you do. And we provide outstanding care. We are here for those who turn to us in a time of need. And we are not going anywhere.

The people I work with every day always have been health care heroes. They still are.

Kenneth P. DeFurio is president and CEO of Independence Health System.