In late 2021, Virginia Commonwealth University Health System was struggling financially. Nurses threatened to walk out after being told their bonuses would be smaller. Burned out from the pandemic, staffers quit in droves, and VCU Health was forced to replace them with expensive short-term employees.
When the fiscal year ended the following summer, the health system had lost $53 million, or 2% of its operating budget.
But in the 15 months that followed, VCU Health slowly reversed its financial situation by discharging patients faster and cutting every unnecessary cost. And it avoided laying off any of its 13,000 employees, who work across 70-some locations in central Virginia.
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VCU President Michael Rao likened it to turning around an aircraft carrier. Operating margins inched upward month by month. Then this summer, things took off. VCU Health posted an operating margin of $36 million between July and September. The improvement represents an $89 million reversal.
“The bottom line is, what a turnaround,” Rao said in September.
VCU Health’s challenges were not unique. Health systems across the country struggled in 2021 and 2022 as labor costs ballooned from $2 million a month to more than $7 million. The health system also spent millions transitioning to a new electronic medical record, Epic.
The effort to improve VCU Health’s finances was termed “operation rebound,” and it asked staffers to cut every unnecessary expense.
One path was to limit a patient’s length of stay. When doctors deem a patient ready to go home, it may take 12 hours before the patient actually leaves the hospital. Before the patient can go, providers must review medication, speak with caregivers, arrange transportation and schedule follow-up visits. If a hospital can reduce that time to six hours, the bed can be filled by a new patient.
A patient’s length of stay is a metric hospitals use to determine their efficiency, and VCU Health’s dropped from about 6.1 days to 5.9, which Dr. Marlon Levy, the health system’s interim CEO, called a significant improvement.
VCU Health discharged more than 45,000 patients in fiscal 2023, a new record. It also hosted 1.2 million outpatient visits.
The system also cut advertising and marketing budgets, and it asked employees to stop traveling for continuing education or conferences.
To accelerate revenue, VCU Health made sure insurance companies were paying. An insurer can deny a claim if the paperwork contains an error, such as a wrong birthday or incorrect customer number.
“There are so many different areas a payer can deny on,” said James Siegel, VCU Health’s chief financial officer. “We were really heightening our processes to limit those denials on every front.”
VCU Health educated its employees on the possible pitfalls and changes made by insurance companies.
It was a silver lining of the pandemic that VCU Health instituted a mindset of cost control that will continue forward, Levy said. The lessons of recovery have been hardwired into its mentality.
VCU Health’s dependence on short-term, high-cost nurses and technicians has started to ease, Levy said, as the health system continues to bring in more of its own employees.
But hospitals are still competing against one another for employees, and wages have risen. In a job listing posted Friday, VCU Health offered a $25,000 sign-on bonus for a registered nurse in the operating room. Costs have increased, and the $3.2 billion budget is a quarter higher than three years ago.
As a sign of confidence in VCU Health’s recovery, credit rating agencies continued to award strong ratings. This fall, Moody’s awarded the health system a rating of Aa3. Standard & Poor’s gave it an AA-. Both ratings are considered high and signify VCU Health as a low-risk investment.
VCU Health’s leadership remains in flux. After Dr. Art Kellermann resigned under pressure a year ago, VCU Health chose Levy — then head of transplant surgery — as interim CEO.
When he took the job, Levy did not know how long he would serve as interim, and he still does not know, he said last week.
It’s unclear if VCU Health will hire a single leader. Earlier this year, the state gave the health system the latitude to split the CEO job in two, putting one person in charge of finances and another to oversee medicine.
Asked if he wants the job full time, Levy said it’s not his decision to make and that it’s not at the front of his mind. A higher priority, he said, is ensuring VCU Health performs at its highest level possible.