IU Health’s operating income falls 25%, squeezed by labor shortage, rising expenses

Indiana University Health, the state’s largest hospital system, said Thursday the pandemic continued to batter it last year, sharply increasing the cost of wages and cutting operating income nearly 25%.

IU Health posted operating income of $120.6 million for the full year, down from $160.7 million a year earlier.

When investment losses were included, IU Health reported a net loss of $715 million last year, compared to a gain of $861 million in 2021.

“Nationally, hospitals face financial challenges, exacerbated by the pandemic, which threaten to create unsustainable operating results for the industry,” Jennifer Alvey, IU Health chief financial officer, said in written remarks. “IU Health is determined to overcome these headwinds through disciplined fiscal stewardship, which includes restraining capital spending, optimizing our considerable resources, and driving efficiencies in operations.”

IU Health said it responded to its highest patient demand ever, driven by surges in COVID-19 cases, high counts of critically ill patients, and the need to perform surgeries and other procedures delayed in the pandemic.

Operating revenue, including for patient services, rose 2.8% to $8.1 billion. But operating expenses, including wages and supplies, rose faster, by 3.3%, to $7.9 billion.

Like many hospital systems, IU Health was forced to delay non-urgent surgeries and procedures at the beginning of the year, as the largest surge of COVID-19 patients in the three-year pandemic filled its hospital beds and emergency rooms.

Emergency visits climbed nearly 6% and surgeries rose 5%, while admissions and inpatient days fell for the year. The overall bed occupancy rate for the full year was 67.3%, down slightly from 68.7% a year earlier.

To respond to the pandemic surge, IU Health increases premium pay for nurses and other clinic positions, used contract and temporary labor and increased base pay. Salaries, wages, and benefits increased by 13.6%, to $4.56 billion.

“These investments are being made as we address the labor shortages to ensure we can meet patient demand,” the system said in its financial statements. “The Indiana University Health System continues to balance the need to support its staff during this challenging time with its efforts to reduce the cost of care for Hoosiers.”

Meanwhile, the cost of supplies, drugs and other services rose 3%, to $2.7 billion.

The IU Health system includes 16 hospitals and more than 300 physician offices, surgical centers and other care facilities.