It’s hard to believe that we are more than halfway through fiscal year 2021.
As I reflect on the last year, I am in awe of UW Medicine’s amazing response to the pandemic. Our faculty and staff members contributed in so many ways, each doing what was needed to support our patients and each other. I have never felt more proud to be part of such an incredible community.
Your resilience inspires hope for the future and serves as an encouraging reminder of what we can accomplish together.
This time last year, we were just experiencing our first COVID-19 surge. Faced with the uncertainties of a new pandemic, we postponed non-urgent surgeries and procedures to build bed capacity and preserve our staff and personal protective equipment. While necessary at the time, that approach would lead to many millions in lost revenue and reliance on federal and state recovery funds to off-set some of our losses. By comparison, we experienced a similar number of patients requiring hospitalization this past December as last spring, yet were able to apply lessons learned and carefully dial back our care in a way that that allowed us to meet our patients needs and at the same time reduce the impact on our finances as described below. Working together, I believe we can finish this next quarter strong, as we continue our pandemic response and look forward to recovery.
Our financial performance
Through our second quarter (December 2020), our year-to-date financial performance exceeded budgeted margin levels at every entity. But the positive trend we saw during the first six months is not expected to continue into the third and fourth quarters. We anticipate needing to use a portion of the 2-3 percent margin we made in the first half of this year to cover our costs in the last part of the year.
At the hospitals, our positive performance through the second quarter was driven by a combination of strong contract pharmacy revenues and good expense control, which helped counteract the fact that many sites saw lower revenues than what was budgeted. As I mentioned before, we managed our second surge in a way that allowed us to dial down some services to ensure we had adequate capacity for COVID-19 patients and PPE for staff. With strong protocols in place to care for both COVID-19 and non-COVID-19 patients, we were able to continue providing outpatient surgeries and procedures. This approach prevented a steep decline in volumes and productivity.
Our financial performance through third quarter to date, was impacted by the costs associated with the delay of the Destination: One implementation. Additionally, we still have not recovered our volumes, as some patients continue to defer needed medical care in the wake of the latest COVID-19 surge. In February alone, admissions across the medical centers were ~15 percent lower than expected, overall surgical cases were ~7 percent lower than expected and outpatient visits were ~6 percent lower than expected. Labor expense was higher than expected at two of the hospitals due to the need to bring in contract labor to assist with high patient occupancy, COVID-19 surge preparedness and Destination:One training backfill.
As we look to the fourth quarter, we anticipate that the next few months will continue to be challenging for several reasons, including:
- Financial expenses related to COVID-19 (PPE, staffing, supplies, testing, etc.)
- Expenses related to the delay of the Destination:One implementation, which is a critical investment in technology
- Impact of lower visit volumes, including both pandemic and seasonal factors
- Timing of gifts to the School of Medicine that were recorded in the first part of the year, but were planned for later.
Why we need a margin
Last year, our Strategic Refresh work teams identified investments we need to make to advance our strategic initiatives. Meeting our budget is key to our ability to fund initiatives that in turn support investment in people and UW Medicine program growth. For more information, please read: Why do we need margin? How much of a margin does UW Medicine need?
As our current financial position is not as strong as we would like it to be and there is uncertainty in the upcoming months financial performance, we need to do our best to retain as much of the positive financial performance as possible as we finish up our fiscal year. In addition, we will continue our work to fully capture deferred pandemic relief funds prior to the end of fiscal year 2021.
Thank you for working diligently to take care of our patients during this pandemic. Your work is why we are able to deliver on our mission of improving health for all people.
Chief Financial Officer