IU Health responds to financial challenges and record patient demand in 2022

INDIANAPOLIS – Indiana University Health responded to financial challenges in 2022 that sharply reduced its income in the face of rising patient demand.

The financial headwinds and disruptions from the ongoing COVID-19 pandemic led to a decrease of nearly 25% in operating income for Indiana’s largest healthcare system, as labor costs and other expenses outpaced a small rise in operating revenue. When investment losses were included, IU Health reported a net loss of $715 million, compared to a gain in 2021. (Financial details below.)

The year began with the largest surge of COVID-19 patients during the three-year pandemic, forcing IU Health to suspend non-urgent surgeries and procedures. The new surge and industrywide staff shortages led to greater reliance on costly contract employees, higher core wages and use of bonus payments to IU Health’s clinical team. Revenue growth during the year also was constrained by IU Health’s pledge, unique among Indiana hospital systems, to bring average commercial prices as a percentage of Medicare to national parity by 2025, while still delivering nationally recognized care.

Thanks to the pricing plan, over 750,000 patients have benefited from focused reductions in prices in radiology, lab work, specialty pharmacy and ambulance services. Total savings for patients and employers from the pricing plan should exceed $1 billion by 2025. IU Health also assists patients with a price transparency program that offers comprehensive estimates, including out-of-pocket costs, for all medical procedures. The popular service provides over 100,000 estimates a year.

“Nationally, hospitals face financial challenges, exacerbated by the pandemic, which threaten to create unsustainable operating results for the industry,” said Jennifer Alvey, senior vice president and chief financial officer. “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.”

Record patient demand in pandemic

IU Health 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. Outpatient visits were approximately 3.9 million, with hospital admissions, surgery cases and ER visits totaling 701,669 visits. The IU Health system includes 16 hospitals and more than 300 physician offices, surgical centers and other care facilities.

Hospitals were filled to capacity during much of the year and IU Health turned to clinical and operational innovations to expand capacity and bring more clinical expertise to the bedside. IU Health led the Indiana response to the pandemic, treating 22,000 COVID-19 patients while administering over 600,000 vaccines and performing over 1 million tests for the virus in the year 2022.

Crucially, quality of care remained high with care teams meeting most key targets for in-hospital harm events. Healthcare-acquired infections continued a five-year decline, having fallen by 40 percent since 2018 across the IU Health system.

“Like other hospitals, IU Health faced major challenges in 2022. We invested significantly in our skilled workforce in the face of a labor shortage, and saw the value in prioritizing retention and engagement of talent, while focusing on productivity and labor-saving automation,” said Michelle Janney, executive vice president and chief operating officer. “At a time of unprecedented demands on our healthcare system, team members stepped up to provide the best care, customized for each patient.”

Focus on innovation, community investments

At the end of 2021, the IU Health board approved consequential new funding for healthcare innovation and community health, aimed at addressing social factors such as lack of transportation, under-education, or unsafe housing that can significantly worsen health.

IU Health began deploying the new innovation funds in 2022 to drive enhanced care for patients through digital transformation and partnerships. First-year projects included a virtual nurse pilot that allows nurses to remotely handle admissions of ER patients to the hospital, freeing bedside personnel to spend more time on direct patient care, and the creation of a social vulnerability index that gives actionable non-medical information about patients to their caregivers. The new fund also supported two startup companies that address the critical issues of staff burnout and helping at-risk mothers manage their pregnancies.

The board also contributed an additional $100 million to the IU Health Community Impact Investment Fund, bringing the total of the fund to $200 million. The new investments allowed the fund to double its annual grant-giving last year, awarding $9.5 million to 14 community partners for diverse projects impacting on childhood development, homeless services, transportation access, housing, workforce development, food insecurity, and behavioral health.

The special investments were spurred by Indiana’s lagging health outcomes, which rank among the worst in the nation, and the urgency to respond to the COVID-19 pandemic that has hit the most vulnerable populations hardest.

“While 2022 tested IU Health’s ability to respond to medical and fiscal challenges, we stayed focused on our mission and broadened our commitments to make Indiana a healthier state,” said President and CEO Dennis Murphy. “We are working hard to ensure Hoosiers can access affordable care when and where it’s needed, while expanding essential investments in community health.”

A priority on reinforcing excellence

IU Health continued to invest heavily in its workforce of 38,000 team members, as shortages of skilled labor persisted. Hiring was prioritized and premium pay and bonuses were offered for critical positions.

IU Health saw year-over-year increases in brand health perception. Nearly 50% of consumers and 56% of referring physicians selected IU Health as the best overall health system in Indiana.

Capital projects expand access

Construction began on IU Health’s largest investment in its history, a replacement acute-care adult hospital in downtown Indianapolis that will consolidate operations of IU Health Methodist and University hospitals when it opens in late 2027.

Construction began on a major expansion of IU Health Saxony Hospital in Fishers to add patient rooms and increase space for specialty services, with a 2025 completion date.

IU Health and IU School of Medicine also opened one of the largest and best-equipped family medicine centers in the state in downtown Indianapolis. The relocated and expanded office serves 15,000 people, 40% of whom are Medicaid patients.

Financial results

Highlights for 2022 for IU Health’s 16-hospital system, which also includes surgery and urgent care centers, five physician networks and a health insurance company:

• Operating revenue grew 2.8% over 2021 to $8.09 billion, while operating expenses rose 3.3% to $7.97 billion, driven by rising labor, drug and supply costs.
• Operating income fell 24.9.% from 2021 to $120.6 million. Investment losses from unfavorable financial markets drove a deficit of revenue over expenses to $715.1 million from a year-earlier excess of revenue over expenses of $861.5 million.
• Increased volumes were seen in most key patient service categories, including surgery cases, ER visits and radiological exams, while hospital admissions fell slightly.