Tracking the sharp drop in Philadelphia health systems’ operating margins after COVID-19
An Inquirer analysis showed that profit margins in the last three fiscal years are an average of 4 percentage points lower than they were in the three years before the pandemic.
The worst of the coronavirus pandemic that started nearly six years ago is well in the past, but Philadelphia’s biggest nonprofit health systems are still contending with the financial disruption unleashed by the virus that led to thousands of deaths in the area.
Operating conditions for hospitals started improving in 2023, but “the slope of the recovery is a bit more shallow than a lot of health systems had planned for,” said Mark Pascaris, a senior director at Fitch Ratings, one of three major credit ratings agencies.
Patients have returned, but the pandemic led to a resetting of expenses for labor and supplies at a higher level, Pascaris said. “That’s been the challenge over the last two or three or four years now, trying to manage through a very challenging expense situation,” he said.
To show how the financial landscape has changed, The Inquirer compiled financial data for the region’s six biggest health systems that have fiscal years ending June 30 each year. The analysis compared average operating profits in three years before the pandemic (fiscal years 2017-19) to the results in most recent three years (fiscal years 2023-25).
All six systems showed a substantial drop in a measure of earnings that excludes certain accounting expenses and interest costs. This slice of financial results is known as earnings before interest, depreciation, and amortization. Abbreviated as EBIDA, it’s a primary indicator watched by influential credit ratings agencies.
The experience of Children’s Hospital of Philadelphia clearly illustrates what has happened: The organization’s aggregate revenue in the most recent three fiscal years was 58% higher than it was in the three years that ended June 30, 2019, but its EBIDA climbed only by half a percentage point.
“Hospitals and healthcare systems across the country continue to face significant headwinds, driven by reimbursement challenges, increased supply and labor costs, uncertain governmental pressures, and the continued ripple effect of the pandemic,” CHOP said in a statement.
Officials at ChristianaCare, Main Line Health, and Temple University Health System echoed CHOP’s remark.
“Margins were far better prior to the pandemic, largely due to lower supply and labor costs,” Main Line’s chief financial officer Leigh Ehrlich said. “Those costs rose sharply during the pandemic and continue to rise.”
» READ MORE: How an accounting change boosted one profit measure for three Philadelphia area health systems.
ChristianaCare’s CFO Rob McMurray noted: Not only have Medicare and Medicaid rates not kept up with inflation, but more people have those government forms of insurance for people 65 and older and for low-income people.
The nonprofit is expanding from its base in northern Delaware to Southeastern Pennsylvania and is expanding alternative formats, such as hospital-care-at-home and micro hospitals, to reduce costs, McMurray said.
A significant worry for Temple University Health System is the impact of the 2025 budget reconciliation bill, sometimes called the One Big Beautiful Bill Act. The North Philadelphia nonprofit estimates that Medicaid cuts in that law will cost it $519 million over the next 10 years, said Jerry Oetzel, the system’s CFO.