Health Care Industry Facing ‘Perfect Storm’ of Financial Challenges

Health Care Industry Facing ‘Perfect Storm’ of Financial Challenges

Inflation, low reimbursements and costly mandates driving crisis

Large ocean waves created by a perfect storm. San Diego Health Magazine

In October 1991, several severe weather fronts along the Northeastern coast of the US converged to create one of the most menacing hurricanes of that decade. Meteorologists called it “the perfect storm,” a confluence of bad events coming together to create a more critical situation. 

Health care today is in the midst of its own perfect storm. Absent the gale force winds, rain and waves, hospitals and clinics are being hammered by some of the lowest reimbursement rates in decades, costly government regulations and mandates, and a post-COVID inflationary economy that is crippling the supply chain and significantly increasing costs. 

“It sounds bad, because it is pretty bad,” says Scripps Health president and CEO Chris Van Gorder. “Today health care is navigating a financial storm unlike anything it has ever seen. More than half of California’s hospitals ended 2022 with a financial loss and 1 in 5 is at risk of closing. We all rely on hospitals and health systems to help others, but now they’re the ones that need some help.” 

“Today health care is navigating a financial storm unlike anything it has ever seen. More than half of California’s hospitals ended 2022 with a financial loss and 1 in 5 is at risk of closing. We all rely on hospitals and health systems to help others, but now they’re the ones that need some help.”  — Chris Van Gorder, Scripps president and CEO

Here’s what it looks like from the eye of the health care storm: 

Post-pandemic recovery 

As the images of COVID-19 shifted from hospital patients on ventilators to the lifting of facemask requirements, those working in health care breathed a well-earned sigh of relief. But now health care’s recovery from the nation’s largest public health emergency has quickly turned to survival. 

  • Supply shortages that wreaked havoc in health care during the pandemic have only gotten worse. At Scripps, medical products on backorder tripled from 2019 to 2020, and now are eight-fold what they were when the pandemic began. With these shortages come significant price hikes, as well as additional staff training on alternative supplies and equipment. 
  • Staffing levels were the next to take a hit as health care professionals on the pandemic’s frontlines left their jobs during and after COVID due to stress, exhaustion or for lucrative traveling positions with hospitals in dire need. Reduced staffing led to expensive contract labor and temporary reductions in services. Now, with fewer people in health care professions, the labor market is more competitive. 
  • Patient volume following the pandemic increased as patients who delayed nonemergency medical treatment during COVID began to catch up on the care they needed. Post-pandemic volume rose by more than 10 percent at Scripps’ 30-plus clinics in San Diego County. Today at health care systems across the country, the need for care is still exceeding overall capacity. 


Rising inflation is impacting every aspect of health care, from general expenses like rent, utilities and maintenance, to medical supplies, equipment and labor — expenses that eat up the bulk of a health system’s revenue. 

“We’re talking about the quality medical professionals who provide and support our care, and the drugs, supplies and equipment they need to do that,” says Van Gorder. “In times like these, we have to make difficult choices, but when we’re looking at cost-cutting, there just aren’t many places we can still do that.” 

Low payments

Unlike other industries, hospitals and clinics can’t independently raise prices to compensate for rising costs. 

Government and commercial insurers are the primary payers of medical bills, and those payments often fall well short of the actual cost of care. It’s been 10 years since Medi-Cal (California’s version of Medicaid) increased its reimbursement rates. The last increase to federal Medicare reimbursements was about 2%. And commercial health insurance payments no longer come close to bridging the gap. 

Regulations and mandates

While hospitals and clinics battle inflation, many also face a downpour of new regulations and unfunded government mandates. 

Nationally, this includes a pending $8 billion federal cut in relief payments to hospitals that care for high numbers of Medicaid and uninsured patients. 

In California, the largest unfunded mandate requires all hospitals to meet new seismic standards or rebuild by 2030. At a time when costs are up, income is down and construction has never been more expensive, hospitals throughout the state must come up with millions or even billions to rebuild, to comply with the law. Without additional revenue, it’s a burden some won’t be able to carry. 

With demand for health care at an all-time high, hospitals and health systems have little recourse but to brave the elements. 

“We’ve successfully returned our staffing to pre-COVID levels, we’re working with commercial insurers to make payments appropriate to the cost of care and we’re lobbying for long-overdue increases in Medi-Cal and Medicare payments,” says Van Gorder. “We’re also tapping into reserves and partnering with donors to rebuild hospitals, while at the same time asking for an extension to the seismic rebuild deadline.” 

Through the expansion of video visits and the introduction of new tools and processes to reduce wait times, Scripps is also taking steps to ensure patients can receive the care they need in the most convenient, appropriate and affordable ways. 

“This is a big storm with several fronts, and sometimes it feels like we’re pushing against the wind,” Van Gorder adds. “But Scripps has been committed to our patients and this community for well more than 100 years, and we plan to be here for a long time to come.” 

Eventually, even a perfect storm leaves clear skies. 

This content appeared in San Diego Health, a publication in partnership between Scripps and San Diego Magazine that celebrates the healthy spirit of San Diego.

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