How Prime Healthcare is tackling labor challenges and what may be on the horizon: Q&A with CFO Steve Aleman

Ontario, Calif.-based Prime Healthcare was affirmed at a "B-" rating by S&P Global in January amid expectations of an improved operating outlook.

Becker's Healthcare took the opportunity to talk with Prime's CFO, Steve Aleman, about some of the reasons for such a rating and what is in store for the near and longer-term future of the healthcare system.

Prime Healthcare and a nonprofit arm, Prime Healthcare Foundation, comprise 45 hospitals and more than 300 outpatient locations in 14 states.

Question: Can we go into more detail about some of the "aggressive expense management controls" discussed in Prime's original press release re: the S&P rating?

Steve Aleman: 2022 has been a very challenging year, namely on the labor front. In contrast, 2021 Prime reported the strongest top-line revenue and earnings in the company's history.  The primary difference was that labor costs that started to rise in late 2021 persisted for most of 2022, spiking in Q1 2022 with some months totaling in excess of $200 million. In 2023, we have implemented significant performance improvement initiatives across all our hospitals, 253 in total. These are primarily focused around the four pillars of managing labor costs: staff recruitment, staff retention, staffing management and contingency staffing. It's a matter of all hands on deck from the executive leadership at the top all the way to those who manage staffing on the hospital floors. Prime has in place a labor task force led by upper management, and the strategies are filtered through every level of management. We are executing these initiatives to get labor costs back in line with where we were in 2021 and prior, and these initiatives and our collective focus will help Prime achieve that goal.

Q:  Prime has a technology platform partnership with Steer Health focused on patient experience. Are there other innovative technology ventures Prime is looking at? In which fields specifically if so?

SA: It is a priority of Prime to invest, develop and implement technology applications that will help drive future performance. I believe Prime's commitment to this priority is on par or exceeds that of other national acute care hospital systems. The continued investment in technology will result in new AI and other applications being put into practice in 2023 resulting in greater efficiency, connectivity and operational performance.  It is in Prime’s DNA to provide quality, compassionate care and to do so means to continue the evolution of Prime's operating model into delivering best-in-class integrated healthcare.

Q: You seem bullish about the near future. What makes you so optimistic?

SA: The reason I am bullish is that the core measures of our operations remain strong. ED volumes are up, admissions are up; the core foundations of our business are there. There will continue to be headwinds but, as the company gets back to the basics of labor management, there is a clear pathway to get back to 2021 performance and even build upon as we execute our growth strategies.  For example, there is real opportunity on the M&A front once we further solidify current operational performance. The M&A targets would be a tuck-in facility in an existing market or if we were to enter into a new market — do so with the acquisition of a cluster of facilities. The case study to replicate would be our 2020 acquisition of St. Francis Medical Center, which was extremely successful for Prime Healthcare and, more importantly, for the community the hospital serves.

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