Community Health & Wellness

Hospitals’ financial outlook improves, but local health care industry still operating in the red

Posted on May 14th, 2025 By: Conor Wilson

The two hospitals serving the Kitsap Peninsula returned to profitability – or near-profitability – in 2024 after struggling with COVID-era losses, according to records submitted to the Washington state Department of Health.

But hospital owners Virginia Mason Franciscan Health and others say the data provides an incomplete picture of the financial reality and remain pessimistic about the immediate future of the industry.

St. Anthony lost only $480,000 last year

After losing over $17 million in 2023, St. Michael Medical Center in Silverdale returned to profitability last year, according to the records. The hospital had a net income of $50.5 million in 2024, its best return since 2021.

St. Anthony Hospital in Gig Harbor, meanwhile, nearly broke even in 2024, after consecutive years of net losses that totaled nearly $30 million. The hospital lost about $480,000 last year. It last turned a profit in 2021.

Those number only include results of the actual hospital, not VMFH’s other facilities. Even though the hospital itself turned a profit, the company as a whole is still losing money, said Chad Melton, CEO of St. Michael Medical Center.

For example, as many private physicians’ practices closed or joined larger organizations in recent years, VMFH has picked up that care. Those practices typically lose money and cut into the company’s bottom line, Melton said. But they are not reflected in the state DOH data.

The financial situation is also more complex because both hospitals belong to the VMFH network and work collaboratively with eight sister hospitals.

St. Joseph Medical Center in Tacoma is one of the state’s three level-two trauma centers, offering care beyond what hospitals on the peninsula can. St. Joe’s remains viable through support from profitable hospitals in the system.

More patients, but lower reimbursement

VMFH was able to return to some stable ground in 2024, Melton said, but labor and supply costs have grown “astronomically.” Patient volumes increased, but a declining number are covered under commercial insurance.

Hospitals generally lose money on every Medicaid, Medicare and Tricare patient due to low reimbursement rates.

“As the population ages, we’re taking care of more patients whose insurance doesn’t cover the cost of doing business,” Melton said. “Even though (patient) volumes are growing, the margin is actually going down.”

To cover their losses from government insurance programs, hospitals often negotiate with commercial insurance companies for higher reimbursement rates to backfill those losses, said Chelene Whiteaker, senior vice president for government affairs for the Washington State Hospital Association. If they cannot cover those losses they have to find ways to shed expenditures or reduce services.

“The problem right now is that hospitals are low-margin or no-margin,” she said. “They don’t have a margin to cut.”

The outlook remains concerning, Melton said. VMFH will try to avoid making cuts that impact bedside care, and instead search for overhead and structural management improvement. They also will aim to leverage partnerships, like their recent collaboration with Seattle Children’s Hospital, to streamline operations.

Yet without expense reduction Melton said he did not see the hospital getting back to positive earnings.

“I’m not trying to be overly negative. We’re always confident that we can manage,” he said. “It’s just another hurdle that we’re gonna have to navigate.”

State budget moves loom

Years removed from the public health emergency, the financial situation across the state remains fragile. Most hospitals have been unprofitable since the pandemic and several new state – and potentially federal – policies on the horizon are adding trepidation.

As part of its effort to reign in a roughly $16 billion budget shortfall, the state Legislature hiked its business and occupation tax, which is expected to impact large hospitals. Another bill that caps insurance reimbursement rates for state employees, like teachers, begins in 2027.

Those policies, pending Gov. Bob Ferguson’s signature, will add to the fiscal challenges for the Virginia Mason Franciscan Health System, Melton said. VMFH estimates anywhere from a $20 million to $40 million annual hit across their network of Puget Sound hospitals.

Melton said they will need a finalized state budget to get a clear picture, but either way the situation “is not getting any better.”

Uncertainty around Medicaid also continues to hang over the medical industry, said Eric Lewis, chief financial officer for the Washington State Hospital Association. Medicaid provides more than 10% of revenue for all hospitals in the West Sound.

Republicans in Congress have vowed to protect the insurance program covering those on low incomes, but their policy proposals have called for billions of dollars in cuts to areas of the budget that include that program, according to industry news website KFF Health News.

“We’ll see how that plays out,” Lewis said. “But it’s definitely a tough time to run a hospital.”

Still recovering from pandemic

Hospitals were hit particularly hard during the COVID-19 pandemic. Prices for labor, supplies and medications all soared with inflation. Medical centers halted high-profit services like elective surgeries and outpatient treatment.

Most hospitals are still recovering from those losses. An estimated 70% have continued to lose money since the pandemic, according to the state hospital association.

Revenues did broadly improve last year, Lewis said, but inflationary pressure remains high. Costs to run a hospital also continue to outpace reimbursement rates from insurance providers. Government-run programs like Medicaid and Medicare, which comprise about three-fourth of hospital’s revenue, have particularly lagged, Lewis said.

The states’ Medicaid Safety Net Assistance Program bolstered Medicaid rates for hospitals last year for the first time in decades, Lewis said. Still, they cover only about 85% of the cost of caring for those patients.

“It’s not a great business model to spend a dollar and get 85 cents,” he said. “But it’s better than getting 50 cents.”