VCU Health is in the red

About 2.5 years into the COVID-19 pandemic, VCU Health officials say the hospital system's finances are in the red.

What's happening: Facing industry-wide headwinds, the health system says it's closing out the 2022 fiscal year at a deficit for the first time in recent memory.

• CEO Art Kellermann blamed a spike in labor costs, as hospitals nationwide turned to staffing agencies to fill vacant nursing positions.

What they're saying: Kellermann told Axios that as demand rose, staffing agencies began poaching employees from VCU, forcing VCU to rely even more heavily on expensive contract labor.

• "Companies swooped in, hired nurses away, said, 'We'll pay you a lot more money if you travel and go here or there.' Then they pocket half of what they charge health systems," Kellermann said. "That's a very expensive proposition, but when your choices are staffing an ICU safely or unsafely, we always put the safety and interest of our patients first."

Why it matters: VCU Health is the region's largest employer, one of the largest hospital systems in the state and a major investor in downtown Richmond.

• The pandemic came as VCU kicked off a mini building boom, including the construction of a new 17-story outpatient pavilion, which Kellermann said exacerbated the health system's financial challenges.
• A VCU Health spokeswoman was unable to say as of press time whether VCU still plans to participate in the redevelopment of the decrepit public safety building downtown, a project that has already been scaled back from 20 stories to seven.

Worth noting: So far, the health system has not floated layoffs for any of its 13,500 employees.

Zoom out: Hospital systems around the state and country are struggling.

• Roanoke-based Carilion Clinic lost $250 million over the course of the pandemic, per the Roanoke Times.
• "Big picture, it's been financially challenging for our members," Julian Walker, a spokesman for the Virginia Hospital and Healthcare Association, told Axios.

What we're watching: The hospital industry has begun rebounding, and some major players, including HCA Healthcare (which has a significant presence in Richmond), reported $3 billion in earnings last quarter, Axios’ Arielle Dreher reports.

• Demand for nurses from staffing agencies is also dropping, lowering labor costs.
• And Virginia hospitals are starting to see patient volumes rebound to pre-pandemic levels, according to an industry survey by VHHA.

Yes, but: Inflation presents a new challenge, Walker says.

• At VCU, Kellermann says he expects the health system to be in much better shape next year, but says the financial challenges will be "more of a slog than a blip."