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Hospitals in Mass. feel fiscal squeeze

Hospitals in Mass. feel fiscal squeeze

16 reported losses; service cuts feared

By Robert Weisman

Globe Staff / July 10, 2011

Massachusetts hospitals are buckling under growing financial strains, with 16 – nearly a quarter of them – losing money last year, according to a new state report.

Thirteen hospitals in the state also suffered losses in 2009, but the deficits at many of them widened in 2010, the report from the state Division of Health Care Finance and Policy showed. Thirty others managed only modest profits last year.

Health care professionals say the financial squeeze is likely to tighten – especially for community hospitals and those that treat low-income patients – as Medicare and Medicaid payments are reduced. Reimbursements from such public payers account for about 60 percent of revenue at the average Massachusetts hospital.

“We are entering what is going to be a down period for hospitals, especially those without market clout,’’ said John McDonough, director of the Center for Public Health Leadership at the Harvard School of Public Health. “There will be far fewer independent, freestanding community hospitals. Some will close, some will be swallowed up by larger systems.’’

So far, few have resorted to cutting medical services, but there are concerns that could happen. “We absolutely want to see that patients have access to care in their communities,’’ said Amy Whitcomb Slemmer, executive director of Health Care for All, a Boston consumer group. “We also know that hospitals are economic engines in their communities, so employees depend on them. Their fiscal viability is important.’’

The stresses were dramatized earlier this month, when 121-year-old Quincy Medical Center filed for bankruptcy protection days after its trustees voted to be acquired by a for-profit health care provider. In June, 126-year-old North Adams Regional Hospital made its own bankruptcy filing.

“All of us were jolted by the recession,’’ said John N. Kastanis, interim chief executive at Quincy Medical Center. “The reality is that Medicare and Medicaid reimbursements have not been adequate, and those reimbursements are going to be ratcheted down even more.’’

Medicare, the federal program that provides health insurance coverage for seniors and is the largest single payer for most hospitals, is set to slash reimbursements by more than $5 billion nationally during this decade. Massachusetts teaching hospitals would stand to lose another $322 million in Medicare reimbursements allocated for training medical residents under a bipartisan deficit-cutting proposal now being considered in Washington.

At the same time, state government is rolling back payments for Medicaid, the program that insures low-income residents and already fails to cover the full expenses of many hospital visits and procedures. Meanwhile, private insurers, which historically have subsidized government programs, are working to reduce their own reimbursements to hospitals under mounting pressure from businesses and government officials trying to curb annual premium increases.

The result is a weakened sector in which some hospitals are fighting for survival even as advocates for more affordable medical care demand that they lower prices.

While government underpayment is a common complaint, many of the hospitals that posted losses in fiscal 2010 faced other problems.

Some of Quincy Medical Center’s patients defected to Boston hospitals and to nearby South Shore Medical Center. The rural North Adams Regional Hospital couldn’t attract enough patients to command higher payments from insurers. Both remain open while they restructure under court-supervised bankruptcy proceedings.

“We were carrying significant debt, and the cost of repaying that debt led us to the bankruptcy filing,’’ said Paul Hopkins, director of community relations at North Adams Regional, which eliminated 40 of its 500 jobs in the past year. “We have to get our financial house settled.’’

Other hospitals struggle with everything from high labor costs to aging facilities to the inability to borrow money for renovations and electronic medical record systems. Some have watched their doctors migrate to better-paying physicians organizations, or lost patients to private companies providing imaging and diagnostic services. And richer hospitals that can afford to invest in new technology and marketing have also drawn patients from less prosperous rivals.

“The haves continue to do well, the have-nots continue to deteriorate,’’ said Dennis D. Keefe, who is stepping down as chief executive of Cambridge Health Alliance this week to take over a hospital system in Rhode Island. “They can’t invest in their future.’’

Hard-pressed hospitals have done away with thousands of jobs over the past few years. Many have also introduced programs to cut waste and streamline operations. In all, Massachusetts hospitals pared their projected expenditures by about $3.1 billion in 2009 and 2010, according to a study by the Massachusetts Hospital Association.

“Most hospitals are not healthy,’’ said Timothy F. Gens, executive vice president at the hospital association in Burlington. “If you think about what it’s going to take to deliver health care in the future, many hospitals are in a dire situation.’’

According to the Division of Health Care Finance and Policy report, the biggest losses posted last year came at a pair of teaching hospitals that treat large numbers of low-income patients: Boston Medical Center, which recorded a $25.6 million deficit, and Cambridge Health Alliance, which lost $6.9 million.

Both hospitals – and others that rely disproportionately on public insurers such as Medicaid – have been collecting additional payments from the federal government to cushion their losses. That funding for 2012 through 2014 is now being negotiated between state and federal officials. Hospital leaders say their ability to operate is heavily dependent on that money continuing to flow.

“We’re a high fixed-cost industry,’’ said Kate Walsh, chief executive of Boston Medical Center, a teaching affiliate of Boston University School of Medicine. “Labor represents 70 percent of our costs. And we’re about 75 percent government paid. We have been working to reduce expenses at the hospital, but those cuts will not be enough.’’

Not all hospitals in the state fared badly last year. A number of large teaching hospitals posted substantial gains, led by two Harvard-affiliated institutions owned by Boston’s Partners HealthCare System Inc.: Massachusetts General Hospital reported a $181.3 million gain and its sister Brigham and Women’s Hospital registered a gain of $112.1 million. Beth Israel Deaconess Medical Center, another Harvard hospital, had an $84.2 million gain.

Dr. JudyAnn Bigby, secretary of the Executive Office of Health and Human Services, said some data in the state report shows stability or improvement. Overall hospital profitability increased, largely on the strengths of the teaching hospitals.

“These numbers represent the height of the recession,’’ Bigby said. “The question is what is the business model for hospitals going forward.’’

As money-losing hospitals scramble to recover, they are counting on proposed changes in the way health care services are paid for, including a shift to global payments. Under global payment systems, insurers give providers annual budgets per patient, instead of reimbursing them for individual services and procedures. Such provisions are included in legislation proposed by Governor Deval Patrick.

To prosper under a global payment system, hospitals have to manage more efficiently, eliminate unnecessary tests, and reduce the number of patients who are readmitted.

There also will be changes in the way medical care is delivered, including more specialization and referrals by doctors to less expensive community hospitals. To survive in the new environment, hospitals have been banding together and joining with doctors groups to expand their reach and negotiating power with insurers.

Quincy Medical Center, for instance, has agreed to be bought by Steward Health Care System of Boston when it emerges from bankruptcy, while neighboring Milton Hospital recently made a deal to be purchased by Boston’s Beth Israel Deaconess.

State hearings on health care costs over the past two weeks have focused on a disparity in payments, with some hospitals – notably those in the Partners system – commanding higher reimbursements than smaller hospitals for the same medical services. Several executives testified that they would favor temporary government price controls as part of a broader plan to make reimbursements equitable.

While Partners hospitals are doing well now, they languished in the early 1990s before merging. During that period, many Massachusetts hospitals shut their doors, while others formed affiliations. The number of hospital licenses dropped from 95 in the 1980s to 65 today.

Industry watchers, including Harvard’s McDonough, worry that another wave of hospital closings is on the way. “There are some that are seriously at risk,’’ he said.

Robert Weisman can be reached at