As goes UMass Memorial, so does Worcester
Worcester isn't one of those industrial cities that is dependent on one employer for a majority of its jobs, but, still, when the city's and the region's largest employer is trending in a positive direction, the city and the region stand to benefit.
In early January, UMass Memorial Health Care got some very positive news from a couple of rating agencies – Fitch Ratings and Moody's – saying they were returning the No. 1 local employer, which has some 13,000 workers, to an investment-grade status. The upgrade is happening three years after UMass Memorial had been downgraded based on shaky financials, declining patient volumes and investor wariness about its operations.
Lost in all the talk about moving its grade from BBB+ to an A- is that it's not local boosters singing the system's praises, but a bonafide, outside source recognizing UMass Memorial Health Care for its operating improvements over the last two years, which – not coincidentally – align near the start of the tenure of CEO Eric Dickson. Now, what Wall Street ratings firms like isn't necessarily what Main Street Worcester is going to like – cost reductions that can include layoffs, expense cutting, higher prices – but this is still a strong indication that the hospital system is heading in the right direction and will continue to do so in the near future.
This kind of upgrade doesn't come easily – despite the apparent randomness of rating firm announcements – but as the result of plenty of shrewd decisions made with a grander plan in mind. Since assuming the CEO role in 2013 – when the system had operating losses of $57 million – Dickson laid off 600 clinical and administrative employees; sold off Wing Hospital in Palmer, which was on the fringes of its market area, to Springfield-based Baystate Health; stood toe-to-toe with union groups in negotiations, and played hardball with an independent neonatal physician group that has been resistant to joining the larger UMass Memorial physician group.
These types of decisions can make executives like Dickson wildly unpopular in their own organization and even in their own communities, and clearly Dickson has earned some enemies. But taken together, these are also the kind of tough issues that are necessary to tackle so that the overall organization remains healthy and viable over the long-term.
After that fiscal 2013 where it posted $57 million in losses, UMass posted profits of $61 million and $47 million over the last two fiscal years. Last year its patient population grew by about 2,000 while its gross revenues were up to $2.2 billion, a growth of $22 million over last fiscal year.
The upgraded ratings from Moody's and Fitch bring with them their own financial benefits. Because the system is now more investor-friendly, it can negotiate lower interest rates on loans and demand better financial terms when it goes to the market for funding. That will come in handy this month as UMass will issue $177 million in new bonds for investors as it seeks to upgrade facilities and refinance existing debt. The length of those bonds runs through 2040, so the system will have locked in 24 years of better financial terms, saving millions of dollars over that time period.
With an operating margin that has been between 2 and 2.5 %, the hospital system's long-term success is hardly locked in – its leaders will need to continue to be vigilant and deftly manage change as the industry continues to go through an evolution in how health care is delivered and paid for.
However, for the region to have its largest employer clearly on top of managing change is a positive sign, and it stands to add to the confidence of the many businesses and residents who rely on a strong regional hospital system.
The healthcare sector remains the largest employer in Central Massachusetts, and it only stands to grow in the coming years, while the region's robust higher education community continues to expand on health care as one of its primary learning tracts. All of these synergies can lead to more startups and spin-off companies, thus growing the healthcare industry in Central Massachusetts.
A stable and healthy UMass Memorial is good for Worcester and good for the region.
WBJ Web Partners
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