Local Hospitals On The Bleeding Edge | First half of 2009 a tough six months for health care providers
Wrapping up the second quarter with a multi-million dollar loss is not ideal for a hospital, especially when the same hospital actually made a profit in the previous year.
But that was the case for Harrington Memorial Hospital in Southbridge, which lost $9.5 million in the first half of 2009 after making $365,000 in 2008. And Harrington is just one example of the rough start to 2009 detailed in the state Division of Health Care Finance and Policy’s latest Acute Hospital Financial Performance report.
Financial Band Aid
Across Central Massachusetts, hospitals reported wildly different financial results for the first half of the 2009 fiscal year, which for most hospitals, runs from Oct. 1 through Sept. 30. Six of the region’s 11 hospitals reported a loss for the first two quarters. (Click here to see how all Central Mass hospitals fared.)
Even hospitals within the same system, such as St. Vincent Hospital in Worcester and MetroWest Medical Center in Framingham, both of which are owned by Vanguard Health Systems of Nashville, Tenn., differed dramatically. St. Vincent reported a profit of $18.4 million for its first two quarters of 2009, while MetroWest reported a loss of $9.1 million.
Hospital executives from the region say investment strategies put in place before the economy tanked have shown their flaws in the DHCFP’s latest report. Other experts argue that hospitals, especially smaller hospitals, have simply been unable to make their margins during the recession.
“Generally, we’ve seen an improvement in operating margin between Q2 of 2008 and Q2 of 2009, although total margin, which includes investments, were down substantially,” said Joe Kirkpatrick, vice president of finance at the Massachusetts Hospital Association.
“On the operating margin side, hospitals have taken every action they can to control their costs. Still, total revenue (statewide) increased by 2.1 percent overall and total expenses increased at 5.3 percent. That would indicate that we’ve got a little bit of a problem,” Kirkpatrick said.
The hospitals having the hardest time are small hospitals, like many in Central Massachusetts, Kirkpatrick said.
“As a rule, they face serious challenges of financial viability,” he said. And those challenges don’t take time off for a recession.
Turnover is expensive for any business, and small hospitals “have the hardest time keeping their complement of physicians filled,” Kirkpatrick said. “And many of them have higher populations of patients that are elderly, and Medicare is not the greatest payer. They’re paying on average 92 or 93 percent of cost, so you’re not making your margin.”
Kirkpatrick’s assessment of the difficulty small hospitals have in keeping physicians was echoed by Dennis Irish, spokesman for St. Vincent Hospital in Worcester.
Specifically, he said MetroWest Medical Center is operating “even more in the shadow of Boston,” which draws doctors east from Framingham with the promise of higher salaries.
At Risk
Southbridge-based Harrington Hospital didn’t have a terrible first half on the operations side. Its operating margin was -1.14 percent, an improvement from the -3.34 percent it recorded for all of 2008.
Operating margin accounts only for the money spent and earned by running the hospital itself. It does not include investment gains or losses, nor does it include charitable donations to the hospital.
However, Harrington’s non-operating margin, which includes investment gains or losses and charitable donations, was a dismal -29.85 percent in the first half of this year. It registered the $9.5 million loss with the state mentioned earlier.
Tom Sullivan, the Southbridge-based hospital’s CFO, said what the state requests when putting together the financial performance report are numbers that do not fall in line with generally accepted accounting principles. Still, Sullivan said the reports do serve a valuable purpose.
“The stock market took a big hit, and we took a big hit,” Sullivan said. “But we had a portfolio that allowed us to take that hit. The $9 million is more of a paper loss. We have $40 million in the bank.”
According to the financial performance report, UMass Memorial Medical Center completed 2008 with a profit of $53.1 million, an operating margin of 4.08 percent and a non-operating margin of 0.19 percent.
At the end of the first half of this year, UMass Memorial Medical Center reported a profit slightly less than $10 million, an operating margin of 3.68 percent and a non-operating margin of -2.05 percent.
It could’ve been much worse.
“In the last five months, we’ve seen a turnaround in the market, a significant recovery compared to the first of the year. We’ve seen the market start to build liquidity,” said Todd Keating, the medical center’s CFO.
And even though its operating margin was down in the first half, UMass Memorial Health Care CEO John O’Brien said UMass has been helped by steadily increasing patient numbers.
“It’s been extremely strong this year. The state average is about 1 percent and we’re running about 5.6 percent year-to-date” in patient volume growth, he said. The hospital has seen especially significant growth in inpatient surgery, “which is very important to the bottom line,” O’Brien said. He attributed that growth to referrals from the four hospitals in the UMass system and from the eight hospitals with which UMass has affiliations.
Although hospital investment strategies vary widely, the last year’s results have had a far-reaching impact, Keating said. O’Brien added that downgrades to hospital credit ratings have also had a negative effect.
“Investment strategies play a role to a degree,” Keating said. “They vary dramatically ...but it has impacted all hospitals, and now not all hospitals have access to capital, they can’t get it right now.”
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