Boston hospital mends its finances

Beth Israel Deaconess Medical Center this week plans to announce its first annual operating profit since the 1996 merger that brought one of the city's premier medical institutions to the brink of bankruptcy.

The Harvard-affiliated teaching hospital, which lost more than $280 million in the wake of the merger between Beth Israel Hospital and New England Deaconess Medical Center, also has regained crucial support from the city's Jewish community, which founded Beth Israel in 1916 and has longstanding ties to the hospital, as well as from other donors. Beth Israel Deaconess executives said donations in the most recent fiscal year surged to nearly $18 million, more than double their lowest point two years ago.

And in one of the most significant signs of recovery, Attorney General Thomas F. Reilly, who in 2001 began demanding weekly financial reports from hospital executives, last month removed Beth Israel Deaconess from his informal watch list of troubled institutions.

"We really saw them as a hospital in free fall," Reilly said. "They've made tremendous progress."

Beth Israel Deaconess chief executive Paul Levy pursued a number of strategies in the turnaround, including painful layoffs and a multimillion-dollar promotional deal with the Boston Red Sox. But none was more significant than an unprecedented investment in the surgery department. In fall 2001, the hospital hired a new surgery chief and agreed to give him more than $20 million to recruit and pay new surgeons; the hospital had lost at least 40 in the aftermath of the merger. The new chief, Dr. Josef Fischer, has recruited surgeons at an almost unheard-of clip: 29 in three years.

While overnight stays at the 556-bed hospital overall have grown slightly, the more lucrative surgery stays jumped 8 percent, to 8,433, in the fiscal year that ended Sept. 30. Transplants, one of the most devastated divisions after the merger, jumped to 706 through November of this calendar year, up from 402 for all of 2002.

"At one point we were closing [operating rooms]; we closed a recovery room. It was hard," said Dr. Peter Panzica, vice chairman of anesthesiology, who helps coordinate surgeries on the hospital's west campus. "It's booming again. We're proud to see it turn around."

This means Panzica and Janet Orr, a nurse and clinical adviser for the west campus operating rooms, have a new imperative: Keep surgeons and their patients moving. During the worst years, the hospital cut back to 28 operating rooms; now, 36 operating rooms are open. They must reshuffle operations to squeeze in 10 to 15 emergencies each day, Orr said, up from four or five. And surgeons are working until 10 or 11 at night.

After the merger, Beth Israel Deaconess was not alone in its troubles.

More than 1,000 US hospitals merged during the 1990s in an attempt to gain financial clout against powerful managed-care companies. But in many cases, the board members who constructed the mergers underestimated exactly how difficult it would be to unite administrators, doctors, and nurses who grew up in vastly different institutions. And that was especially true at Beth Israel Deaconess, a union of two near-opposites: Beth Israel, a place known for primary care and consensus-style management; and the smaller Deaconess, a hospital ruled by specialists with a more hierarchical approach.

Even the chief executive brought in to make the merger work, Dr. James Reinertsen, said he and his staff had bungled it. By July 2001, amid continuing multimillion-dollar losses, the board asked him to resign. And by that fall, Reilly's staff, which oversees nonprofits, gave the board a choice: Either turn around the hospital or sell it.

The board hired The Hunter Group, one of the county's best-known hospital turnaround firms, to develop a plan, and brought in a new chief executive: Levy. The 54-year-old, who is not a doctor, was an unconventional choice, best known for leading the cleanup of Boston Harbor as the head of the Massachusetts Water Resources Authority from 1987 to 1992. An experienced manager, Levy also served as executive dean for administration of the Harvard Medical School for three years before his appointment at Beth Israel Deaconess, overseeing the business aspects of the school and coordinating the workings of its hospitals and research institutes. Reilly and many board members credit his leadership for the hospital's turnaround.

Levy immediately laid off 300 employees, and over the past three years, he has sold three under-used buildings. He appointed a top cardiologist to repair the hospital's relationship with community doctors, many of whom had stopped referring patients to Beth Israel Deaconess. He flew to New York and Florida to visit donors and former patients who had cut back or stopped their contributions, to convince them that the hospital was recovering.

Jerry Young, 72, who lives in Newton and runs a food brokerage business with his wife, spent a month in Beth Israel 15 years ago for heart problems and underwent bypass surgery. He and his wife then became regular, generous donors to the hospital but cut back in the post-merger years. "We were discouraged," he said. "You don't like to put cargo in a sinking ship."

Soon after Levy took the job, they met with him in his office, were impressed with his honest assessment of the problems, and are significant contributors again.

Last year, Levy signed an agreement with the Red Sox, paying them an undisclosed amount for the rights to advertise as the team hospital; the idea was to prove to the public that Beth Israel Deaconess intended to stay in business. And he directed the hospital's billing department to collect money from health insurers more quickly, reducing the average time to collect payments to 55 days from 71 days.

The hospital won settlements from insurers that provided it with a onetime operating profit of about $27 million for the fiscal year that ended Sept. 30. That, plus an estimated $10 million more in profit, will give the hospital an operating profit of about $37 million for the fiscal year. Auditors must finalize the figures.

The hospital also benefited from a new Harvard Medical School policy adopted in late 2001. The Harvard teaching hospitals, which include Beth Israel Deaconess, Brigham and Women's Hospital, and Massachusetts General Hospital, agreed not to lure away one another's doctors for lateral job moves, only for true promotions. Although Dr. Joseph Martin, the medical school dean, said the policy was not adopted because doctors were fleeing Beth Israel Deaconess for other Boston hospitals, "this helped protect them," he said. "They've made remarkable progress, and they certainly are off my watch list."

Still, some doctors and health care analysts in Boston are cautious.

Beth Israel Deaconess pays the salaries of its new surgeons for the first three years, and those salaries range from $150,000 to $400,000 depending on their training and experience. The idea is for them to build their reputations over three years, so that doctors refer their patients to them, and the surgeons can support themselves with fees from the operations they perform. That will be the real test: Will they be able to attract enough patients?

And even if they do, will Beth Israel Deaconess ever return to being the national powerhouse it was during the 1980s, when its name was synonymous with cutting-edge care, especially its nursing service?

"They had a special reputation around the country and it got tarnished," said Stuart Altman, a health policy specialist at Brandeis University, who is on the board of Tufts-New England Medical Center. "It's going to take time."

Levy said that while the hospital is no longer in critical condition, the job of rebuilding it and implementing strategic plans for patient care, education, and research is far from over. "During a turnaround there are only a few things you can do," he said.

"Now the options expand, making the choices much more difficult."

Liz Kowalczyk can be reached at kowalczyk@globe.com.