North Shore Medical losses deepen in 1st three quarters

The financial outlook at North Shore Medical Center has taken a sharp turn for the worse.

The Salem community hospital, a key component of the Partners HealthCare network, lost $22.4 million during the first three quarters of this fiscal year, compared to $3 million in losses during the first three quarters of fiscal year 2004, according to state reports released yesterday.

The hospital has returned to a pattern of deeper losses even as some other Massachusetts healthcare institutions have recovered from a severe slump that struck hospitals in the state five years ago.

Another Partners hospital in the suburbs, Newton-Wellesley Hospital, broke even last year and has chalked up a $6 million profit so far this year.

The large Harvard-affiliated teaching hospitals in the Partners network, Massachusetts General and Brigham and Women's, also are posting healthy profits.

Partners blames the weak performance at North Shore Medical Center on a high number of low-income Medicaid patients and patients with no insurance. The hospital is made up of the former Salem Hospital and the former Union Hospital in Lynn. Both of those communities have large numbers of people who can't afford insurance or live close to the poverty line and receive Medicaid.

''We've continued to struggle over these last few years with the role we play as the safety-net hospital on the North Shore," said Robert G. Norton, the hospital's chief executive. He said layoffs are a possibility unless state reimbursements for serving poor and uninsured patients are increased.

He said North Shore Medical Center loses about $20 million a year on uninsured patients in the state's free-care pool, which reimburses North Shore at about 45 cents on the dollar for such care, and through Medicaid, which he said reimburses at about 65 cents on the dollar. About 13 percent of North Shore's business comes from free care and Medicaid, about double the average for community hospitals in Massachusetts, Norton said.

''No organization can sustain year after year of that kind of underpayment and not have some consequences," he said.

The problems at North Shore help explain why Partners and Blue Cross and Blue Shield of Massachusetts have embarked this year on a major lobbying campaign to increase state reimbursement rates for Medicaid patients.

''Community hospitals have ultimately weaker financial safety when they represent population sectors where insurance coverage is an issue," said Ellen Lutch Bender, director of healthcare strategies at the Boston offices of the law firm Brown Rudnick.

North Shore also faces competitive pressures, with Lahey Clinic in Burlington and Northeast Health Systems in Beverly vying for the same pool of patients north of Boston.

North Shore seemed to gain an advantage over its regional rivals when it built a $12 million open-heart surgery and cardiac care center in 2003. Its efforts at a financial turnaround also appeared to be working in 2004 when its year-end performance -- $5.8 million in losses -- was significantly better than in 2003, when it lost $30.8 million.

But 2005 is looking more like 2003. One telling sign of North Shore's problems is that payments for treating patients -- the largest source of revenue -- fell from $244 million in the first three quarters last year to $238 million in the same period this year. Unrestricted net assets have also shrunk, by about $50 million over two years, to $35.7 million as of June 30, according to the state reports, which are filed quarterly by all nonprofit hospitals in the state. Norton said some of this year's losses also reflected one-time charges for things like uncollectible debts.

Alan Sager, a professor at the Boston University School of Public Health who has tracked the steady decline and closures of Massachusetts community hospitals, said North Shore's affiliation with Partners -- the biggest and wealthiest healthcare organization in New England -- is crucial.

''Partners can keep North Shore Medical Center open as long as they want," Sager said. ''There is clear evidence that hospitals with greater endowment relative to their size are more likely to survive."

Christopher Rowland can be reached at crowland@globe.com.