Health provider predicts big loss

Hospital alliance cites impact of reform law; Could cut 300 jobs, suffer $25m shortfall

Cambridge Health Alliance, a key part of the Boston area's healthcare network, is facing a potentially "catastrophic" loss this year and is looking to eliminate up to 300 jobs, or about 9 percent of its workforce, in an effort to stabilize finances.

The alliance, which includes Cambridge Hospital, Somerville Hospital, and Whidden Hospital in Everett, says it is being hit hard by the state's new healthcare reform law, which has left it responsible for providing free care for those without insurance while reducing the hospitals' compensation for such services.

"A significant downturn in our volume and the transition to the new free care pool reimbursement system created a perfect storm for us," said Dennis D. Keefe, chief executive of the alliance.

Before healthcare reform took effect last year, Keefe said, Cambridge Health Alliance was reimbursed by the state for the full cost of providing services to the uninsured. Under the new system, "we only get 60 to 70 percent," he said. The reduction is particularly significant for the alliance because its hospitals serve a high percentage of uninsured patients. Despite the state's efforts to enroll all low-income residents in free or subsidized insurance programs, many still do not have coverage.

Keefe said the hospital was especially bruised in its second fiscal quarter, which ended Dec. 31, when the new payment system for uninsured patients took effect. Government payments for free care to the uninsured fell by nearly $14 million compared with the previous quarter, he said.

At the same time, the number of patients admitted to the alliance's hospitals dropped by about 3 percent, while patients kept overnight for observation - a category for which insurance companies do not pay as well - grew by 48 percent. Additionally, the number of walk-in patients, which do not generate as much revenue as inpatients, also grew substantially in the six months that ended Dec. 31, Keefe said.

During a department meeting last month, the chief administrative officer of the health system's physicians' group predicted a potential loss of $25 million to $35 million for the year.

"This would be catastrophic," Dave Porell told members of the Department of Psychiatry, according to the approved minutes of the meeting, which were obtained by the Globe.

On Friday, Gordon H. Boudrow Jr., chief financial officer of the system, met with bargaining representatives for nurses at Cambridge Hospital, who have worked without a contract since last summer. He said the system lost $13.2 million in the first six months of the fiscal year, and is on track to lose about $26 million for the year.

Cambridge Health Alliance is the last publicly funded healthcare system in the state. In addition to the three hospitals, the system includes 20 community health centers. It is the largest provider of mental health and addiction treatment services in the state. Of 348 beds in use, 45 percent are devoted to mental health and addiction treatment, an unusually high proportion.

Keefe said he has met several times with Dr. JudyAnn Bigby, state secretary of health and human services, to discuss the alliance's finances. Bigby, in an interview, said Cambridge Health Alliance posted a surplus of $1.6 million in fiscal 2007 and is receiving "substantially" more public funding this year than last year.

She acknowledged that the healthcare system is burdened because mental health services don't pay as well as complex medical procedures like heart surgery and cancer treatment. But she also said the state had compensated the alliance for payments that were delayed by the federal government.

"The Commonwealth will continue to support Cambridge Health Alliance with public funding as much as we can," Bigby said.

Keefe said the alliance is indeed receiving more money from the government this year, but that it is because of increased reimbursement for treating low-income patients, not additional funds to help the system stay afloat.

"It's accurate for her to say that payments have gone up, but you have to deduct the expenses for providing medical services," he said.

To stem losses, the health system has put in place a hiring freeze and eliminated discretionary spending, such as for travel and conferences. It is seeking to eliminate the use of contract nurses and other outside care providers, which cost more than using staff.

The system is also trying to keep more patients under its care for longer periods. It wants doctors to limit referrals to specialists or other physicians outside the alliance - something hospitals refers to as "leakage."

"All staff needs to continue to focus on keeping patients within our system, as appropriate, and to continue to focus on improving our inpatient volume in particular by increasing admissions on each campus each day," Keefe wrote in a Jan. 16 memo to staff. "We must also refer our patients for necessary services within our ambulatory care system whenever possible."

Keefe said the hospital is also exploring ways to combine services among its three hospitals to minimize duplication. Cambridge Hospital and Somerville Hospital are ripe for consolidation of specific services, he said, because they are close to each other.

The Massachusetts Nurses Association, in an update to its 400 members at Cambridge Hospital, said the alliance's financial problems are the result of poor management.

"The introduction of the new health reform law was years in coming, and the changes in reimbursement rates and other factors have been well known and should have been anticipated," the union said in a newsletter. "Our management built a budget that anticipated unachievable growth and set up this hospital for the failed situation it now faces."

Jeffrey Krasner can be reached at krasner@globe.com.