Hospitals freeze big-ticket plans

Ripple effects feared in Mass. health industry

The recession is forcing many Massachusetts hospitals to reconsider ambitious expansion projects, put major purchases on hold, and eliminate jobs as revenues and investments shrink.

Cutbacks in healthcare, the state's largest industry, could produce a ripple effect extending to nursing agencies, equipment suppliers, and other businesses that support hospitals.

Officials say finances are being hit hard on several fronts: Tight credit markets have made it difficult to borrow money, investment income used to supplement medical revenues has withered or turned to losses, and patients are putting off elective surgery because of high deductibles and copayments, hospital officials say.

As a result, an anticipated boom in hospital building has been drastically curtailed, as projects are downsized, postponed, or scrapped altogether. At the same time, the increasing number of unemployed workers in Massachusetts means more people will probably face gaps in insurance coverage, making them unable to afford costly medical care, said Dr. Marc Bard, partner at the Bard Group, a hospital consulting firm based in Needham.

Hospitals are suffering more in this downturn in part because of the rise of so-called consumer-directed health plans, in which patients pay higher copayments and deductibles when they get care. Those out-of-pocket costs are enough to keep some people from seeking treatment when they are sick.

"In the past, we thought there was no impact on patient behavior from recessions," said Joe Kirkpatrick, vice president of healthcare finance at the Massachusetts Hospital Association, a trade group that represents about 120 academic medical centers, community hospitals, and rehabilitation hospitals.

"This year, we've seen a decrease in the number of discharges," Kirkpatrick said. In addition, he said, increases in emergency room traffic are falling short of projections.

About half the association's members lost money on medical services in the six months that ended Sept. 30, Kirkpatrick said. Since then, finances have gotten even tighter. The stock market collapse has cost hospitals millions in investment income - money that is typically used to subsidize and augment income from medical services.

Some hospitals are reacting to the economic pressures by reducing budgets and laying off workers.

Last month, Cooley Dickinson Hospital in Northampton cut the equivalent of 76 positions - nearly 4 percent of its workforce - through layoffs and by eliminating vacant positions. Baystate Health of Springfield recently slashed 150 jobs out of about 10,500, and last week, Caritas Christi Health Care, the state's second-largest hospital chain, said it would layoff 160 employees.

One of the biggest effects of the economic downturn is on hospital expansion and renovation projects, which many business leaders had counted on to boost the state's economy.

Partners HealthCare Inc., known worldwide for its prestigious teaching hospitals, said it is reducing capital spending by 40 percent, or $1 billion, over the next five years.

"While we have succeeded in meeting our operating objectives in fiscal year 2008, the downturn in the economy and investment market has certainly impacted us," said Peter K. Markell, vice president for finance, in a statement. "We will defer substantially all new major capital projects."

Baystate, the only academic medical center in Western Massachusetts, said it is rethinking the timing and size of its "Hospital of the Future," a planned $259 million expansion for which it is already demolishing existing buildings.

Children's Hospital Boston has cut its capital investment budget by a third, from $240 million to $160 million, and is considering scaling back expansion of its main patient building.

"We have to make some tough decisions" about where to spend increasingly scarce resources, spokeswoman Michelle Davis said.

Administrators at Lahey Clinic in Burlington said that as a result of the economy, they are delaying plans for a new emergency center and a expansion of the facility's southwest wing. That work was expected to cost $100 million, an expenditure the hospital is wary of making as credit markets remain tight.

Jeff Doran, Lahey's senior vice president for operations, said the hospital has also seen a decline in philanthropic donations, a source of funding it recently relied on to build a new cancer center in Burlington and to pay for an ongoing expansion project in Peabody.

"Looking forward, we are taking a deep breath and re-evaluating our plans to make sure we're acting cautiously," Doran said.

While Boston Medical Center said it still intends to move ahead next week with construction of a new ambulatory care center on its campus, to do so it must rely partly on reserves from previous years to move the project forward.

"Indeed these are difficult times, and Boston Medical Center is facing severe cuts from state funding," spokeswoman Ellen Berlin said in an e-mailed statement. "We are hopeful that we will be able to continue this project."

While the slowdowns and cutbacks stifle hospitals' growth plans, they are unlikely to affect the availability of quality healthcare in Massachusetts, given the state's high number of top-ranked hospitals, according to healthcare quality specialists.

Still, the past fiscal year, which ended Sept. 30, was bleak for many hospitals.

While those with exclusive markets because of their location or specialty services continue to thrive, others have seen profit margins from their medical services collapse.

Cambridge Health Alliance, which includes three urban hospitals, lost $35 million on operations in the first three months of the fiscal year, compared with a loss of $4.7 million for all of fiscal 2007, according to state filings.

Profit from medical care at Caritas Norwood Hospital fell from 4 percent last year to 0.75 percent in the first three months of fiscal year 2008, leaving it with a net loss of $242,000.

And the operating margin at Northeast Hospital System, parent of Beverly Hospital and Addison Gilbert Hospital in Gloucester, fell from 3.5 percent last year to 0.5 percent. It posted a scant $1.1 million surplus from medical activities through the first three months of the current fiscal year.

And with economists predicting a lengthy recession, the financial outlook is not likely to improve next year, analysts say. In a report issued last week, accounting firm PricewaterhouseCoopers said, "Hospitals and other providers . . . will experience an increase in bad debt and a drop in elective procedures."

Jeffrey Krasner can be reached at krasner@globe.com; Casey Ross at cross@globe.com.