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US offers lifeline to Mass. hospitals

BMC could get $180m infusion

By Liz Kowalczyk
Globe Staff / October 2, 2010

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The Obama administration has agreed to a plan to infuse $435 million into Massachusetts hospitals, the largest portion of which is intended to help avert a significant financial crisis at Boston Medical Center, the city’s primary provider of care to the poor.

The plan, negotiated with Governor Deval Patrick’s administration over the past seven months, includes $180 million for BMC and gives Cambridge Health Alliance, which runs the state’s only public hospital, an extra $163 million in federal Medicaid funding over two years.

The money, except for the Cambridge Health Alliance portion, must clear a remaining hurdle before it is transferred into the hospitals’ coffers. The federal government will provide $335 million, but Massachusetts must come up with about $100 million. The state Legislature must authorize the use of the state funds, language that has been held up as part of Republican objections to a larger spending bill.

Still, the agreement with the federal government, reached late Thursday, came as a relief — and with just hours to spare — for executives and staff at Boston Medical Center, which had projected a $175 million loss in the fiscal year that ended that day.

“We’ve passed an enormous hurdle and now we’re on to the how and the when,’’ said Kate Walsh, chief executive of the hospital. “We’re very hopeful that this will happen in the next few weeks.’’

Boston Medical Center laid off 119 nurses and managers last month, and has used cash reserves to make ends meet. But without the federal money, Walsh said, the hospital would have run out of reserves by next fall, leading to a much larger reduction of its nearly 6,000-person staff or consolidation of services with another provider.

Dr. JudyAnn Bigby, secretary of Health and Human Services in Massachusetts, said the state pushed hard for the money, arguing that hospitals that care for large numbers of poor patients need help preparing for anticipated dramatic changes in the way providers will be paid by government and private insurers. These hospitals, she said, do not have enough money to pay for computer systems and other infrastructure they will need.

The state and federal governments, as well as private insurers, are developing a new cost-conscious payment system that would largely require providers to survive on a fixed budget for treating patients and better coordinate care. Bigby said last week the administration would have a specific proposal for a new payment system ready by the end of the year.

As part of the agreement with the Obama administration, the hospitals must begin the transition to a new payment system and show they’ve taken steps to become more efficient, she said.

“This gives us time,’’ said Dennis Keefe, chief executive of Cambridge Health Alliance, which was facing a $83 million loss in the most recent fiscal year. “We can continue what we’ve been doing, trying to position ourselves for payment reform.’’

The Patrick administration asked the US Centers for Medicare and Medicaid Services to adjust an agreement, known as a Medicaid waiver, that provides a major portion of funding for the state’s landmark mandatory health insurance law. “My team and I worked hard on this because we feel strongly about the importance of the mission and the people served by the Cambridge Health Alliance, Boston Medical Center, and all the impacted hospitals,’’ Patrick said in a statement yesterday.

The state’s congressional delegation, led by Senator John F. Kerry, also pressed CMS to approve the agreement, writing letters and calling its new director, Dr. Donald Berwick, who until recently headed a Cambridge-based think tank.

In addition to the money for BMC and Cambridge, Carney Hospital in Boston, Mercy Medical Center in Springfield, and Brockton, Lawrence, and Holyoke hospitals will divvy up $50 million in additional funding over two years, and dozens of other hospitals will share $40 million.

The relationship between Boston Medical Center and the state became increasingly strained after passage of the insurance law in 2006, which phased out special payments to BMC and Cambridge Hospital for treating the poor. These payments are now being used to subsidize health coverage for thousands of newly insured residents.

The Massachusetts law was supposed to raise Medicaid rates and did for some hospitals, but not for BMC, which sued Bigby in July 2009 over what it called illegal cuts to its Medicaid rates.

The lawsuit is continuing in Suffolk Superior Court, but the positive results of the waiver negotiation may indicate an improving dynamic between the state and one of its key providers. Six smaller hospitals also are suing the state.

At the time BMC filed the lawsuit, state officials said that its costs were 20 to 30 percent higher than those at similar hospitals, suggesting that cost savings are possible.

But Walsh said in an interview this week that “we spent a fair amount of time with secretary Bigby demonstrating that we were in the middle of the pack with costs, compared to Boston teaching hospitals.’’

Bigby said yesterday that she acknowledges that BMC has taken “some cost out of the system. We really appreciate the hard work they did to do that,’’ she said.

Walsh said as soon as the extra funding is final, and the hospital is stabilized, at least temporarily, the next step is to develop a long-term plan to transform the hospital to be successful in a rapidly changing health care industry.

Walsh said she has asked the state’s three largest private insurers to consider increasing the rates it pays the hospital, based on a report from Attorney General Martha Coakley this year that found that BMC, with fewer than 20 percent of its patients privately insured, is paid less than hospitals with greater market clout for providing essentially the same services.

“It’s important to us that we’re paid fairly for the work we do.’’ Walsh said.

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

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