Research costs batter Beth Israel's budget

The expected deficit is forcing the Harvard-affiliated Boston teaching hospital to give up lab space in two buildings and consolidate its research - focusing on cancer, molecular imaging, and vascular biology - at a single site.

Hospital officials blame the projected loss on lower-than-expected funding from the National Institutes of Health and a costly lease arrangement it made about five years ago at a new research building in the Longwood medical area.

Executives said in March that Beth Israel Deaconess was on track to lose $20 million for the year in its overall operations, which include clinical care, research, and other functions. At the time, they said reductions in payments from insurers, the government, and other sources would more than outweigh income from clinical care. In an e-mail to employees, Paul Levy, the chief executive, noted that "research funding has also fallen short by several million dollars."

But while executives say they wrestled with the problem internally, they have not publicly discussed the projected research gap.

The hospital initially said it might have to eliminate up to 600 jobs, but a series of cost-cutting moves - which included wages cuts and freezes, 100 early retirements, and benefits reductions - helped lower the number of layoffs. Those cuts, combined with the research consolidation and an estimated $28 million to $30 million in income from clinical care, may now allow Beth Israel Deaconess to break even this year, said Eric Buehrens, the hospital's chief financial officer.

Earlier in the decade, when real estate prices were rising, the hospital signed an expensive multiyear lease for research space with the owner of the Center for Life Sciences, behind the main hospital complex. Hospital officials at the time anticipated receiving additional federal research money.

"Growth in NIH-funded research has not kept pace with our hopes and aspirations when we signed the lease," said Buehrens, who acknowledged the hospi tal paid a premium for the space. "We have more space now than we have research funding."

NIH grants to research hospitals and universities nationwide climbed steadily during the 1990s and earlier this decade, with double-digit percentage gains some years, before leveling off more recently. Beth Israel Deaconess research funding has been flat for several years, totaling about $225 million last year. It is projected to fall in the current fiscal year, said Randall Mason, the hospital's vice president for research administration.

Under its economic stimulus plan, the Obama administration will increase NIH funds nationwide by $10 billion over the next two years. Beth Israel Deaconess has applied for multiple new research grants, Buehrens said, but it is unclear how much extra funding it will receive.

Even if the hospital gets a stimulus slice roughly equal to its current share of annual NIH research dollars, that would add only $6 million to $8 million, he said, not enough to close the budget gap.

Hospital researchers were alerted in March that Beth Israel Deaconess would abandon one of the seven floors it occupies in the Center for Life Sciences, connected by a bridge to the main hospital complex, as well as space in the nearby Harvard Institutes of Medicine research building.

Last fall, it relinquished research space in Cambridge and other locations in the Fenway neighborhood. In all, the hospital is reducing its research space by about 11 percent.

All biomedical research will be consolidated on a half dozen floors in the Center for Life Science, said Buehrens. The move is expected to be completed by the end of the hospital's fiscal year on Sept. 30.

Other research tenants in the building include Dana-Farber Cancer Institute, Children's Hospital, and biotechnology companies. The center was developed by Lyme Properties on land acquired from Beth Israel Deaconess before being sold to its current owner, Biomed Realty Trust, a San Diego-based real estate investment trust.

Beth Israel Deaconess is not the only giant research hospital that has been squeezed by lower-than-expected federal funding levels over the past several years. Hospitals in the Northeast and those affiliated with Harvard Medical School, long among the top recipients of NIH funding, have been disproportionately affected, said healthcare consultant Marc A. Bard, managing director at Navigant Consulting in Needham.

"Historically, it's these hospitals that have been best funded because NIH has seen them as a solid investment," Bard said. "They have a research engine and they get results. But in the past five years, there's been an attempt by the NIH to redistribute research dollars, and that has hurt the people who traditionally got the most dollars."

In a March 16 memo to the Beth Israel Deaconess research team, which includes 284 research scientists, Buehrens and chief academic officer Vikas P. Sukhatme said the consolidation would not dilute the hospital's commitment to its research mission.

"While we realize this consolidation will be challenging, the hospital and departments are committed to a detailed and supportive plan that will minimize interruptions in individual research programs," Sukhatme wrote.

Robert Weisman can be reached at weisman@globe.com.