Jill Batty

Jill Batty

For months, Cambridge Health Alliance officials predicted the struggling health care system would lose a devastating $28.1 million for the 2014 fiscal year. It turns out they were way too pessimistic – this year’s loss will be more like $17.7 million, Alliance leaders now say.

And in a twist, this good news delivered to Alliance trustees on Tuesday made some of them angry.

The reason: Just four weeks ago, the trustees approved a budget for the coming 2015 fiscal year that projects a loss of $19.8 million. At that time, it looked like a big improvement over what trustees believed was the figure for the 2014 fiscal year, which ended June 30.

Or, as Louis Depasquale, head of the board of trustees’ finance committee and assistant city manager for finance for the city of Cambridge, said Tuesday: “It’s great news, but it’s disappointing that I approved a budget that I thought compared to a $28 million loss but now the loss is greater than last year.”

Speaking to Chief Financial Officer Jill Batty and other finance officials at the meeting, Depasquale said: “It worries me a little. When you were preparing the [2015] budget did you know what the number [for the 2014 loss] was?” He added: “For me to vote to go from $28 million to $19 million is different from voting to go from $17 million to $19 million.”

Where it came from

Batty noted that the new loss figure of $17.7 million relied on almost $5.5 million in one-time income from insurance settlements and other revenue from previous years.  Without that boost, she said, the loss for 2014 is $23.2 million – greater than the budgeted 2015 loss. That didn’t mollify Depasquale, but it did reassure others.

“I understand the concern [about] when we put together the budget how much did we know about where we were,” but performance in the 2015 fiscal year “will be better” than $23.2 million, said Ellen Semonoff, chairwoman of the board and Cambridge’s assistant city manager for community development.

The main reasons for the smaller-than-predicted loss were lower expenses than expected for employee fringe benefits, more revenue from a new pharmacy program and less money set aside for depreciation, according to an analysis presented at the Tuesday meeting.

The Alliance not only had more staff vacancies than expected, but financial staff had been using a formula for calculating fringe benefit costs that significantly overstated the expense, Batty said.

It wasn’t clear exactly when staff members knew about all the items that contributed to the better outlook for fiscal 2014.

Prediction roller coaster

Loss predictions for 2014 had already been on a roller coaster. The original budget for the year anticipated losing $19.1 million. But much lower patient volume than predicted led to a “reprojection” of that loss in March – to $28.1 million. That was the figure until Tuesday’s meeting.

It’s not the first time that final performance figures have been better than a budget predicted. Up until the end of the 2013 fiscal year, the Alliance was expected to lose almost $22 million but ended up with a loss of $18.6 million. That difference wasn’t large enough to provoke any comment from trustees.

This time, though, Depasquale and others made an effort to emphasize how difficult it would be in the coming year to achieve what they thought was substantial improvement over fiscal year 2014. The budget adopted for 2015 depends on sharply increasing the number of patient visits while increasing staff less than 1 percent.

“We’re in very difficult waters and we are a long way from where we need to be,” Depasquale said last month.

The Alliance operates the former Cambridge City Hospital, Somerville Hospital and Whidden Memorial Hospital in Everett and 15 clinics in Cambridge, Somerville, Revere and Malden. Most of its patients are people on Medicare and Medicaid and the uninsured; its large proportion of poor people and those without insurance makes it the second largest “safety-net” hospital in the state, after Boston Medical Center.

Officials have blamed its continuing losses on inadequate reimbursement from Medicaid, shrinking state aid for caring for the uninsured and low payments from private insurers.

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