Officials from Cambridge Health Alliance, Malden and the state gather Feb. 24 to mark the opening of an expanded CHA Malden Care Center.

Officials from Cambridge Health Alliance, Malden and the state gather Feb. 24 to mark the opening of an expanded CHA Malden Care Center. (Photo: City of Malden)

In a striking turnaround, Cambridge Health Alliance now predicts it will earn a profit this year despite falling short of expectations for seeing more patients.

The projection, presented at a May 5 meeting of the board of trustees’ finance committee, anticipates that the Alliance will end the 2015 fiscal year on June 30 with net income of $18.6 million. That is in stark contrast with the health care system’s budget for 2015, which forecast a loss of $19.7 million.

The new forecast is not unalloyed good news. The Alliance still expects to lose $8.8 million on its health care operations. Yet that is far better than the original budget predicted, and it comes after a snowy winter that cut patient visits and burdened the system with increased snow removal costs.

The Alliance, which includes Cambridge Hospital, Somerville Hospital, Whidden Memorial Hospital and 15 doctors offices in Cambridge, Somerville, Malden, Everett and Revere, has long struggled financially. The health care system serves more low-income and uninsured patients than any other Massachusetts hospital except Boston Medical Center. It depends heavily on government reimbursements, which have been shrinking.

Revenue sources

The major reason for the new projection of net income is revenues that were not anticipated, including reimbursements from previous years’ operations, higher-than-expected state and federal aid and a $20 million settlement from Network Health, the profitable Medicaid health insurance company that the Alliance was forced to sell in 2011. When the Alliance owned Network Health, the insurance arm’s profits offset deep losses in health care operations; the company became so profitable that it needed higher reserves than the Alliance could finance.

The sale of Network Health to Tufts Health Plan in November 2011 called for payments to the Alliance if Network Health’s profits exceeded a certain level in the first five years. The $20 million settlement came under that agreement.

This fiscal year’s original budget relied on opening expanded offices in Malden, Revere and Everett. It also depended on many more patients staying in the hospital and visiting doctors’ offices and no substantial increase in staff – and still predicted a loss. Trustees called it risky when they adopted the budget last July.

Mental health was a special focus, with managers saying changes such as more patients being steered to group therapy would increase volume without the need to hire more therapists.

Volume and efficiency

As of the end of March, three-quarters into the fiscal year, the forecast of increased volume has not come true, although there have been more visits from patients than last year at this time. Only the expanded clinic in Malden opened on time. Visits to mental health therapists are more than 15 percent below predictions, though still above last year’s figures. The number of patients admitted to a hospital bed has also lagged behind the budget prediction and is lower than last year.

Performance statistics for doctors show that they are working more efficiently than predicted, though, and physicians are getting higher reimbursements than the budget forecast for seeing patients who are not in a hospital bed. These improvements more than offset the financial impact of lower outpatient volume.

This is not the first time Alliance finance officials have changed budget predictions during the fiscal year. In fiscal year 2014, visits from patients and admissions to the hospital fell far below projections, and officials forecast bigger losses.

Last March, they predicted the Alliance would lose $28.1 million when the fiscal year ended June 30, 2014, far worse than the budgeted loss of $19.1 million. But after managers completed their analysis in August, the actual loss had shrunk to $17.7 million. Much like this year’s better news, that improvement came mainly because of revenues from previous years’ operations and unexpected one-time revenues.

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