The Cambridge Health Alliance expects to lose more than $29 million on health care operations this year and more than $26 million in the coming year as the system that serves thousands of poor and uninsured people continues to struggle to break into the black.
The Alliance’s overall loss will be lower after factoring in $6 million from the city to run public health programs and other non-operational income such as interest. But it will still be substantial: almost $22 million this year and a little more than $19 million next year, according to the forecast.
The figures are part of a budget adopted by Alliance trustees July 16, about three months after the hospital and physician system reached a long-sought clinical partnership with Beth Israel Deaconess Medical Center, the Boston teaching hospital. Both hospital systems continue to govern themselves independently. The Alliance began its 2014 fiscal year July 1.
Cambridge Health Alliance was established in 1996 when the former Cambridge City Hospital acquired Somerville Hospital with the city’s help. Five years later the Alliance took over the failing Whidden Memorial Hospital in Everett. The Alliance network also includes primary care clinics in Cambridge, Somerville, Everett, Malden and Revere.
The health care system serves more poor and uninsured patients than any other hospital in Massachusetts except Boston Medical Center, making it the second largest “safety net” hospital in the state. It and the other large safety net institutions have struggled to stay afloat after the state’s health reform law cut payments to hospitals for uninsured patients, reasoning that the law would reduce the number of people without coverage.
“A large number”
At the July 16 meeting, some trustees expressed misgivings about the continuing losses and others criticized the state for persisting in cutting the system’s Medicaid reimbursements for physician care in doctors’ offices, a big part of the Alliance’s revenues. “In contradiction of state policy emphasizing primary care we are at the bottom of the heap,” one trustee said.
Another trustee, Bentley College Chief Operating Officer Traci Logan, abstained on the vote to approve the budget, a rare expression of dissent. Logan questioned an assumption in the budget that the Alliance will eliminate $17 million in expenses next year by carrying out as-yet-unknown recommendations from a consulting firm hired to improve performance. Without the savings, the system’s loss could be even higher.
“To [save $17 million] in a year is very difficult,” Logan said. She wasn’t alone in her concern, but others said they would accept the risk. Louis Depasquale, chairman of the board’s finance committee and the city’s assistant city manager for fiscal affairs, acknowledged there is “no backup” for the figure, adding: “Seventeen million dollars is a large number, but I think we’re heading in the right direction.”
Consultant could cut
The company, FTI Consulting, was hired in May to help “enhance revenue and costs throughout the organization” and will present its report next month, Alliance spokesman David Cecere said. FTI operates internationally in a number of industries, including health care, according to its website.
A union spokesman expressed dismay about the FTI mandate. Hospital consultants such as FTI “are very often are brought in to suggest ways to cut costs by slashing staff and reorganizing how care is delivered,” said David Schildmeier, of the Massachusetts Nurses Association, which represents nurses at the Alliance.
“The result always has been a degradation in the quality and safety of patient care, turmoil for the institutions involved and bad outcomes for patients,” Schildmeier said. He said union representatives at the hospital had been told about FTI but didn’t know “specifics about what they are doing.”
Cecere said the “foremost focus” of the FTI project “is on delivering an exceptional patient experience and a high quality of care, and in this environment, we have to do so efficiently. We believe that it is more than possible to balance the needs of our patients and communities with operational and process improvements.”
The Alliance has lost much of its longtime financial supports in recent years. State and federal aid is declining. Last year the Alliance sold its profitable health insurance arm, Network Health, to Tufts Health Plan, eliminating millions of dollars in support that had offset its health care losses. As Network Health grew more successful, adding members, the Alliance didn’t have the resources to meet increasing financial reserve requirements.
Reorganization
In April, the Alliance said it would cut 11 psychiatric beds for young children to save money, sparking a flood of outrage. State mental health officials said the move would eliminate an essential service, citing the Alliance’s position as a major provider of psychiatric care. Alliance officials now say they will postpone the cuts for a year; legislators provided $2 million in extra aid.
Like many hospitals, the Alliance is trying to reorganize itself so it can provide a complete range of medical services to patients for a set monthly payment. The federal Affordable Care Act and state health reform laws reward such entities, called Affordable Care Organizations.
In pursuit of that goal, the Alliance reached an agreement to affiliate with Beth Israel Deaconess Medical Center in May after months of negotiations. The Alliance will join Beth Israel’s ACO. “It is important to remember that this partnership alone will not eliminate all of our challenges – we still have a lot of work to do,” Alliance Chief Executive Patrick Wardell said in announcing the agreement.
The Alliance’s most recent official financial statement, issued late last year, said trustees and top leaders would “roll out” a “multiyear” financial plan by the end of June this year that would “establish a goal” of breaking even by the 2015 fiscal year and earning a profit by 2016.
There has been no public mention of such a plan or any details of one. Asked whether the plan cited in the financial statement has been developed, Cecere didn’t respond directly. Instead, he said the Alliance is “implementing a comprehensive plan that focuses on improving patient experience of care, achieving volume growth, engaging strategic partners to ensure we can offer patients seamless care across the continuum and becoming more efficient and cost effective. This four-pronged approach will help us meet our goal of an operating surplus by FY16.”
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