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Boston Medical Center expects profit for 2012

Hub hospital sees surplus after 3 years of losses

Boston Medical Center, the state’s largest safety net hospital, expects to post a modest financial gain for its 2012 fiscal year, reversing three consecutive years of losses.

While it won’t file financial results until next month, the 496-bed teaching hospital managed to eke out “a small but symbolically important operating surplus” of $817,000 for the year ended Sept. 30, chief executive Kate Walsh said Tuesday.

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BMC’s net gain, which also reflects profits from investments, is anticipated to be $7.1 million for the most recent fiscal year, she said, citing unaudited data. BMC, an affiliate of the adjacent Boston University School of Medicine, posted an operating loss of $32.1 million and a net loss of $26.9 million — among the largest in Massachusetts — for the previous fiscal year.

Walsh attributed the turnaround to multiple factors, including an increase in federal funding for hospitals that serve large numbers of low-income patients, higher reimbursements from commercial insurers, new billing codes that let government insurers better measure BMC’s range of care, and moves to aggressively cut costs by, among other things, consolidating operations at its South End campus and closing a 12-bed inpatient rehabilitation unit.

“We did this the old-fashioned way — lots of small improvements,” said Walsh, a former chief operating officer at Brigham and Women’s Hospital who took the top job at BMC at the start of 2010. “We think we’re part of the solution to health care costs in Massachusetts.”

Bond rating agencies have also taken note of the improved financial picture at BMC, with Moody’s Investor Service and Standard & Poor’s both boosting their outlook for the Boston hospital from negative to stable. In a report last year, Moody’s public finance group analysts Daniel Steingart and Kimberly Tuby cited the positive impact on BMC of a federal plan that extends supplemental Medicaid funding under a so-called waiver program and changes how hospitals that treat a lot of low-income patients are paid.

The analysts said the improved outlook could be attributed to “the extension of the waiver for three years until June 2014, which provides up to $103 million in annual revenue to BMC, and to the significant progress BMC has made in improving core operating performance.”

Despite the better outlook, S&P analyst Jennifer Soule cautioned that BMC’s operating earnings are heavily dependent on its Medicaid managed care health insurance arm, BMC Health Net Plan, and its “ability to absorb additional funding reductions [is] limited.”

Indeed, while Walsh said BMC is ahead of projections so far for its 2013 fiscal year, ringing up a $700,000 surplus in the first quarter, she stressed that anticipated cuts in funding for Medicare and Medicaid — the government health insurance programs for older and low-income patients — will cast a shadow over the hospital’s finances. Particularly worrisome, she said, is $40 million in potential federal cuts for Medicare, medical training payments, and research programs.

“The risks are real,” Walsh warned. She said almost all Massachusetts health care providers, ranging from rural hospitals to academic medical centers, are likely to be affected by the cutbacks being contemplated at federal and state levels to address budget constraints.

BMC, formed through the 1996 merger of Boston City Hospital and neighboring University Hospital, was forced to close one emergency room and eliminate 200 full-time jobs between 2010 and 2011. Over the past year, it added more than 60 jobs, bringing the workforce to 4,480.

Walsh said another concern for BMC was state legislation passed last year to hold down health care costs, partly by limiting payment increases from health plans to providers.

BMC, which relies heavily on government payers and historically has been underpaid by commercial insurers, could be hurt if the effect of the state’s payment overhaul is to “lock some [hospitals] in the penthouse and others in the basement,” Walsh said.

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