Mass General Brigham lost $193 million at start of the year

The corporate offices of Mass General Brigham is in Assembly Square in Somerville.Lane Turner/Globe Staff

The state’s largest health system reported a nearly $200 million operating loss in the first three months of the year, as it was forced to cut back on elective surgeries across its hospitals during a resurgence of COVID cases and to pay higher labor costs because of persistent staffing shortages.

The loss reported by Mass General Brigham on Friday highlights the financial difficulties hospitals continue to face during a pandemic. Already short-staffed, hospitals were swamped with COVID patients earlier this year during the surge of Omicron cases, and the state government subsequently ordered them to cancel elective and non-urgent surgeries.

It was the third time since the pandemic began that hospitals have had to cancel elective surgeries — a crucial revenue driver for many hospitals.

“The thing that was different about January and February, which drove the entirety of the quarter’s performance, was the revenue issue — on the elective slowdown but also the increase of COVID patients in the hospital,” said Niyum Gandhi, chief financial officer for Mass General Brigham. COVID patients “tend to be in the hospital for longer, require more resources to care for, and the revenue per day spent in the hospital is lower for COVID than it is for surgical hospitalization.”

Hospitals statewide have been warning that the start of the year was financially taxing. The Massachusetts Health and Hospital Association said in April that a member survey showed that responding hospitals lost $262 million in January and $168 million in February.

For Mass General Brigham, those volume problems largely abated by March, after the state shutdown on elective surgeries ended, but the slowdown was significant enough to drive down operations. Total operating revenue grew just 0.4 percent to $4.04 billion, compared to the same quarter last year. Meanwhile, operating expenses grew 12 percent, to $4.2 billion, for the same period.

The $193 million operating loss for the second quarter compares to an operating surplus of $250 million for the prior year period. However, Mass General Brigham received $232 million in federal pandemic aid a year ago, and there were no such funds available to help cushion the blow for the most recent quarter.

Massachusetts has begun doling out a second tranche of federal aid, $250 million to hospitals, and has another $250 million to distribute. Officials have not yet disclosed allocations to individual hospitals, but in general the money is reserved for institutions that serve a high number of patients on government insurance.

The state’s largest employer, with some 82,000 workers, the Mass General Brigham system includes 12 hospitals and an insurer.

David Williams, president of the Boston consulting firm Health Business Group, said that beyond COVID surges and temporary staffing costs, hospitals were being squeezed by inflation and supply chain problems. But unlike retail stores, they cannot just raise prices automatically to compensate, given the timing of insurance contracts.

Although COVID hospitalizations are ticking upward, they are far below those of the January surge and it is unlikely another such surge would come soon, Williams said. The other challenges are manageable.

“They will still have pressure,” Williams said. “But there are things they can do to keep costs under control including on the administrative side. ... But the pressure should be lower in the second half of the year than in the first and second quarter.”

John Freedman, chief executive of health care consulting firm Freedman HealthCare LLC, said well-resourced systems such as Mass General Brigham can also sustain large hits to their bottom line.

“There are certainly still risks, but that’s supposedly why they keep these large reserves — to get through it,” Freedman said. “Those reserves were not hampered through 2020 and 2021 because they were, for the most part, covered by relief funds. I wish all hospitals could be equally well resourced.”

While Mass General Brigham may be better situated than others, its quarterly results underscore the difficulties institutions have in retaining staff during a pandemic that has put health care workers under extraordinary pressures. Much of the higher expenses in the quarter for Mass General Brigham, for example, were for temporary staffing. The system had a significantly greater number of job vacancies during the period, as much as one to two times higher than normal. Gandhi said normal vacancy rates trend in the low single digits.

Rates for temporary staff have started to trend downward, though Gandhi said the timing of those contracts means the savings won’t be realized for awhile. The key will be using fewer temporary staff, he said. The health system is trying to use its own private university — MGH Institute of Health Professions — to bring in more employees, as well as to work with community groups and colleges to solve staffing issues.

The volatile financial environment comes as Mass General Brigham is embarking on an ambitious expansion on several fronts, as well as preparing a plan to control health care spending as required by a state agency.

Last week, state regulators approved an approximately $2 billion expansion at two of its hospitals, which includes the addition of 78 inpatient beds at Brigham and Women’s Faulkner and the construction of two connected clinical towers at Massachusetts General Hospital. The projects were pared down from the system’s initial vision, which had also included 94 new beds at MGH and three suburban outpatient expansions. The outpatient expansions in particular had faced fierce pushback from many community groups and competitors.

Gandhi, the system’s financial chief, said the recent financial challenges will likely affect the timing of the health system’s spending plans, though he could not provide specifics.

“It’s factoring into our longer term planning,” he said. “We refresh our balance sheet and long-term financial projections twice a year, and this is feeding into those projections.”

Mass General Brigham is also about to file a “performance improvement plan” with a state health care watchdog agency, outlining how it will keep health care spending in check after years of what regulators say was spending above acceptable levels. The report is due to the agency Monday.

Gandhi said the details were confidential until the plan was finalized, and he declined to speculate about how the process might influence Mass General Brigham’s overall finances.