Hospitals scale back spending as multimillion dollar losses mount

Tufts Medicine reported a $103 million loss in the three months ending in JuneTufts Medicine

Facing multimillion dollar operating losses in the most recent quarter, several midsized and small Massachusetts hospitals and systems have begun intense efforts to scale back spending, as they grapple with the aftermath of COVID.

Pressures have come from the costs of supplies and temporary labor, as well as an inability to quickly turn over hospital beds because of labor shortages at skilled nursing facilities.

“I’ve been working in health care since 1981,” said Sergio Melgar, chief financial officer for UMass Memorial Health. “This is the most difficult, challenging time in health care.”

Hospital losses have persisted in what would have otherwise been a period of recovery. Compared with the first three months of the year, when the Omicron surge shut down elective procedures, fewer people were hospitalized with COVID-19 between April and June.

While the state’s largest systems, including Mass General Brigham and Beth Israel Lahey Health, have suffered multimillion-dollar losses in recent months, the losses at smaller systems and independent hospitals are particularly challenging. The smaller organizations don’t have the financial reserves or the investment portfolio to offset down years, said Ellen Murphy, president of Ellen Murphy & Associaties. Murphy pointed to hospitals that have already cut services in recent years, including Holyoke Medical Center, which shuttered a maternity center in 2020, and Beverly Hospital, which attempted to close a birthing center because of staffing challenges.

“The lack of [state] funding through the economic development bill will cause severe distress and likely the loss of services,” Murphy said, referring to a package of measures including hospital funding that failed to pass before the close of the last legislative session in August.

South Shore Health, based in Weymouth, said absent one-time events, the system had an $8 million operating loss in the three months that ended in June.

In response, the health system has eliminated a hospital-licensed hospice program. Dr. Allen Smith, CEO of South Shore Health, said the decision will eliminate 40 employees, though Smith said the hospital and nonprofit NVNA and Hospice, located nearby, have job openings.

“[Eliminating] hospice is not singlehandedly going to solve our problem,” Allen said. “We’re not looking at stopping a bunch of programs … but we’re looking hard at everything.”

Beyond reducing spending, the health system has received state approval to increase its relationship with Atrius Health for surgical referrals, which would boost volume and revenue.

However Smith said the recovery is tenuous, especially if there is another burst of COVID in the fall. He hoped for additional state money.

Southcoast Health System — which has hospitals in New Bedford, Fall River, and Wareham — reported a $17.7 million operating loss for the three months ending in June. Like South Shore, surgical volume has been slow to return, sitting at 85 percent of where it was pre-pandemic. Most of the slowdown has been in elective cases, which are often the highest reimbursed.

The hospital has also seen people staying in the hospital a day longer than usual. Fewer discharges means less revenue, as hospitals are paid per discharge, and not per days spent in a bed.

Compounding those challenges has been “a dramatic increase” in what the hospital is spending on temporary labor, in particular traveling nurses.

“Sometimes we’re spending in one month what we used to spend in one year,” said Dr. Rayford Kruger, CEO of Southcoast Health System.

The system has asked every department to look at vacancies in non-patient care jobs and assess which could go unfilled. While it hasn’t made any decisions on eliminating services, Kruger said executives are also looking at all the programs the system offers.

Tufts Medicine reported a $103 million loss in the three months ending in June, citing many of the same challenges as its peers.

Tufts attributed about half its recent losses to one-time training and lost productivity costs associated with the installation of the electronic health records system Epic

Michael Dandorph, CEO of Tufts Medicine, said the system has renegotiated contracts with some contract labor companies to reduce its spending, and has aggressively worked to hire more staff to reduce its temporary labor expenses. The system has hired more than 4,000 people since December, decreasing spending on contract labor from $20 million in March to $8.5 million in July.

Improved staffing will help the system see more patients. Dandorph noted that Tufts has turned down 2,000 patient transfers from other hospitals just this fiscal year, because of an inability to staff more beds.

The system is also reassessing every administrative hire it makes to further reduce spending.

As the system cuts spending, it is waiting on state and federal aid, while also hoping the state Legislature will designate another round of funding to hospitals.

State support would further help Tufts Medicine meet its obligations to debt holders. While there is no current risk of default, and Tufts is making all its debt payments, Susan Green, chief financial officer of Tufts Medicine, said the system was worried about meeting certain metrics required by bond holders over the next two years.

“We’re doing all we can to mitigate that. The state support will be important,” she said.

The sector as a whole is experiencing stress. In a report issued in mid-August, Fitch Ratings labeled the US nonprofit hospital sector’s outlook as “deteriorating,” saying labor pressures and generationally elevated inflation were hurting margins for most providers. Elevated costs, particularly for nurses, will remain at a “permanently higher” level for the remainder of the year and beyond.

As challenges persist, some systems have turned to creative ways to stave off losses.

UMass Memorial Health reported a $47.6 million operating loss in the three months ending in June. The losses came despite the system being exceedingly busy — three of the four highest revenue months in the system’s history happened in the quarter. But a busy hospital further exacerbated the need for traveling labor, coupled with the need to replace staff who were sick with COVID.

In the nine months ending in June, UMass Memorial spent $125 million on temporary labor — compared to $49 million in the period the year prior.

The health system is perhaps better situated than some others, after selling a $189 million stake in Shields Health Solutions in October.

“[If] you are losing from hospital operations at this level, how is this sustainable? Well it isn’t,” said Melgar of UMass Memorial Health. “If we hadn’t been able to sell the investment, we’d be hard pressed.”

Even with a financial cushion, UMass is aggressively hiring to bring down its temporary labor expenses, and looking at different ways to purchase supplies to get better prices.

“We’re not at a breakeven point, which would be ideal,” Melgar said. “We’re hopeful we can reach it in the coming year.”