This column is from Trendlines, my business newsletter that covers the forces shaping the economy in Boston and beyond. If you’d like to receive it via email on Mondays and Thursdays, sign up here.
Some people love to hate Mass General Brigham. It’s too big. It’s too expensive. Its executives make too much money.
But beyond the countless lives its doctors, nurses, and scientists save each year, MGB, the state’s largest health system, is an invaluable asset to the local economy.
- Its 12 hospitals, physicians group, and other operations employ about one in every eight health care and social assistance workers in the state.
- The organization brought in more than $1 billion in National Institutes of Health research funds last year, topped only by the sprawling University of California and University of Texas systems.
- Its flagship academic medical centers in Boston, Massachusetts General Hospital and Brigham and Women’s Hospital, anchor a health care hub that is arguably the best in the country, if not the world.
One-two punch: So even the haters should be alarmed when MGB on Monday announced its largest-ever layoffs — about 1,500 jobs out of a total of 82,000, I am told. A first round of cuts was made this week, with the balance coming in March.
That followed news a few days earlier that NIH would cut reimbursement rates for indirect research expenses, a move that could cost Mass. General and Brigham more than $180 million in operating revenue.
The total hit to Massachusetts universities, hospitals, and research institutions: more than half a billion dollars, according to the Globe’s Jonathan Saltzman.
Why it matters: The NIH grant reductions will likely tighten the financial squeeze on Massachusetts hospitals. Several broad trends are at work:
- Reimbursement rates from insurers are growing more slowly than expenses.
- Lengthier patient stays — the result of sicker patients and discharge delays caused by a shortage of rehab beds — have curbed revenue growth. (Hospitals are paid mainly per patient treated, not length of stay.)
- Increasing losses on charity care and Medicare and Medicaid services.
Just six of the 21 hospital health systems reporting data to the state Center for Health Information and Analysis had a positive operating margin — which excludes investment gains or losses and one-time items — for the fiscal year through June 2024.
MGB’s strategy: MGB has a strong financial foundation thanks to its big investment portfolio. But its operating businesses are essentially running at breakeven.
The nonprofit is in the midst of a sweeping effort to streamline operations, reduce expenses, and integrate Mass. General and Brigham so they operate as one hospital with two Boston campuses.
My colleague Jessica Bartlett, who broke the news of the layoffs on Monday, reported that the cuts are aimed at an administrative and management staff that ballooned as MGB expanded. Front-line clinical workers and support staff won’t be affected.
“If we do not take definitive action now to stabilize our financial health, we compromise our ability to continue to invest in our mission,” chief executive Anne Klibanski said in a memo to employees obtained by Jessica.
The numbers: To meet its mission, MGB targets an operating margin — operating revenues minus operating expenses — of about 3 percent, a goal it hasn’t reached in a long time.
It posted a $45.7 million gain from operations in the fiscal year that ended in September, a razor-thin margin on operating revenue of $20.6 billion.
The operating gain declined from the prior year even as operating revenues rose 9 percent. MGB’s bottom line was boosted by $1.95 billion in investment gains, an increase of nearly $1 billion from the previous year.
Klibanski has projected an operating loss this year of $250 million even after the layoffs, which are expected to save $200 million annually.
- However, I am told the organization doesn’t expect more headcount reductions, other than from attrition, for at least a couple of years.
Big picture: The health care and social services sector has been a bright spot in the otherwise sluggish Massachusetts job market.
Sector employment is nearly 3 percent higher than it was in February 2020, just before the onset of COVID. The state’s overall employment is flat.
But hospitals have turned to layoffs to offset rising costs.
- Beth Israel Lahey Health, the state’s second-largest health system, laid off an undisclosed number of employees last fall.
- Baystate Health has cut more than 230 jobs since November.
- After going bankrupt, Steward Health Care closed Carney Hospital in Dorchester and Nashoba Valley Medical Center in Ayer, putting more than 1,200 workers out of a job.
Final thought: Mass General Brigham, with ample resources and market clout, is well-positioned to weather the financial pressures facing all hospitals.
But without significant health care reform at the federal and state levels that address reimbursement rates and regulations, the health care sector’s ability to power the Massachusetts economy will be sorely challenged.
Larry Edelman can be reached at larry.edelman@globe.com.