SalemNews.com, Salem, MA

September 19, 2012

North Shore Medical loses $14 million

BY PAUL LEIGHTON
STAFF WRITER

---- — North Shore Medical Center is one of a growing number of hospitals facing mounting financial losses, according to a state report released last week.

The organization, which includes Salem Hospital and Union Hospital in Lynn, lost $14 million in fiscal year 2011, more than two-and-a-half times its losses from the year before.

North Shore Medical Center CEO Robert Norton said the losses are due mostly to low reimbursements that the hospitals receive for caring for patients on Medicaid and other government insurance programs, and the fact that the number of those patients has gone up under the state’s mandated health insurance law.

“We are the safety-net provider on the North Shore,” Norton said. “Year after year we get modest, if any, increases in our medical payments from the state, and our expenses continue to go up.”

Despite the bleak financial numbers, Norton said the future of Salem and Union hospitals is secure due to North Shore Medical Center’s affiliation with Partners HealthCare, the state’s largest health care organization.

Partners, which includes Massachusetts General Hospital and Brigham and Women’s Hospital, made a $342 million profit in 2011, according to the report by the Massachusetts Division of Health Care Finance and Policy.

“The bottom line is we have this negative operating result and it all gets absorbed overall in Partners’ (profit and loss),” Norton said. “The people of the North Shore should be thankful we’re part of the Partners HealthCare system.”

According to the state report, 24 out of 65 acute care hospitals in Massachusetts lost money in fiscal year 2011, eight more than in 2010.

Northeast Hospital Corp., which includes Beverly Hospital, Addison-Gilbert Hospital in Gloucester and BayRidge Hospital in Lynn, went against the trend, nearly doubling its total surplus, to $7.1 million.

Northeast CEO Ken Hanover said that increase was due largely to gains in the organization’s investment income and is subject to fluctuations in the stock market. The operating margin, a more reliable indicator of an organization’s health, is still under 2 percent, which Hanover said is not enough to generate money to upgrade facilities and equipment.

Northeast, however, will benefit from its recent alliance with Lahey Clinic. The Burlington-based organization had a $65 million profit in 2011.

“I think Lahey will continue to be a strong organization,” Hanover said. “We’re budgeting in fiscal year 2013 probably around a 4 percent operating margin for the combined organizations.”

Hanover said there are no planned layoffs “of a significant level” as the two organizations continue to combine, but he could not rule out layoffs in the future.

“As the marketplace adjusts to (changes in how hospitals are paid), we’re going to have to adjust the workforce to reflect that,” he said. “But how that’s going to occur from a timing perspective, or whether it’s going to occur first, is difficult to determine or anticipate.”

The report by the Division of Health Care Finance and Policy noted that hospitals serving a disproportionate number of patients on government insurance, which includes North Shore Medical Center, have been hit particularly hard.

A “disproportionate share” hospital is defined as a hospital with 63 percent or more of patients with Medicare, Medicaid or other government insurance, including the state’s Commonwealth Care program. (About 50 percent of Northeast Hospitals’ patients are on government insurance, according to the hospital.)

Norton said North Shore Medical Center has combined the medical staffs and administrative teams at Salem and Union hospitals and does not separate the profit/loss numbers of the individual hospitals.

“Our mission is to care for everybody in our geography that needs care,” he said, “and that mission won’t change.”

Norton said hospitals will struggle to turn a profit over the next few years while they transition to a new global payment system that seeks to reduce costs by emphasizing coordinated care, as opposed to a fee system that pays doctors and hospitals based on the number of services and tests a patient receives.

“It’s a very tricky time for hospitals and physicians,” he said.

Norton said he does not anticipate any layoffs or cuts in services as a result of the operating losses, and he gave assurances that North Shore Medical Center will be around for a long time.

“People should rest easy that Salem Hospital and North Shore Medical Center have been here for 100 years and are going to be here another 100 years,” he said.

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Staff writer Paul Leighton can be reached at 978-338-2675 or pleighton@salemnews.com.

Hospital surplus or loss (fiscal year 2011) Lahey Clinic $65,091,473 surplus @tab_RuleBelow: Northeast Hospital Corp. $7,125,496 surplus North Shore Medical Center $14,131,000 loss @boxText_Source: Source: Division of Health Care Finance and Policy