Monday, July 07, 2014

A death spiral in Worcester?

"What would you do if you were Eric Dickson?" I asked a knowledgeable colleague about the CEO of the financially troubled U. Mass Memorial Health Care. 

"I'd get another job," he replied. "That place is in a death spiral."

Dr. Dickson, by all accounts, is a thoughtful, honest, and effective leader, with a terrific sense of what it takes to improve hospital work and clinical processes.  So, if my colleague's remarks are accurate, the seeds of that destruction were planted before his arrival.  I have heard for over 15 years about poor operational decisions and labor strife in Worcester.  Those factors left a terrible legacy.  If we go back to 2012, when the previous CEO announced his resignation, the Telegram and Gazette noted:

The system posted a $27.9 million surplus in the fiscal year that ended in June 2011, but that was down 67 percent from 2010.

In February, UMass Memorial announced it wanted to close a $50 million gap in its $2.5 billion budget and would lay off 150 workers and sell two businesses employing an additional 750 people. UMass Memorial blamed its budget cutting on lower numbers of patients, more free care for patients unable to pay and pressure from employers and insurers to restrain medical costs. 

During [the CEO's] tenure, the health system completed a number of construction projects, including the Lakeside Wing expansion to the University campus, which added a new emergency department and other facilities to the busy hospital. UMass Memorial added medical facilities in Milford and Southboro, opened new doctors’ offices in the region, added medical staff and developed centers focused on heart and vascular, musculoskeletal, diabetes and cancer care. 

It was bad timing to invest in new buildings. But that was just the least of the problems.  As reported in the Worcester Business Journal this past April:

UMass Memorial announced it was facing an operating loss of $57 million at the end of its fiscal year last fall; the system was operating in the red as of the first quarter of 2014, according to Dickson's blog.

To stop the bleeding, UMMHC executives have conducted a series of layoffs, eliminating at least 357 positions across the system by the end of March. Layoffs were rumored to have continued into the beginning of April, but UMMHC has not confirmed additional cuts.

Meanwhile, the system has agreed to sell Palmer-based Wing Memorial Hospital and Medical Centers to Baystate Health of Springfield, curtailing UMMHC's reach into the western half of the state, and it had already sold its home-based health and outreach laboratory businesses in 2012 to focus on core services.

Dr. Dickson is boldly fighting back--displaying admirable honesty--neither claiming victory nor giving up hope.  On one of his recent blog posts, he said:

Over the past week, you may have seen articles about our current financial performance . As the articles suggest, the patient (us) has been stabilized, but it is not out of the woods yet.

One article, in the Boston Business Journal, lays out the up's and down's:

“We will continue to see some re-sizing,” said Sergio Melgar, who joined UMassMemorial in January as its new chief financial officer. During an interview with the Boston Business Journal, Melgar said any future moves will depend on the strength of the system’s revenue in the months ahead.

“If revenue volume drops ... We will learn to live within the means of the revenue coming in,” Melgar said.

During the first six months of the fiscal year, UMassMemorial’s inpatient volume declined by about 8 percent, while lower-cost outpatient services were up about 2 percent. Melgar said the six-month performance included a steep drop — between 10 percent and 15 percent — in patient volume in the first quarter that was later offset by a strong rebound in care in the following three months.
Melgar said UMassMemorial’s strong patient volume in April marked its first year-over-year gain for a given month since 2012, adding that the momentum also appears to have carried over into May. “We will be up year-over-year,” he said.

Well, I don't know how to put this more gently, but I predict the upward bump will go away and the long-term pattern of reduced revenue will remain. As noted, the system has sold off important feeder community hospitals as well as some ancillary service lines.  But beyond that, its ranking as a high-cost tier of tertiary center means that patients are being referred to the lower cost St. Vincent Hospital just a few minutes away. 

As noted by the Telegram and Gazette in April:

UMass Memorial Medical Center has been in a competitive battle for patients with cross-town rival St. Vincent Hospital, a Tenet Healthcare Corp. 300-bed hospital that a number of insurance plans present to patients as a lower-cost place for care.

Between 2008 and 2012, inpatient discharges jumped 8 percent at St. Vincent but inched up only 0.9 percent at UMass Memorial Medical Center, according to data from the state Center for Health Information and Analysis. 

By all accounts, St. Vincent's continues to burst at the seams with business. Reliant Medical Group, for example, serves about 200,000 people as the largest multi-specialty practice in the Worcester region.  Over 80% of its patients are on a capitated payment regime, and so the cost of tertiary services is a key factor in deciding whether to send patients to U. Mass or St. Vincent.

If it turns out U Mass cannot recover, what happens?  Well, in Arizona, a similar situation arose with regard to the state-owned hospital, and here was the result, according to the Republic:

The Arizona Board of Regents and University of Arizona Health Network endorsed the framework of a deal that would allow Banner Health to pursue an acquisition of the Tucson-based health system and its two hospitals.

Banner Health, UA Health Network and the University of Arizona still must finalize details of that pact, which is expected to have broad implications for Arizona's health care, the UA's medical school campuses in Phoenix and Tucson and medical research statewide.

Banner and UA Health Network boards on Thursday approved a "principles of agreement" draft that spells out Banner's intent to invest nearly $1 billion to acquire UA Health Network and affiliate with the University of Arizona. The document does not list a purchase price, and details may change. Officials expect to wrap up negotiations this fall, possibly by September. 

Who could rescue U Mass Memorial?  Would the state have the nerve to invite Partners Healthcare System to continue its westward expansion?


Anonymous said...

How about Baystate as a partner for Umass Memorial?

Paul Levy said...

Good thought, too, but I don't know if they have a sufficient balance sheet.

The Medical Contrarian said...

Acquisition would mean that the cost cutting would really begin in earnest.

nonlocal MD said...

Now there's your solution, Massachusetts - scrap the AG agreement with Partners and write one that only allows them to acquire MA hospitals which are losing money - and then they have to keep them open. They have enough dough to do it.

Barry Carol said...

What I don’t understand is what is the root cause of UMM’s competitive disadvantage in their market? Is it a persistently low occupancy rate, a poor payer mix (too many uninsured and Medicaid patients), inherently higher costs due to above market salaries or something else?

I think price competition is a good thing and if St. Vincent’s can handle most care competently at significantly lower cost, they deserve to win more business. Tenant, though, is a for-profit hospital chain which suggests its payer mix is above average.

I’m all for insurance companies putting hospitals into different coinsurance tiers based on costs for comparable quality care. I also like regulations that allow insurers to contract with some hospitals within a system but not others. On that issue, I was very disappointed to learn that the separate contracting rule that PHS negotiated with the MA Attorney General still requires insurers to accept both MGH and B&W in their networks or they must exclude both. Allowing insurers to contract with one but not the other would have been a definite improvement over the status quo.

The next step will be to encourage more intra and inter-regional medical tourism where it makes sense if the potential savings are enough to make it worthwhile.