Hospital’s financial health improves

MD Anderson Cancer Center has begun showing signs of remedying the financial ills that prompted a massive workforce reduction earlier this year.

The elite Houston hospital recorded its fourth consecutive month of positive operating margins in April, a clear turnabout from the previous 16 months, when it lost $436 million. That led to the January slashing of roughly 1,000 jobs, 778 of them by layoffs; the remainder were cut through attrition.

“No promises, but we’re optimistic the ship has been turned in the right direction,” said Dr. Stephen Hahn, MD Anderson’s chief operating officer. “The balance sheet is excellent and our revenue is up significantly.”

MD Anderson still has overall operating losses of $44 million for the fiscal year, but Hahn said he is

optimistic revenues will exceed expenses by Aug. 30, the year’s end. Such losses hit $170 million at the end of December.

Hahn acknowledged that “headwinds for all health care, including cancer” — such as the repeal and replacement of the Affordable Care Act or deep cuts to the National Institutes of Health budget — still could complicate the cancer center’s financial picture. He said the center’s leadership is paying close attention to any and all possible changes.

Operating margins are considered a key indicator of a hospital’s financial health, even if they do not tell the whole story. Thanks to other revenue streams, such as state funding and philanthropy, MD Anderson remained in the black throughout its rocky 16-month period.

Hahn attributed MD Anderson’s improved financial health to increased patient volumes, better collections and “a continued holding of the line on expenses.” He said “the full effect of the workforce reduction is beginning to be seen now,” a reference to most of the severance pay-outs having ended at this point.

From January through April, revenue is up 6 percent, Hahn said. Expenses are up 1 percent.

Economist urges caution

One Houston health care economist agreed that the new numbers are encouraging, but cautioned about declaring victory yet.

“This is a good start, particularly since patient revenues rose substantially while expenses were held in check, but we should wait a few more months to see whether MD Anderson can sustain this pattern,” said Vivian Ho, director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy. “There is so much uncertainty about the funding of health care right now, and factors beyond the institution’s control could lead to a downturn.”

Financial troubles rocked the world-renowned cancer center from September 2015 through December 2016. It suffered operating losses of $266 million in fiscal year 2016, then $42 million in September, $61 million in October, $9 million in November and $58 million in December.

Officials attributed much of the losses to a new electronic record-keeping system, launched in March 2016, whose steep learning curve has hurt productivity at many institutions. Excessive spending and insurance coverage changes also contributed.

January’s subsequent workforce reduction was the largest in the institution’s history. Two months later, Dr. Ron DePinho resigned as president.

New year brings good news

The trend changed with the start of 2017 — MD Anderson’s operating revenues exceeded its expenses by $92 million in January, $20 million in February and $13 million in March.

January’s figure benefited from a one-time Medicare payment of $71 million.

April’s numbers were barely positive — up $590,608 — but Hahn said they beat expectations for a month with just 20 working days. He said officials had projected a small negative margin.

Hahn added that he is hopeful about ending the year with a positive margin because MD Anderson’s May-to-August numbers typically tend to be positive. He said he thinks the center should “get close to its budget target of a positive $25 million.”

“These results are very encouraging considering MD Anderson’s previous year financial performance,” said Dr. Janis Orlowski, chief health care officer for the Association of American Medical Colleges.

“The tough job ahead is to continue to improve and stabilize financial performance while still meeting their goals of clinical excellence, education, and innovative research.”