MD Anderson’s prognosis is improving
MD Anderson Cancer Center ends its fiscal year with operating margins in the red, much improved from a disastrous first few months but slightly short of the full recovery it projected this summer.
MD Anderson Cancer Center ended its just-concluded fiscal year with operating margins in the red, much improved from a disastrous first few months but slightly short of the full recovery it projected earlier this summer.
The Houston research hospital’s margins appeared on track to finish in the black a month ago, but an August deficit left expenses $12 million greater than revenues for the year. Officials blamed the relapse on Hurricane Harvey, which resulted in fewer patient visits and more overtime in the month’s last week.
Officials expressed confidence the famed cancer center has turned the corner from last year’s fiscal crisis.
“Harvey was a bump in the road,” said Ben Melson, MD Anderson’s chief financial officer. “August would have been positive had the flooding not occurred, but we’ll make up for it in September.”
MD Anderson suffered no serious damage from Harvey, but flooding deprived it of many patients and staff. It closed its outpatient clinics from Aug. 28 to Aug. 30, then reopened them on a limited basis Aug. 31. The hospital and emergency department remained open throughout
the flooding.
Dr. Stephen Hahn, MD Anderson’s chief operating officer, said August’s small deficit should not detract from the cancer center’s turnaround. It recorded positive margins for seven straight months, from January through August, when its year-to-date fiscal-year margins became positive for the first time in 16 months. It was up $11 million then.
From September 2015 through December 2016, MD Anderson lost nearly $440 million. As a result, it slashed roughly 1,000 jobs in January, 778 of them through layoffs. Two months later, Dr. Ron DePinho was ousted as president. 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 as a whole remained in the black throughout the rocky times.
Warnings last fall
DePinho’s successor, Dr. Peter Pisters, is scheduled to address employees at a town hall meeting Wednesday, his first appearance on campus since UT System regents selected him to head the elite research and treatment center last month. He does not officially start on the job until late this year.
MD Anderson’s turnaround followed October 2016 warnings by Hahn that the center was on track to lose as much as $450 million for the year if it did not gain control of its finances. By summer 2017, it was projecting a positive $25 million margin.
MD Anderson’s fiscal year runs from Sept. 1 to Aug. 31.
Houston health economist Vivian Ho agreed that MD Anderson is on the right path, despite August’s Harvey-caused deficit. “It’s a relief the center appears to be fixing its fiscal problems,” said Ho, director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy. “The question remains whether insurance is going to pay for their higherquality, higher-cost care. But if they can keep this up, it suggests maybe their shortfall was mostly due to start-up difficulties with their electronic recordkeeping system.”
Steep learning curve
At the January announcement of the layoffs, MD Anderson leaders attributed the financial difficulties mostly to the March 2016 launch of the new record-keeping system, known as Epic, which has a steep learning curve known to hurt productivity.
Others, including Ho, have suggested MD Anderson’s financial challenges are more deeply rooted, such as insurance providers pushing them out of networks because their prices are so high, and higher out-of-pocket costs causing patients to go elsewhere.
MD Anderson’s August finances showed an operating loss of $23 million — $366.9 million in expenses, $343.9 million in revenue. They would have been up $37 million had Harvey not flooded the area, Melson said.
The lost or limited days cost MD Anderson about $52 million in reduced revenue, said Melson, who added that the center incurred an additional $8 million in overtime pay to those who staffed the hospital.
‘A lot of momentum’
Harvey probably caused MD Anderson damages in the neighborhood of $1 million, he said, but those expenses came in September.
“We can’t control Mother Nature,” said Hahn. “We’ve had a lot of momentum and, despite the interruption of Harvey, we’re not missing a beat continuing it through September.”