Tufts Medicine works on financial turnarounds
Health system avoids peril amid difficult budgeting stresses
Tufts Medicine avoided financial calamity last year, improving its operations enough to satisfy bondholders worried about its stability. But the 15,000-employee nonprofit health care system continues to lose money as it confronts challenges, including heightened staffing costs and problems discharging patients.
The health system is one of several in Massachusetts facing similar financial stresses.
The problems have pushed several hospitals’ operations far into the red, even as things improve from last year.
Tufts Medicine reported a $171 million operating loss in the 12 months ending in September, compared to a nearly $400 million loss in the comparable period last year. Similarly, Beth Israel Lahey Health, the state’s second-largest health system, reported a $132.4 million operating loss in the year ending in September, compared to a $199.5 million loss the year prior.
Fiscal headwinds are pressing on even Mass General Brigham, the state’s largest health system, which earlier this month reported a $95 million operating gain thanks entirely to one-time revenues such as federal funding.
Despite the pressures, Tufts Medicine CEO Michael Dandorph said he sees signs for optimism, touting a turnaround plan he says will get the organization to breakeven by 2025.
To start, Dandorph was confident that Tufts had met all the financial milestones required by its bondholders. Tufts had been in hot water for months because it wasn’t generating enough cash to pay off its debt, forcing the health system to spend down reserves. Tufts had until September to increase its cash flow above certain thresholds, or risk bondholders bringing in a third party to restructure its operations.
That success comes as the health system — which includes flagship Tufts Medical Cen
By Jessica Bartlett GLOBE STAFF
ter as well as Lowell General Hospital and MelroseWakefield Healthcare — has managed through some of its more immediate issues. It implemented a new electronic medical record system, which also functions as a billing software. That technology adjustment, though costly, effectively combined 27 individual software systems into one.
The process initially slowed the system’s ability to collect money for the services it provides, Dandorph said, though the system is now fully implemented and payments are processing more quickly.
The health system has also reduced its reliance on temporary staffing. Tufts had been spending far more than other comparable systems because it had been relatively late to the market, as hospitals staffed up with short-timers in recent years. But Tufts has stepped up its efforts to recruit permanent staff, reducing its monthly cost on temporary labor from $20 million to $8 million.
While recruiting for permanent positions, the system also trimmed many roles to further cut costs. The reduction of more than 200 positions, announced in January, also was expected to save the health system $22 million annually.
Overall, executives successfully held down expenses, which grew 4 percent, to $2.77 billion. At the same time, the system grew its revenue by 14 percent, to $2.6 billion.
Tufts has had some success dealing with a statewide capacity shortage sparked by difficulties finding beds for patients who are ready for discharge. Dandorph said his organization has leased beds in nursing homes, giving them a dedicated place to send patients who no longer need hospital care but aren’t ready to return home.
That has allowed the hospital to see more patients, bringing in more revenue.
Executives have also brought in more staff and grown volume in key areas. It performed 61 heart transplants last year, breaking the state record it held from the previous year, and it restarted a liver transplant program. Cardiac, cancer, neuroscience, GI, and OBGYN programs also saw growth.
More growth is possible, Dandorph said, once the health system fills its remaining 1,000 open jobs. But patient demand for services is there, Dandorph said, and Tufts is working to meet it.
“That’s really where my optimism comes from,” he said.
Dandorph acknowledged that Tufts would have to continue its pace of growth if it is to meet its turnaround goals. This is particularly urgent because the system reported $157 million in one time revenue, such as federal funds, that will dry up in future years.
“We need another year of that kind of growth while holding expenses in check,” Dandorph said. “That’s ultimately how we work out of this. From an operations perspective, it’s the fundamental blocking and tackling, of maximizing our capacity to continue to see growth.”
Beth Israel Lahey Health reported similar progress compared to last year, but operational headwinds have prevented further improvement.
Labor costs contributed to escalating expenses, which grew 10 percent to $8 billion. Meanwhile revenues grew 11 percent to $7.9 billion. Similarly, the health system benefited from $48.5 million in COVID relief funding and $7.1 million in federal emergency management funding.
“Like other health care systems, we continue to face challenges stemming from the pandemic including increased labor costs,” said Cindy Rios, chief financial officer at BILH, in a statement. “We continue to make progress in many areas including reducing the length of stay for patients, and better managing patient acuity by utilizing our transfer center. While there is still more work to do, we are confident we have put the initiatives in place that we need to support long-term growth and stability.”
Despite operational pressures, both systems’ investment portfolios and other non-core operations have helped them weather otherwise trying times. BILH reported a $11.9 million net margin. At Tufts, a $139.5 million sale of its outpatient lab business to LabCorp contributed to a $1.56 million net margin.