A message from
Dennis W. Chalke,
Senior Vice President,
Chief Financial Officer &
Treasurer of Baystate Health
Health care organizations across the Commonwealth and the nation continue to operate in a very challenging financial environment resulting in negative industry outlooks from both Fitch and Moody’s rating agencies. Pressures include revenue challenges, such as depressed commercial rate increases and a growing share of low-pay governmental payers (Medicare and Medicaid). In addition, the industry is facing significant expense growth driven by pharmaceutical and supply costs and salary increases due to nursing and various physician shortages.
In order to address these significant financial challenges, Baystate Health has proactively pursued financial improvement strategies over the past five years which have yielded more than $175 million of cumulative annual revenue enhancements or expense reductions. These include supply chain savings, energy savings from investments in a new cogeneration plant and other technologies, staff benchmarking, growth in our pharmacy program, and numerous activities to improve our revenue cycle. As a result of these activities and growing volumes, Baystate Health finished the fiscal year ended September 30, 2018 with an operating margin of $51.8 million or 2.2 percent. This exceeded, by more than 20 percent, the previous year’s results of $42.8 million before other non-recurring expenses. This margin is reinvested into the organization and helps fund our capital plan and significant investments in facilities, equipment, and information technology we make each year.
As a result of our strong and consistent performance, Standard & Poor’s and Fitch affirmed Baystate Health’s A+ bond rating with a stable outlook in May and October 2018, respectively. Baystate Health is one of only four health systems in New England with an A+ rating. This enables us to borrow for major projects, such as investments in technology and facilities, at lower interest rates.
In fiscal year 2018, Baystate Health realized a 4.5 percent increase in patient and other related revenues due to higher year over year volumes and very modest price increases. Baystate Health’s patient volumes were significant with over 53,000 admissions, 207,000 emergency room visits, 36,600 surgeries and almost 462,000 ambulatory visits. Health New England (HNE), however, experienced a decline in revenue of 10.6 percent for the year due to the decrease in enrollment by 28,000 members. This was primarily due to a change in the state Medicaid program, which reduced the traditional Medicaid plan options. The remaining HNE Medicaid enrollees are part of an accountable care organization in partnership with physicians at Baystate Health clinics and Caring Health, a Federally Qualified Health Center (FQHC) with three locations serving the Springfield community.
Although total revenues dropped 1.2 percent year over year, expenses dropped even more at 1.9 percent. Much of this was attributable to the change in enrollment at HNE as discussed above. In addition, expenses at the provider units continue to be well managed and in line with volumes. As a result, all of the key financial ratios for Baystate Health improved this year.
Health care reform and the Affordable Care Act (ACA) continue to have a major impact on the health care delivery system nationally, and while the future of the ACA may be in doubt, its foundation will remain. The shift from volume-based, fee-for-service payments to value-based payments has now been adopted by Medicare, Medicaid and most commercial payers. Under value-based contracts, physicians and hospitals’ payments are based on various quality and efficiency metrics and these contracts are expected to grow in the future. This shift to value is forcing hospitals and providers to rethink how care is best delivered. New investments in care management and IT systems to better manage care are essential. Quality performance, patient satisfaction and the efficient delivery of care are critical to the success of health care systems.
In addition to the national trends, Massachusetts hospitals continue to be challenged by the growth and underfunding of Medicaid. This program now includes approximately 1.9 million residents or 28 percent of the population and payments from the Commonwealth are more than 20 percent below the actual cost of hospital services. The Commonwealth has developed an Accountable Care Organization strategy putting providers at risk for the cost of care to treat patients covered by Medicaid.
While undergoing major challenges, Baystate Health is well positioned for the future. We continue to provide high quality, efficient care and are investing in resources required to be successful given the challenges of health care reform and population health. Baystate Health is committed to continuous improvement in the areas of employee engagement, clinical quality outcomes, patient satisfaction, and cost reduction, and we expect continued advancements in these areas.
Our independent public accountants, Deloitte & Touche LLP, have completed an audit of Baystate Health’s financial statements for the fiscal year ended 2018 and issued an unqualified opinion.