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US hospitals struggle with tight operating margins

A financial crisis at Steward Health Care has rendered the for-profit system as one of the biggest boogeymen in state government circles, but a pair of leaders at Steward hospitals told lawmakers Wednesday that they face many of the same challenges as their peers in nonprofit settings.

Sharp increases in patient demand pushing hospital capacity to its limits emerged as a common theme affecting providers as senators placed a magnifying glass on the state of health care in southeastern Massachusetts.

Several hospital CEOs said they continue to struggle with tight operating margins, especially among those who serve a higher share of the significant number of publicly insured patients, and face strain trying to serve everyone in need. In some cases, the capacity crunch coincides with — or is exacerbated by — staffing shortages and hiring challenges, they said.

And while those macro-level challenges continue to inflict pressure, the upheaval at Steward Health Care that erupted into public view this year has only made the situation more complicated.

Trouble at Steward spills over into other hospitals
Southcoast Health President and CEO David McCready said the spotlight on Steward and its facilities like Saint Anne’s Hospital in Fall River spills over onto other providers.

“A lot of the Fall River region patients, South Coast region patients, are very concerned about getting care at Saint Anne’s — not that anything has changed there, nothing dramatic has changed there,” McCready told lawmakers. “But there’s the worry about what’s going to happen to Steward and Steward hospitals is certainly pushing lots of patients and some staff to our facilities. And, just like everyone else, we have no capacity in our emergency rooms.”

Southcoast Health operates Charlton Memorial Hospital in Fall River, St. Luke’s Hospital in New Bedford and Tobey Hospital in Wareham. McCready said its emergency departments are “almost always full” like many hospitals across the state.

Similar trends are in place at Sturdy Memorial Hospital in Attleboro, where President Aimee Brewer said she sees a “tremendous need for care,” and at Cape Cod Healthcare, where President Michael Lauf said in the past year, “there hasn’t been one day where we haven’t run less than 100% of our licensed occupancy and medical surgical space.”

All three of those systems are organized as nonprofit entities, and they drew praise from state Sen. Paul Feeney during the Senate Post Audit and Oversight Committee hearing.

“You have three organizations here that have just as many struggles as other health care providers across the state, yet you’re finding a way to kind of dig deep and invest in workers, to invest in additional services, to get your census up to 100% capacity where you are every single day,” said Feeney, a Foxborough Democrat. “That says something. … For organizations that are actually doing the right thing and digging deep as opposed to others who are just strictly trying to protect the bottom line or take care of investors, that says something to us.”

Steward hospital emergency rooms are under high demand
A pair of Steward hospitals are experiencing limited capacity, too, in their work as part of a for-profit, private equity-backed system.

Heidi Taylor, the president of Steward’s Morton Hospital in Taunton, said her facility has been running north of a 100% operating rate for the past two years, even after opening a 14-bed surge unit. She said, however, that Morton is in “the best position that we’ve been in in years” after relative success at filling vacancies.

“We feel all of the same challenges everyone else has spoken about today, but I do feel as though we’ve made significant strides and growth in meeting the demands and needs of the community,” she said.

Over at another Steward facility, Good Samaritan Medical Center in Brockton, president Matthew Hesketh said he’s seen a 30% increase in emergency department patient volumes since a fire forced the closure of Brockton Hospital last year.

“We’ve seen a doubling of behavioral health boarders in our emergency department. Prior to the fire, we were in the 10 to 15 [boarders] range. We’re up to 25 to 30,” Hesketh told senators. “For reference, our ED is 43 beds, so you’re talking about a good two-thirds to three-quarters of our real estate is occupied by behavioral health boarders at any given time.”

“I could sense that Senator Feeney was making a point about our not-for-profit partners and stepping up to the plate and not shying away from taking care of the disenfranchised in our communities,” he added, referencing Feeney’s earlier praise for nonprofit hospitals. “I can assure you that we have done the same, and many times at a great loss to the organization, but it’s the right thing to do. Our community is our No. 1 focus. … Regardless of what happens next with Steward Health Care, Good Samaritan Medical Center intends on being here to take care of these patients of every shape, denomination, walk of life, ability to pay, it doesn’t matter to us.”

In the last 60 years, more people, fewer hospitals, workers making less money
The Senate Post Audit and Oversight Committee invited health care industry leaders to testify about care, affordability and staffing at hospitals in the southeastern portion of the state, Cape Cod and the islands. Massachusetts Nurses Association President Katie Murphy said closures and consolidations have curtailed access to care, and she warned that disruptions to Steward’s hospitals would further destabilize the system.

“In 1960, Massachusetts had well over 100 hospitals serving a population of 5.15 million. Today, we have 67 hospitals serving a population of nearly 7 million people,” Murphy said. “Between 1980 and 2016, Massachusetts lost 31 hospitals, the county health system was eliminated and one-third of the state’s health care system was privatized or closed.”

Delivering her own warning that the region “cannot lose any more capacity,” Health and Human Services Secretary Kate Walsh said she wants to use the upheaval at Steward Health Care and other persistent industry challenges as an opportunity to transform delivery of care in the eastern part of the state.

Walsh said state government should “lean in” to help workers find meaningful, well-paying jobs, especially in nursing, behavioral health, long-term care and frontline roles like certified nursing assistants.

“Frankly, we have to raise the salaries of those roles,” Walsh said of frontline care workers. “If you went to Starbucks this morning, your barista is making more money than someone who is taking care of a frail elder in their home, and we need to close that wage gap given what things cost.”

She added that Gov. Maura Healey’s fiscal 2025 budget would make “significant strides” toward that goal.Much of Walsh’s remarks to the Senate panel detailed her team’s work to navigate the financial crisis at Steward and spillover affecting other providers.

Steward’s future is a ‘complicated transaction’
Walsh described the financing structure at Steward — which sold its physical properties years ago and now leases back the hospitals — as “unlike anything I’ve seen” in her career, and added that it has “made their hospitals less attractive to potential acquirers” amid talk of sales.

The former president and CEO of Boston Medical Center Health System, Walsh has also held senior management positions at Brigham and Women’s Hospital, Massachusetts General Hospital and Novartis Institutes for BioMedical Research.

She called Steward’s uncertain future “a very complicated transaction.”

“We have a lot of really smart people looking at the best way to carry our responsibility, which is taking care of patients, making sure people can support their families and making sure that we don’t miss this opportunity to reform the health care system in eastern Mass.,” Walsh said. “We’re thinking of every creative way we can possibly do that.”

The secretary cautioned lawmakers against responding to the crisis too hastily or pursuing sweeping changes, such as outright banning any private equity involvement in health care, without sufficient reflection.

“It’s very easy to say ‘private equity should never be in health care.’ I think that ship has sailed,” Walsh said. “I think we collectively have to figure out how to regulate it and make sure that when a transition occurs, the equity, the capital, the human capital isn’t destroyed in that process. That’s a different conversation than ‘nobody should invest in health care businesses in our state.”

Later in the hearing, Walsh said she wants policymakers to “be careful,” offering the example of service provider Cityblock as something that could inadvertently be harmed by a blanket approach.

“They’ve had great success with a really vulnerable group of patients. They’re completely private equity-backed,” Walsh said. “The broad brushstrokes worry me. But equally, the lack of attention to the exit, which is what private equity is all about, is very damaging to people who are in the business of caring for people, because you can’t leave.”

Regulators continue to review a proposed deal in which Steward would sell its physician network to for-profit insurer Optum.

Health Policy Commission Executive Director David Seltz told senators Wednesday that his organization is still waiting to receive confidential documents about the sale. Once those arrive and the notice is official, the HPC will have 30 days to decide whether to subject the transaction to a broader cost and market impact review, which Seltz said “may take three to six months.” The Herald News

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