Hospital CEOs, Connecticut spar over finances

The latest financial reports for Connecticut's healthcare systems show, even after paying the controversial hospital tax, most were well into the black at the end of the last fiscal year.

Ten of 17 hospital systems reporting to the state had positive "operating margins" last year, meaning their revenues exceeded their expenses. Gov. Dannel P. Malloy has argued the size of these margins, which at most systems are measured in millions, show they are capable of paying the hospital tax.

But many hospital executives say the extra revenue must be plowed back into the system for new technology, building repairs and upgrades, paying off debt and investing in primary-care practices. In recent years, these extra revenues have shrunk so much because of the tax burden that many systems have been forced to cut staff and services, the executives say.

Moreover, they argue, the future is even bleaker this year because the governor has put on hold millions in state hospital aid, which means a corresponding loss of federal matching funds. If the hold is not released, the hospitals will be out some $96 million.

"They've put a burden on us that we no longer have answers for," said Steven Rosenberg, chief financial officer for the Western Connecticut Health Network, which includes Danbury, New Milford and Norwalk hospitals. "We desperately need their help because we cannot afford to pay $55 million in taxes and continue to operate sustainably over time."

The Malloy administration has said it had no choice in withholding the aid because of the state budget crisis, but if the Legislature passes a GOP proposal to close the deficit, which includes restoration of the hospital aid, the governor will sign it.

In the meantime, however, "the decision point is really whether hundreds of millions in supplemental dollars will be given to hospitals while important social services are cut," spokesman Chris McClure said in an email.

McClure noted other sources of revenue, including Medicaid, are unaffected by the hold.

"Hospitals are receiving — and will continue to receive — billions of dollars from the state through Medicaid and from state employees' insurance plans," he said.

And he repeated previous barbed comments by the governor regarding the high salaries of system CEOs, many of who earn $1 million or more a year.

"There is a certain incongruity to hospital health systems again reporting surpluses of hundreds of millions of dollars, while their highly paid executives and the deep pockets of the (Connecticut Hospital Association) decry a temporary hold in payments," McClure said.

Hospital executives counter that it's wrong to treat nonprofit health systems as if they were for-profit corporations.

"We're a not-for-profit, which means we don't have shareholders; the community effectively owns us," said Kevin Gage, the chief financial officer at Stamford Health. "The only thing we can do with profits is reinvest it in the community."

Stephen Frayne, senior vice president of health policy at the Connecticut Hospital Association, said hospital systems cannot survive without healthy operating margins. Ideally, each system would have a margin of at least 4%, he said.

Last year, according to the state Office of Health Care Access, only one system reported an operating margin over that threshold: Yale-New Haven Health Services, which includes Bridgeport and Greenwich hospitals.

The Yale system ended fiscal year 2015 nearly $160 million in the black, a margin just under 4.5%. But spokesman Vin Petrini said that money, plus some of the system's cash reserves, was needed to cover an array of costs including debt, pension obligations, capital improvement and supporting physician practices.

When the state imposes taxes or withholds promised aid, the system has a difficult time keeping control of patient costs, Petrini said.

This year, the hospitals were projected to pay $556 million in taxes, but were expected to get back about $164 million in state aid and federal matching funds. But $96 million of this is on hold.

"If not for these cuts and taxes, we would be able to drop our commercial rates by 10 to 15%," Petrini said.

Health systems report how much they gain or lose from nonoperating sources, such as investments and philanthropy, although these gains and losses are generally kept separate from operating sources.

Yale-New Haven reported a loss of $15.6 million last year in nonoperating revenue. The Western Connecticut Health Network reported a gain of nearly $18.6 million.

On the operating side, the WCHN reported a $12.8 million operating margin, or about 1%, for 2015.

For the current year, the WCHN board approved a budget that envisions no margin whatsoever, but Rosenberg said even that might be optimistic.

"We're not at a break-even pace this year, and we're really struggling with what to do," he said.

The Stamford Health system realized about $15 million from operations last year, for a margin of 2.79%, but lost $2.6 million in nonoperating revenue.

Derby's Griffin Health Services system, one of the state's smaller systems, was about $795,000 in the black, for an operating margin of 0.47%, but lost $627,000 on the nonoperating side.

Patrick Charmel, the system's president and CEO, said numbers like that aren't sustainable.

"You need a profit to survive long-term," he said.



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