METRO WEST DAILY NEWS
By Jon Brodkin / News Staff Writer
Sunday, February 15, 2004
When prospective buyers of MetroWest
Medical Center start scouring the hospital's financial records, the figure $13
million will stand out pretty quickly.
That's how much the hospital has earned in
profits over the last two years, marking a sudden turnaround after years of
financial failure.
While the decision to buy a hospital rests on
many factors beyond short-term financial success, MetroWest Medical Center's
recent profitability will help owner Tenet Healthcare Corp. find a buyer,
industry observers say.
"It helps a little," said Alan Sager, a
Boston University health services professor and co-director of the school's
Health Reform Program. "Everything's for sale if the price is right. If
the margins are higher the sale price is higher. If the margins are lower the
sale price is lower."
Financial data compiled by the state Division of
Health Care Finance and Policy shows that MetroWest Medical Center is more
profitable than a variety of MetroWest and Boston hospitals, many of which posted
lower operating margins or lost money in 2003.
St. Vincent Hospital in Worcester, another
Tenet-owned facility up for sale, earned an operating margin of .93 percent, or
$1.4 million in fiscal 2003, after three years of losing money.
Hospitals that lost money in 2003 include
Marlborough Hospital, Newton-Wellesley and the Dana-Farber Cancer Institute in
Boston. Earning profits in Massachusetts is difficult due to regulations that
are more stringent than those in other states, analysts say. The median
operating margin in 2003 was only one-tenth of one percent, according to the
state.
MetroWest Medical Center had lost money in at
least four consecutive years before earning $7.7 million in calendar year 2002,
a 4.16 percent operating margin. The margin through the first nine months of
2003 was 3.67 percent with earnings of $5.4 million, meaning the hospital has
earned at least $13 million in the past two years.
By contrast, the hospital's operating loss in
2001 was $2.4 million and just under $2 million the previous year.
The newly found success of MetroWest Medical
Center, whose assets are valued at $92.7 million, is driven by a variety of
factors, said CEO Mark Clement.
When Clement became CEO in late 2000, one year
after Tenet bought MetroWest Medical Center, it was clear the hospital was
struggling, he said. A lack of stability in leadership and ownership and an
insufficient pool of doctors led local patients to turn elsewhere for care, he
said. Reimbursements the hospital collected from HMOs were also subpar, Clement
said.
Clement made some staff changes, including hiring
a new chief financial officer, and began renegotiating deals with HMOs and
improving quality to attract patients, he said. Increases in payments from HMOs
ranged from 10 percent to 20 percent, he said.
"We went to work three years ago on
renegotiating our relationship with those health plans to ensure we were being
paid fair rates for the services we were providing to their members,"
Clement said.
At the same time, the hospital began recruiting
more doctors, raising the level of full-time physicians from 390 to today's
total of 435. Also, Tenet has spent $40 million on new technology and facility
improvements during Clement's tenure.
As a result, Clement said, patient numbers have
increased an average of 2 percent each year over the last three years. Waltham
Hospital's closing last July has not directly contributed to the increase, he
said.
The recent success by itself may not be enough to
attract buyers, though, observers said. While MetroWest is more successful than
many local hospitals, owners of for-profit hospital operators aim for higher
margins, Sager of BU said.
Prospective owners will also analyze other
factors, such as debt, competition, management and scope of services, said
Nancy Kane, who teaches health care management at the Harvard School of Public
Health.
"There's a whole lot of other factors that
go into a purchase decision than two years of profitability," Kane said.
Hospitals in Massachusetts tend not to maintain
significant profit margins over time, so any new owner would need to analyze
the likelihood of continuing profits, she said.
Clement declined to predict future revenues, but
acknowledged the renegotiation of deals with HMOs was a one-time increase and
that the hospital faces financial challenges.
"The cost of operating a hospital in
Massachusetts is probably as high as it is anywhere in the country,"
Clement said. "In this environment, reimbursement rates are not going up
as fast as our costs, our costs of labor, our costs of energy, our cost of
supply."
MetroWest Medical Center's financial success has
come at a time when parent company Tenet is mired in losses.
The corporation was fined $900 million by the
federal government in December 2001 for intentionally overbilling Medicare. Since Tenet changed its Medicare
billing methods, overall profits have disappeared. Tenet lost $578 million in
the 12 months ending Sept. 30.
Tenet recently announced plans to sell 27
hospitals nationwide, including MetroWest Medical Center and St. Vincent, in an
attempt to regain profitability.
Tenet bought MetroWest in 1999 from Columbia/HCA,
HealthCare Corp. whose purchase of the hospital in 1996 made it the first
for-profit hospital in the state. Sager of BU said margins earned by for-profit
hospital operators are often signs of neglect in care.
"The usual explanations (of profits) are
aggressive avoidance of uninsured patients, aggressive collection efforts,
aggressive pricing," he said. "Those are the usual steps taken by
for-profits."
Clement said those perceptions may be true of
most for-profit hospitals, but he defended the medical center's record of helping
the poor, noting that it provides services such as a clinic for the uninsured.
The $40 million that Tenet has invested in the hospital over the past several
years exceeds the profits MetroWest has generated, he said.
MetroWest Medical Center also has the support of
the MetroWest Community Health Care Coalition, a nonprofit that has a formal
relationship with the hospital to jointly review progress in providing free
care and other services locally.
"The Health Care Coalition's experience with
MetroWest is they've been very responsive to the needs of the low-income folks
in our community," said Jerry Desilets, coalition chairman.
Desilets said he believes the hospital's
profitability bodes well for securing an owner that wouldn't cut back on
service.
"Obviously, if the place seemed to be
hemorrhaging money, a prospective buyer might want to look at all sorts of
Draconian strategies," Desilets said. "Given that it seems to be
profitable...I would think it would be an attractive facility for another
entity hoping to do business or expand business."
Speculation on who will buy the hospital has
ranged from a new community group to local nonprofit operators such as Partners
Healthcare Inc. to for-profit corporations such as Essent Healthcare, a
Tennessee-based company that owns five hospitals including Nashoba Valley
Medical Center in Ayer and Merrimack Valley Hospital in Haverhill.
Partners has denied interest, but Essent may
consider buying the hospital, said Hal Andrews, the company's senior vice
president of development.
"I can tell you that we look at a lot of
different opportunities, and I'm sure we'll be contacted about MetroWest and
I'm sure we'll look at it," he said. "I don't know anything about the
operations of the hospital. I know from its location it looks like something
that would be consistent with what else we own."
Tenet aims to find buyers for all 27 hospitals
that are up for sale by the end of this year. Clement is confident MetroWest
will entice a buyer.
"My sense is that the fact we are a strong
community hospital that's operating strongly in the black would make us a more
attractive hospital than one that is struggling financially," he said.
( (Jon Brodkin can be reached at 508-626-4424 or jbrodkin@cnc.com) )