[N]orthwestern Medical Center administrators are cutting expenses – including potential savings of $1 million from staffing reductions – in an effort to improve the St. Albans hospital’s bottom line.
The hospital lost $3.7 million on operations in fiscal year 2018. But Finance Director Stephanie Breault told the Green Mountain Care Board on Monday that Northwestern is poised to push that number into the black in the current fiscal year.
To make that happen, the hospital has an “operational improvement plan” that includes reducing workforce by 27.5 full-time-equivalent positions.
“We’re committed to doing that really through redesign and through attrition, and not by doing layoffs at Northwestern,” she said.
Eight of Vermont’s 14 medical hospitals lost money on operations in the fiscal year that ended Sept. 30. That – along with ongoing financial issues at Springfield Hospital – has prompted further conversations about the pressures faced by small, rural hospitals.
The Green Mountain Care Board still is sorting through the details of fiscal 2018 hospital budget performance. Hospitals that strayed too far from their board-approved budgets face review and potential regulatory action.
That’s why two Northwestern administrators – Breault and Chief Executive Officer Jill Berry Bowen – appeared before the care board on Monday. The hospital ended fiscal 2018 with revenues that were 2.6 percent below its approved $106 million budget.
Officials also are concerned that Northwestern’s operating margin is heading in the wrong direction.
The hospital had positive operating income of $7.57 million in fiscal 2014 and $10.06 million the following year. But that declined to $3.66 million in fiscal year 2016 and descended into the negatives after that: Northwestern lost $1.26 million on operations in fiscal 2017 and $3.73 million last year.
Care board statistics show that Northwestern’s expenses have been growing at a much faster rate than its revenues for the past several years. That mirrors a trend seen throughout Vermont.
Breault said the hospital’s lower-than-expected revenues in fiscal 2018 largely were due to “a continued shift from the inpatient setting to the outpatient setting.” She noted a decline in admissions, emergency department visits and the number of days patients spent in the hospital.
Those are kinds of results officials are shooting for in Vermont’s all-payer health care reform program.
“It’s really what we expect to see as we invest more in our care management and our other programs that are really designed to keep folks out of the hospital,” Breault said. “Our challenge … is really to predict how fast those shifts are going to occur in our volumes.”
She added that such predictions “can be a little bit tricky.” And Northwestern’s fiscal 2018 budget performance shows that, as the hospital finished with revenues that were $5.5 million under budget.
Breault said the hospital also saw greater-than-expected bad debt write-offs and went over budget on salaries and benefits.
“We’re in good company when we talk about wage pressure and the challenges we have there,” Breault said. “We’re trying to strike that balance between having an operating margin and having a sustainable business but at the same time retain and recruit (staff).”
Things are looking up in fiscal 2019, administrators said. The hospital’s patient revenue is “running closer to budget” in the current year, and Breault said Northwestern has a $2.8 million improvement plan that features cost-cutting and increased revenues.
That plan includes $645,000 in contractual savings and another $204,000 in reductions from eliminating waste or inefficiencies.
“But we know that the largest expense we have is our workforce, and so we know that the largest amount of our reduction is going to have to come from that area,” Breault said.
The plan to reduce staffing by 27.5 full-time-equivalent positions could be modified upward or downward, Breault said, because the hospital’s financial targets still are changing.
But Bowen said the workforce reductions are “non-clinical,” with the focus instead on administrative and support staff. “No. 1 for us is patient care,” Bowen said.
Care board Chair Kevin Mullin applauded Northwestern’s emphasis on reducing expenses.
“You have the dubious distinction for the previous five years of being tied with one other hospital for the fastest growing increase in operating expenses,” Mullin said. “So I just want to say that I think you’re focused on the right area.”
Northwestern is projecting that there won’t be a third consecutive year of operating losses: Breault said the hospital’s operating margin is expected to be somewhere between break-even and 1 percent.
But the hospital’s efforts to get back on track and adjust to new health care trends won’t end with this fiscal year. Bowen said Northwestern just completed a community health needs assessment, and the top priorities include mental health.
Like other Vermont hospitals, Northwestern has struggled to deal with an influx of mental health patients. The hospital is planning an emergency department upgrade geared in part toward improving spaces for psychiatric patients.
That shows why Northwestern, despite seeing declines in overall emergency department visits, can’t pull resources from that area, Bowen said. “Our volumes are down, but the complexity of care is up,” she said.
Bowen said the hospital also is beginning a strategic planning process this month. That will include conversations about what areas to invest in, and where it can divest.
“It’s a juggling act – how do we redefine who we are as a hospital?” Bowen said.
The care board’s Monday hearing also included a presentation from Gifford Medical Center, which is pursuing a financial turnaround and recently received a budget adjustment from the care board in order to collect more revenue this fiscal year.
Upcoming care board hospital budget hearings include Mount Ascutney Hospital and North Country Hospital on Wednesday and Copley Hospital on Friday.
Also, the care board has scheduled a hearing for Springfield Hospital on April 17. Board members will consider the hospital’s fiscal 2018 budget performance as well as the hospital’s request for a fiscal 2019 budget adjustment in order to further stabilize “tenuous” finances.
The care board has opened a public comment period on Springfield’s request.
