Hartford Business Journal

16 Hartford Business Journal • May 4, 2015 www.HartfordBusiness.com Quality Construction + Butler Manufacturing = Repeat Customers www.borghesibuilding.com © 2011 BlueScope Buildings North America, Inc. All rights reserved. Butler Manufacturing™ is a division of BlueScope Buildings North America, Inc. 2155 East Main Street • Torrington, Connecticut 06790 317–321 Federal Road, Brookfield, CT | 2005 | 31,000 sq ft 270–290 Federal Road, Brookfield, CT 2002 | 33,000 sq ft 227-235 Federal Road, Brookfield, CT 2014 | 25,000 sq ft Contact us at 1-855-BUILD-86 or visit us on the web. reflects results from individual hospitals. But hospitals, executives say, are part of larger healthcare networks that have experi- enced much slimmer margins in recent years. In fact, the state's 21 health systems, each of which owns a variety of institutions ranging from hospitals and physician practices to nurs- ing homes and home health agencies, actually posted a -0.23 percent operating margin in fis- cal 2014, according to financial data collected by the Office of Health Care Access (OHCA). Nearly a third of the state's healthcare net- works experienced operating losses last fiscal year, OHCA data shows. The conflicting numbers, CFOs say, reflect the complex nature of hospital finances and the limited financial flexibility of some provider networks. It also adds to the growing debate over how to assess the health of local hospital systems, and how much they should contribute to help the state close its billion-dollar deficits projected for the next two fiscal years. The Malloy Administration, which has argued healthcare providers have fat to trim from their budgets, has proposed funding cuts and higher taxes that could cost hospitals more than $750 million in annual revenue, according to the Connecticut Hospital Association. Last week, the finance committee proposed an alternative budget that would raise $321 million in new hospital taxes. "To talk about the performance of hospi- tals and point to one part of our total income statement is not a true indicator of how well Eastern Connecticut Health Network is doing or any other healthcare system for that mat- ter," said Michael Veillette, CFO of ECHN, which owns Manchester Memorial and Rock- ville General hospitals. Detailing discrepancies Health networks serve as parent companies to hospitals, and they've been growing signifi- cantly in recent years as a major consolidation wave sweeps through the state. Besides hospitals, many health systems have aggressively added physician groups and other services includ- ing nursing homes, home health agen- cies, and behavioral health practices. Veillette said the true health of the industry can only be judged by looking at the networks as a whole. ECHN's two hospitals, for example, had relatively strong showings last fiscal year: Manchester Memorial and Rockville General had operat- ing margins of 2.26 percent and 3.7 percent, respectively. But ECHN, which also owns a nursing home, physician groups, a real estate company, and a visiting nurse association, barely made it into the black, squeaking out a 0.67 percent operating margin, OHCA data shows. A healthy margin is considered to be between 3 percent and 5 percent. In nearly all cases, Connecticut's individual hospitals outperformed their parent company. St. Francis Hospital and Medical Center, for example, posted a 2.11 percent operating mar- gin in fiscal 2014, but its parent, St. Francis Care, had only a 1.43 percent margin. Hartford Hos- pital recorded a 3.37 percent operating margin last year; its parent, Hartford Healthcare, had a 2.06 percent margin, OHCA data shows. Explaining the minutiae of hospital finances isn't some- thing CFOs do often, but it's part of the industry's strategy to lobby lawmakers against approving the deep funding cuts and tax increas- es proposed under Gov. Dannel P. Malloy's budget. Malloy's budget office, however, has been steadfast in its approach to hospital funding. "The fact is that nonprofit hospitals earned more than half a billion dollars in profit last year," said Gian-Carl Casa, undersecretary for legislative affairs of the Office of Policy and Management. "Payments from the state to hospitals under the state Medicaid program are expected to be about $1.8 billion this year, compared to a decade ago when they were $785 million. That's more than double. Hospital net assets totaled $5.6 billion in FY 2013, up around 40 percent since FY 2009. It may be time for them to think about things built into their cost structures." Costly doc groups The single biggest driver of why individual hospitals typically outperform their parent net- works is the investment in physician practices, CFOs say. Hospital systems have been aggres- sively acquiring doctor groups in recent years as small independent practices find it finan- cially more difficult to survive on their own. The trend has also been spurred by changes in the way health care is delivered and paid for, but buying practices can often be a money los- ing venture for hospital networks, at least in the short term, CFOs say. According to the New England Journal of Medicine, hospitals lose an average of $150,000 to $250,000 per year over the first three years of employing a physician, largely because of the added salary and benefits costs. St. Francis Medical Group, for example, which employs 200 providers including advanced practice nurses, physician assis- tants, and specialists, recorded a $22.7 mil- lion operating loss in fiscal 2014. ECHN's Eastern CT Medical Professionals, which employs about 30 physicians, lost $7 mil- lion last year. Lawrence & Memorial Corp., par- ent to New London's Lawrence & Memorial Hos- pital, saw its doctors' group post a $23.1 million Doc practices prove costly to health networks from page 1 ▶ ▶ Malloy's budget office has been steadfast in its approach to hospital funding. 2 0 1 5 N O M I N AT I O N S F O R 2 0 1 5 A R E O P E N ! Visit HartfordBusiness.com and click on "OUR EVENTS" to fill out an online nomination form today! N o m i n a t e h i m o r h e r fo r t h e H a r t fo rd B u s i n e s s Jo u r n a l ' s 2 0 1 5 4 0 U N D E R F O R T Y AWA R D S ! We're looking for candidates who share a commitment to business growth, personal excellence and deep community involvement. The people who are shaping the future of Greater Hartford. Nominate yourself — or someone you know! Go to www.HartfordBusiness.com and click on the "Our Events" tab. Nomination deadline is May 26, 2015 Winners will be recognized in a special Issue of the Hartford Business Journal publishing on July 20, and at an awards event on September 30 at the Connecticut Convention Center! A candidate: • Must work in the Greater Hartford area • May be self-nominated or nominated by someone else • Should be owner, founder, partner, president, CEO, CFO, COO, board chairman, senior executive or a person with significant authority for decision-making in a public or private company, non-profit or government facility • Must be under the age of 40 as of December 31, 2015 to be eligible • Must not be a previous 40 Under Forty winner. Winners will be profiled in the Hartford Business Journal's July 20, 2015 edition K n o w s o m e o n e yo u n g , e n e r g e t i c a n d s u c c e s s f u l ? Event Sponsors: Event Partners: Presenting Sponsor: In Association With:

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