State Budget Cuts Wound Cambridge Health Alliance

Harvard-affiliate hospital system loses out on $40 million in reimbursements this year

Just as the Harvard-affiliated Cambridge Health Alliance was solving its financial problems, Massachusetts slashed $40 million from the hospital system’s expected revenues.

The state notified Health Alliance officials last week that it would not reimburse the system for that sum as part of broader state budget cuts of $200 million in Medicaid payments to providers.

The lost revenue hits the Health Alliance as the system is grappling with its own financial troubles. The health care provider rolled out a strategic planning process early last month in an effort to deal with rising costs and diminishing funds.

The Health Alliance had already instituted a hiring freeze and cut back on discretionary spending in February, and is now in the midst of laying off roughly 300 workers—9 percent of its workforce.

The Health Alliance’s CEO Dennis D. Keefe met Friday with members of the state’s administration, who confirmed that the state is reversing its commitment for certain funding this year, according to a letter he wrote to the community.

Keefe’s letter stated that he has scheduled urgent meetings with various legislative leaders later this week to convey the serious nature of the cuts.

The Health Alliance isn’t the only hospital system affected. Boston Medical Center will lose out on $64 million it had been expecting for care delivered to low-income Medicaid patients last fiscal year.

The Health Alliance’s $40 million in cuts, when combined with other reductions in education and health care management, total almost $55 million—more than 10 percent of its budget. Together the two hospital systems will bear roughly 20 percent of the administration’s emergency cuts, according to Keefe’s letter.

“I reiterated to the Patrick administration, and intend to tell the Legislative leaders, that cuts of this magnitude will require a draconian response,” Keefe wrote. “Exactly what measures we will take in the face of this upsetting development are still being considered but we cannot wait long before we must act.”

Keefe added that the news would not interfere with the strategic planning process slated to near completion in December.

As part of the strategic planning process, the hospital system will close the Oliver Farnum Senior Health Center in December, said Health Alliance spokesman Doug M. Bailey. Over the next three months, the health center will transfer its roughly 100 patients to other clinics.

Bailey repeated multiple times that the Health Alliance will not be “cutting” services, just “removing and consolidating” them.

“There’s a whole host of different things we could do, and I don’t want to single out any right now,” Bailey said. “None of it is pretty though.”

A spokeswoman for the Mass. Office of Health and Human Services expressed support for local health care programs, but did not offer specifics on actions being taken to minimize the damage done by budget cuts.

Health Alliance officials blame much of their financial troubles on the state’s 2006 health care reform program to lower the number of uninsured in the state, which also dropped the rate of reimbursement for hospitals providing uncompensated services.

Instead of full reimbursement, the hospital system now receives 60 to 70 cents for each dollar of uncompensated medical service provided, according to its chief financial officer Gordon H. Boudrow, Jr.

But advocates of the reform defended the plan, arguing that its costs could not have been predicted and in part reflect the program’s success.

“The estimates were just that—estimates,” said Lynn Wickwire, a spokeswoman for Massachusetts Health Care For All, which strongly backed the measure. “Because the program has been so successful, 460,000 people have signed up [for health care]....As a result of that, it has cost more.”

HCFA Research Director Brian Rosman echoed those sentiments, praising the governor for prioritizing health care reforms despite economic difficulties.

“There have been no cuts to eligibility under the new health reform programs, no cuts to any benefits,” Rosman said.

But Rosman said providers would continue to suffer financially.

“There’s certainly going to be substantial cuts to provider payments,” he said.

Rosman said he felt optimistic about governmental support for health care reform, given recently approved federal support and the prospect of a similar program nationwide should Barack Obama win the White House, but Wickwire acknowledged that the economic climate might continue to hurt health care providers.

“When there are cuts, the pain goes across the board,” Wickwire said. Health budget cuts “are not pretty, and it hurts when you have to lay off people.”

—Staff writer June Q. Wu can be reached at junewu@fas.harvard.edu.

—Staff writer Peter F. Zhu can be reached at pzhu@fas.harvard.edu.