Cambridge Hospital Reports $11M Surplus

In an unlikely announcement in municipal government, Cambridge's only public hospital informed City. Manager Robert W. Healy last week that its revenues for this fiscal year will exceed its original estimates--to the tune of $11.3 million.

While not unprecedented, Cambridge Hospital's cash flow surplus is unexpected good news as the city undergoes a reorganization of its public health care system.

"We are delighted that revenues will exceed originally budgeted amounts by at least $11.3 million," wrote Dr. John G. O'Brien '72, chief executive officer of the Cambridge Hospital Community Health Network in a four-page letter to Healy last Thursday.

The letter became available to the public at yesterday's City Council meeting.

O'Brien attributed the surplus to several factors.

"Going into the year, we were very conservative with cash projections, partly in expectation of large Medicare and Medicaid cuts," O'Brien said in an interview yesterday.

"Much more money came in this year than we originally anticipated," O'Brien added.

In his letter, O'Brien attributed the large cash flow to efficient pricing and reimbursement strategies. The city hospital receives state and federal funds to cover the health-care costs of indigent patients.

The original hospital budget had assumed total revenues of $63,447,115 from patient care services and miscellaneous sources. But based on current receipts, the hospital projects at least $74,747,115 to be collected by the end of the fiscal year on June 30.

O'Brien requested the city to divide the surplus, restricting $10 million for capital development and allotting $1.3 million for unforeseen costs not included in the original budget projection.

The city council at last night's meeting passed, 8-0, the allotment of the surplus funds. Mayor Kenneth E. Reeves '72 was attending a school management conference in San Francisco and was not present.

The council's decision designates the $10 million to be used either for "fund depreciation" or to be set aside for future plant and equipment purchases.

Designation of surplus cash funds for long-term capital improvement is common among hospitals, according to O'Brien.

"The approval of the funded depreciation request will enable the hospital...to fund significant capital needs from internally generated funds rather than debt financing," O'Brien wrote. "This will be done causing no additional burden to the taxpayer or city."

First-term Councillor Anthony D. Galluccio, however, raised concerns about O'Brien's proposal at the meeting.

"We are in a difficult financial situation," the councillor told O'Brien. "Have you considered giving some of that money [back] in a show of how well the hospital has done and how well you have done?"

Galluccio said a return of the money would both "relieve some of the tax burden on the city" and be "a great contribution."

"The city has contributed a lot to you," Galluccio said. "Rarely have government agencies given money back."

But Healy defended the allotment of funds toward capital improvement, saying it would be a wise investment in the long run.

"If we can commit to improvements to the system for the annual contribution" that the city makes to the hospital's budget anyway, Healy said, "it will appear to make both fiscal and service sense."

O'Brien agreed, saying health care costs are currently volatile because both Congress and the Clinton Administration are weighing several plans to reform health maintenance organizations (HMOs) and public care facilities.

An agreement between Massachusetts and the federal government over the reimbursement of health care costs is expected next month, O'Brien said. In the meantime, however, "the state reimbursement system right now is in flux," he said.

But Galluccio criticized the $40 million expansion of the hospital, charging that O'Brien wants "to keep reserves in case of federal cuts."

"We're run like most businesses," O'Brien said after the meeting. "[A surplus] lets you take cash reserves you have and designate them for purposes of capital improvement," he said.

But O'Brien conceded that the hospital's good fortune may not be repeated.

"Any cash reserves at a time when you're looking at tightening the belt will come into question," he said. In the event that some of the reserves were reassigned by the city, "we would understand that," O'Brien said.

The hospital is also using $3.1 million from its surplus in fiscal 1993 towards other capital improvements. These include financing for the hospital's senior center, medical equipment, renovation of its physical plant and new computer purchases.