March 4, 2005

Leadership meeting focuses on hospital's financial performance

While the MGH remains in a strong financial position — especially compared with other Massachusetts hospitals — some trends in recent months have caused concerns that call for measured responses to bring the hospital closer to its fiscal '05 budget. These trends and some corrective strategies were discussed at a leadership meeting March 1. Katie Hope, MGH budget director, explained that the hospital's year-to-date operating results lag behind budget by $6.8 million. She also noted that the $27.1 million year-to-date operating gain is slightly better than the operating gain at this time last year.

The worrisome trends relate primarily to patient care activity, which has been running lower than expected on both the inpatient and outpatient sides. Total revenue was behind budget by $15.3 million, with $14.2 million of this unfavorable variance coming from net patient service revenue. Factors that affected volume included a longer average length of stay — 6.14 days, or .27 days higher than budget — which prevented many hospital transfers and other patients from being able to access inpatient services. The snowstorm in January also affected these trends. In addition, a decreased amount of royalty revenue affected the negative variance in non-patient revenue. This unfavorable revenue picture was partially offset by expenses, which were under budget by $8.6 million. Expenses, however, are expected to increase later in the fiscal year because of the hiring of additional FTEs and building projects, such as the new research building at Charles River Plaza.

There are several responses the hospital is developing to help offset these negative trends, including creating a high-level plan to help get back to budget by the end of the fiscal year. The hospital also will be evaluating patient throughput issues, focusing on decreasing the length of stay and enabling more patients to get access to hospital services. Controlling expenses where possible will be a major part of the hospital's response plan. One such effort is a hiring review process for the MGH and the Massachusetts General Physicians Organization to better manage vacant positions. Managers, department heads, vice presidents and chiefs of service will be asked to review vacant positions to determine whether they can delay filling or even eliminate the position. Jeff Davis, senior vice president for Human Resources, said that this process would be similar to the hiring review that was implemented in 2003. In addition to the hiring review, managers have been asked to evaluate non-salary expenses to identify opportunities for reductions.

"The good news is that we are the most profitable hospital in Massachusetts thanks to the hard work of our physicians, nurses, other health care professionals, managers and staff," said Peter L. Slavin, MD, president of the MGH. "The MGH has high aspirations, however, to accomplish a great deal — such as completing the Yawkey Center and the new research building, all of which require us to meet our operating margin target to generate the capital needed. By taking some measured steps, we can better manage these troublesome trends that are affecting our operating margin. This institution always responds to any challenge we have faced in the past, and I'm sure that we can overcome this challenge as well."