June 2, 2006

Health care reform, budget season topics of leadership meeting

With the new health care reform law in Massachusetts making headlines across the nation, the impact of the new law was the topic of a leadership meeting held May 24 in the O'Keeffe Auditorium. James J. Mongan, MD, president and CEO for Partners HealthCare, and Thomas Glynn, chief operating officer for Partners, explained to MGH leaders what the new law means for hospitals in the Commonwealth, including Partners affiliates.

"Many people were responsible for getting this law passed, including special interest groups, labor organizations, the business community, advocacy groups and of course health care organizations like Partners and the MGH," said Mongan. "I'm enormously proud to say that Partners had an intense involvement throughout the entire process."

Glynn explained that one of the most significant implications of the new law is that it will increase the reimbursement rates to providers who care for Medicaid and uncompensated care pool patients. "For Partners, this law is important because we care for many of these patients. During the next five years, our hospitals will get paid at a more reasonable rate than the 70 cents on the dollar of the last few years," said Glynn.

Mongan also outlined the three key elements of the health coverage component of the new law. These elements include requiring individuals to have health insurance, offering state subsidies for those who are below the federal poverty level and limiting those subsidies by offering more affordable health insurance policies. When asked if the new law will work, Mongan says he believes it is a "plausible pathway to much broader coverage," but it depends on the interplay of these three factors during the next three years.

BUDGET UPDATE

The second half of the leadership meeting focused on the FY '07 budget process — with presentations from Sally Mason Boemer, vice president for MGH Finance, and Cindy Aiena, MGH budget director. Mason Boemer reported that the MGH is currently in a strong financial state with the FY '06 year-to-date performance at $20 million better than budget.

Despite this strong performance, several key drivers are predicted that will make it difficult to sustain this momentum in FY '07. These drivers include a predicted softening in inpatient volume; a "mix shift" from national carriers such as Cigna to other carriers, which would result in significant reduction in revenue to the MGH; an increase in fixed costs such as utilities and benefits; and the unlikely ability to sustain below-budget spending on supplies and personnel. In addition, the strong FY '06 financial performance has resulted in an increase in requests for new expenses, resulting in a total of $240 million. All of these factors have resulted in a budget gap of approximately $140 million.

Aiena outlined three phases of the budget process — to evaluate the initial revenue budget, prioritize new program requests and expense submissions, and develop targets for closing the gap. The goal is to submit a preliminary budget to Partners by June 1 and a final submission by June 15.