July 15, 2024

Stream Health Care

It Looks Good On You

Tufts Medicine seeks to define its future amid financial woes

6 min read

Tufts, for one, is a nonprofit system that boasts a strong reputation for providing quality care. Its financial troubles, like many of its peers, mainly stem from struggling to generate enough cash from patient care to cover soaring labor costs and pay off debt.

And it has a plan in place, one that’s starting to show some progress, Dandorph said.

The organization recently hired a new chief financial officer and chief operating officer, both with extensive turnaround expertise. It has also taken a number of difficult steps that administrators hope will right its financial ship: withdrawing from pediatrics care, selling off its laboratory business, and eliminating hundreds of positions in rounds of layoffs. After two years of work, turnaround is in sight, though Dandorph is frank that, in the long term, Tufts Medicine won’t be able to do all this on its own.

Tufts Medical Center in Boston.David L. Ryan/Globe Staff

“We have to get through this really painful part of the economic crisis we’re in,” Dandorph said in an extensive interview. “And we’re going to need help from the payers and the government and from other parts of the [health care] ecosystem.”

Last year, the organization narrowly avoided defaulting on an $800.8 million agreement with bond holders. In February, Fitch Ratings downgraded Tufts Medicine’s credit rating because the agency believes Tufts is not improving its performance fast enough. And at the end of May it again reported financial losses.

Still, Dandorph said he is “confident” the entity will meet its bond obligations this year.

And despite the cuts, Tufts Medicine is still investing. The organization recently broke ground on an $80 million, 144-bed behavioral hospital in Melrose, and last month acquired the assets of the New England Neurological Associates doctors group, which will allow it to expand neurology services in the Merrimack Valley.

Those moves will pay off over time, said Andrew Dreyfus, a former CEO of Blue Cross Blue Shield of Massachusetts.

“Mike Dandorph is doing the right things,” Dreyfus said. “[He] has not yet seen the fruits of his labor.”

Many hospital systems in Massachusetts face financial troubles in the wake of the COVID-19 pandemic. Even heavyweights such as Mass General Brigham and Beth Israel Lahey Health have struggled to contain soaring costs and red ink. As of December 2023, 37 percent of hospitals in the state were spending more than they took in from daily operations, according to a recent report by the Massachusetts Health & Hospital Association.

But Tufts Medicine is arguably more vulnerable than most. The sixth-largest health system in the state, it sits somewhere in the middle of the Massachusetts hospital ecosystem. It’s not a true safety net provider such as Boston Medical Center, with the significant state aid that role brings. Nor is it large enough to draw as many wealthier patients with better-paying insurance, such as as Mass General Brigham or Beth Israel.

With 1,099 beds across three hospitals — its flagship Tufts Medical Center downtown, Lowell General Hospital, and MelroseWakefield Healthcare — it cares for some 44,000 inpatients every year.

A corridor in the Cardiomyopathy Center in Tufts Medical Center in Boston.David L. Ryan/Globe Staff

However, whether the system can accomplish any more than mere survival remains an open question, one that feels increasingly urgent as the state grapples with the prospect that some of Steward’s eight hospitals might have to close or cut back services.

Unlike Steward, which critics accuse of underfunding its services and facilities, quality isn’t the issue for Tufts. And it has many loyal patients, including Emily Roach. The 26-year-old from Medford has been a patient at Tufts Medicine for over 20 years where she’s received spinal fusions and surgeries to remove bone tumors.

“The nurses and staff, they all have been so welcoming,” she said. “Whenever I go into surgery, I’m never scared. I’m never anxious. I feel I’m getting great care.”

Indeed, Medicare rates Tufts Medical Center four out of five stars for different areas of quality, such as treating heart attacks and pneumonia, readmission rates, and safety of care. U.S. News and World Report ranks the hospital’s care in cancer, gastroenterology, orthopedics, and neurology as “high performing” compared to the rest of the country.

“They are a terrific hospital,” said John Freedman, president of Freedman HealthCare consulting firm in Burlington. “[But] unless there is a fundamental change in how we pay hospitals, I don’t see how they can do anything in the long term other than survive and stay afloat.”

That’s largely because of Tufts’s patient mix, and the rates those patients’ insurance plans pay to hospitals.

Roughly 70 percent of Tufts Medicine patients are on either Medicare — the federal insurance program for seniors — or Medicaid, which covers people with lower incomes. (By comparison about 40 percent of Mass General Brigham patients are on those two programs.) Neither pays enough to cover the actual cost of care; Dreyfus estimates they pay hospitals 75 to 90 percent of costs.

So hospitals essentially lose money caring for patients enrolled in those programs, which is a major problem, analysts say, for Tufts Medicine’s finances. They try to make up the shortfall by either expanding services or attracting more patients who can pay out of pocket or through a commercial plan paid by an employer.

Dandorph acknowledged that Tufts Medicine could work harder to promote its quality and patient experience. It might draw more better-paying patients that way. But, he said, Tufts prides itself on treating everyone equally well.

“We take care of billionaires here,” he said. “And we take care of people who don’t have insurance.”

Michael Dandorph, CEO of Tufts Medicine, a Massachusetts hospital chain.David L. Ryan/Globe Staff

Still, analysts said, while hospitals know how to treat patients, the business side of things — managing labor costs, investing in new technology, and getting paid sooner — can sometimes be a challenge.

And the pandemic exposed those flaws as hospitals across the country struggled to meet surging demand. Nurses and other key staff burned out and left, forcing hospitals to rely on expensive contract labor. Costs soared.

At Tufts, many nurses stuck around through the first waves, but that actually made them harder to replace, Dandorph said. By the time Tufts started to scour the market for temporary help, staffing firms had run out of traveling nurses, forcing the organization to pay even more to hire. At one point, Tufts Medicine was paying a staggering $22 million a month on contract labor, which was “unsustainable,” Dandorph said.

Complicating matters, Tufts Medicine was just starting to roll out a new scheduling and patient record system through the organization. But implementation took longer than expected, which deepened Tufts Medicine’s losses, Dandorph said.

It all added up. In its 2022 fiscal year, Tufts Medicine lost nearly $400 million on revenues of $2.3 billion. A year later, those losses were down to $171 million, on $2.6 billion of revenue. And by May, Tufts had worked its contract labor spending down to $5 million a month, one-fourth what it had been at the height of the pandemic.

Still, Tufts is staying afloat for now.

Dandorph said the industry needs a new business model. But that requires more than one midsized hospital group can do on its own. It’ll require the government sitting down with everyone — hospitals, insurers, pharmacy benefit managers — and designing a system that actually rewards providers for value and quality of care, he said.

“I wouldn’t say that we don’t spend enough money on health care,” Dandorph said. “But we may not be spending it the right way.”

And while Tufts’s woes pale next to the Steward crisis, Dandorph said he’s hopeful that the latter could finally force the sort of difficult conversations that could lead to a better system for hospitals like the one he runs too, and for the vulnerable patients they all serve.

“How do we make sure that we are creating sustainability for these organizations that are serving our communities?” he said. “I think [Steward’s situation] is going to be a cathartic event. But I don’t know the end state.”

The nurse’s station at the Cardiomyopathy Center in the Tufts Medical Center in Boston.David L. Ryan/Globe Staff

Thomas Lee can be reached at [email protected].


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