November 27, 2017
Focus on Health Care

Milford Regional back in black with financial turnaround

Milford Regional Medical Center CEO Edward Kelly said new volume driven by the opening of urgent care centers has given the hospital system a needed boost.

While pressure is high for community hospitals, Milford Regional Medical Center has thrived, launching key affiliations and upgrading and expanding facilities over the last 10 years.

But after a major renovation and expansion of its medical-surgical and emergency departments completed in 2015, the 145-bed, acute-care hospital nestled in downtown Milford was feeling the squeeze.

By the end of 2016, Milford Regional was operating in the red, posting a $7-million operating loss and a $5.3-million net loss. The hospital announced it would end inpatient pediatric services, a low-volume program difficult to staff.

President and CEO Edward Kelly said in an interview this month hospital executives didn't question the decision to borrow $25 million to finance the largest capital project in Milford Regional's history (the rest was fundraised). Doing so would create needed capacity for volume growth.

"It was a big leap, and our history had been really growth, growth, growth," said Kelly, who has been a member of the hospital administration since 1993.

While taking a walk around Milford Regional, Kelly stopped and chatted with registered nurse Deb Carbary to discuss the goings-on of the facility.

Seeking to reverse the loss, departments across the Milford Regional system, which includes the doctors group, Tri-County Medical Associates, were asked to chip in, tightening expenses, including salary and pension freezes, while digging deep to increase services.

The cuts appear to be paying off. The system is projected to finish with a small operating surplus of about $178,000 and net income of $2.24 million in fiscal 2017, which ended Sept. 30, according to unaudited financial results provided by the hospital this month.

Final numbers are due out in December. Kelly said he doesn't expect those to differ much from unaudited figures.

"I've labeled it really as a remarkable turnaround year for us," Kelly said.

Urgent care revenue

But it wasn't just trimming that brought Milford Regional into the black. Revenue increased by about $13 million to $276.3 million, as the hospital saw results from steps taken to increase volume.

Hospitals rely on physician offices to drive volume for inpatient and outpatient hospital services, but since there's a shortage of primary care doctors, it's difficult to drum up new business. This year, doctors who had not been accepting new patients agreed to do so, in order to bring more people into the system.

But the opening of three new urgent care practices in the Milford Regional service area was an even bigger boost, said Kelly. That allowed people who don't have primary care doctors to access the system, too.

"I do credit a lot of our growth to the fact that more people could access our system," Kelly said.

The three centers, in Milford, Northbridge and Hopkinton, opened in late 2016 and early 2017, in partnership with Tri-County Medical Associates, and that coincided with a spate of urgent care center openings across Central Massachusetts and Metrowest, where seven different hospital systems vying for volume view urgent care as a necessity to drive traffic.

Independent streak

Buoyed by new sources of volume, Kelly was hopeful Milford Regional will maintain its foothold as an independent community hospital, noting the hospital has important affiliations with large hospitals providing specialty care at the Milford campus, whenever possible.

Milford built the Dana Farber/Brigham and Women's Cancer Center across the street from the main hospital in 2008, leasing space to the renowned Boston-affiliated doctors, who provide robust cancer treatment services there. Milford Regional hosts a full-time Boston Children's Hospital pediatrician to see patients during office hours and in the emergency department.

Milford also has deep ties to the UMass Memorial Health Care system, where patients needing higher-level care end up, and which provides specialist services at Milford Regional.

Like Milford, community hospitals in Central Massachusetts have leaders who want to see their organizations remain independent. But in 2017, it's difficult to go it alone as a healthcare system.

Contracting with commercial insurers is more favorable for larger systems. Overhead is difficult for small hospitals, which struggle to implement expensive, state-of-the-art electronic records systems encouraging efficiency. The federal government puts pressure on payments, which, since 2013, has tied reimbursements for Medicare patient care to quality metrics, such as hospital readmission rates. In addition, the migration toward risk-based contracting requires hospitals to care for patients on a budget instead of on a fee-for-service patients. With changes in federal healthcare policy always looming, it's difficult for administrators to plan.

M&A activity rising

This pressure has led to a mass consolidation of the healthcare industry across the U.S. According to the consulting firm Kaufman Hall, there were 102 merger-and-acquisition deals by U.S. healthcare systems in 2016, and 2017 may outpace last year, with 87 deals inked by the end of the third quarter.

Kelly said it was premature to speculate which hospital system Milford Regional would merge with, if necessary, saying the hospital has a special relationship with all of its affiliates.

"We really just take it year to year, and do what we think is good for our community," he said.

While small, community hospitals may struggle to stay independent, larger hospital operators desperately need them, in order to drive volume into their systems. Small hospitals often refer patients to larger hospitals with a wider array of specialty services, and that's traffic that big hospitals rely on, especially since insurance plans often encourage people to seek services at lower cost, community hospitals when possible, driving volume away from larger players.

Such is the case for UMass Memorial Medical Center in Worcester, an academic medical center with an intricate web of affiliations throughout Central Massachusetts are key to keeping the UMass Memorial system afloat.

UMass Memorial owns two community hospitals outside Worcester, including HealthAlliance Hospital, with campuses in Leominster, Fitchburg and Clinton, and Marlborough Hospital. Beyond that, it has affiliations with the other independent systems, including Milford Regional, Heywood Healthcare and Harrington Healthcare.

Keeping Milford close

UMass Memorial CEO Eric Dickson said Milford Regional is unique when it comes to local community hospitals. Its geography keeps it protected from competition from other small hospitals, but it's pretty centrally located between Boston and Worcester, meaning it can choose to send patients to hospitals in either city, any has potential merger partners in Boston as well as Worcester.

The hospital's payor mix of commercial and federal payors is also more favorable than other local hospitals with higher percentage of Medicaid patients in their mix, meaning reimbursements are lower.

Dickson predicted if any community hospital in Central Massachusetts can stay independent, it's Milford Regional.

"Milford's the funny one, in that it's almost as close to Boston as it is to us," Dickson said. "We work hard to keep them close."


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