bmc by stariya



                         2011 DHCFP Questions for Written Testimony

                                      Boston Medical Center

1. After reviewing the preliminary reports located at, please provide
   commentary on any finding that differs from your organization's experience. Please explain the
   potential reasons for any differences.

   As the largest safety net facility in New England, Boston Medical Center’s experience diverges
   from that of other hospitals in the Commonwealth. We have not experienced substantially
   higher rates from commercial insurers. In fact, the work of the Attorney General’s Office
   indicates we experience the lowest rates of any academic medical center or teaching hospital in
   the state. Our hospital is further challenged by the significant losses we incur caring for
   MassHealth patients. The sharp decrease in Medicaid rates and our lack of market leverage over
   commercial payers has created substantial operating losses for our hospital. Furthermore, we
   cannot diversify our patient base from MassHealth to other payers because of non-competitive
   commercial rates. Thus, our experience reflects the problems with our health care financing
   system that these hearings are designed to remedy.

2. How much have your costs increased from 2005 to 2010? (Percents by year are fine.)

        a. Please list the top five reasons for these increases, with the most important reason first.

                               FY06 FY07 FY08 FY09 FY10 Total Average FY06-FY10
   Expense Increase            5.1% 2.9% 10.6% 0.6% 4.0% 25.1% 4.6%

          Volume is the major driver of expense increase. While expenses increased an average of
           4.6% from FY05 to FY10, total volume increased 3% on average in the same time
          Salaries and wages increased 32.5% - an average annual increase of 6.5% from FY05 to
           FY10. This increase accounts for 45% of total operating expense increase.
          Employee benefits increased 63.8% - an average annual increase of 12.8% from FY05 to
           FY10. The increase accounts for 18.4% of total operating expense increase.
          Depreciation expense increased 77% - an average annual increase of 15.4% from FY05
           to FY10. New buildings, building improvements, and major movable equipment
           additions are the most important reasons for increasing depreciation expense. This
           increase accounts for 14.2% of total operating expense increase.
          Purchased services increased 68.5% - an average annual increase of 13.7% from FY05 to
           FY10. This increase accounts for 9.6% of total operating expense increase.
3. What specific actions has your organization taken to contain health care costs? Please also
   describe what, if any, impact these strategies have had on health care costs, service quality, and
   patient outcomes. What current factors limit the ability of your organization to execute these
   strategies effectively?

   BMC has taken numerous efforts to contain costs and manage resources, including reducing salary expense,
   reducing the average length of time an inpatient stays in the hospital (“length of stay”), consolidating units,
   reducing non-salary costs, and working with consultants to ensure efficient operations.

   Boston Medical Center has taken a number of actions to control health care costs, including:

         Reducing its current fiscal year salary and benefit expense by a projected $16,730,000
             through layoffs of 153.53 FTEs; re-negotiation of union contracts; salary freezes for
             directors, managers and senior staff; and rigorous review of vacant positions.
            Re-designing its inpatient services, with expected additional FTE reductions.
            Developing best practice approaches for various clinical practices, resulting in shorter
             length of stay and increased standardization in ordering tests. BMC has successfully
             reduced the length of stay by 13.5% (from 5.32 to 4.6 days) between fiscal years 2006
             and 2010.
            Implementing expense control and reduction strategies for fiscal year 2011 so that
             hospital-wide expenses do not grow more than 2.3% over fiscal year 2010 actual
             expenses (year to date through April, BMC’s operating expenses are $13.8M under the
             budgeted amount).
            Consolidating emergency rooms to more effectively and efficiently use staff and
            Reducing its current fiscal year financial support to BMC physician groups by
            Successfully reducing non-salary expense by $3,600,000 (as of the date of this testimony)
             through renegotiating vendor contracts, identifying savings on supplies, product
             standardization, and strict management of inventories.

    Although BMC has successfully reduced its expenses for salaries, wages, and benefits, which are
    52% of its total expenses (excluding research and bad debt), continued efforts to reduce these
    particular costs would likely have a long term negative impact – making it harder for BMC to
    recruit and retain talented staff and more difficult for its staff to provide high quality care.

4. What types of systemic changes would be most helpful in reducing costs without sacrificing
   quality and consumer access? What systemic actions do you think are necessary to mitigate health
   insurance premium growth in Massachusetts? What other systemic or policy changes do you
   think would encourage or help health care providers to operate more efficiently?

   The following systemic changes would likely improve the quality and efficiency of health care delivery in
   Massachusetts: payment policy that incentivizes primary and preventive care; increased funding for infrastructure
   for safety net hospitals; and streamlined billing and regulatory requirements.

   The costs of health care reflect the incentives embedded in our payment system. The fastest way
   to promote high quality, efficient services would be to provide payment that covers the costs of
   primary and preventive care. In the current payment system, providers attempt to subsidize
   primary care and behavioral health services with the revenue from more highly reimbursed

   Hospitals, like BMC, that disproportionately serve low-income patients lack the resources to
   invest in needed infrastructure, such as health information technology and care management, to
   manage patient care most efficiently. Infrastructure funding increases costs in the short term but
   would be an investment in quality and efficiency.

   Other challenges that make it difficult to operate more cost effectively and efficiently include
   understanding and satisfying the multiple, overlapping, and sometimes contradictory regulatory
   schemes and agencies; deciphering contradictory and unintelligible administrative billing rules
   and audit requirements; and addressing denials that occur simply because the billing rules are too
   complex. In addition, more hospitals are experiencing growing bad debt as employers adopt
   high deductible plans.

5. What do you think accounts for price variation across Massachusetts providers for similar health
   care services? What factors, if any, should be recognized in differentiated prices?

   Price variation likely results from market leverage. Based on BMC’s experience, the following factors are
   appropriate reasons for differentiated prices: socioeconomics of the patient population; patient acuity; required cross-
   subsidies among services and among payers; wage index differences; expenses associated with medical education.

   The primary determinant of price variation across Massachusetts is likely market leverage, which
   results from size, geographic location, and brand recognition/consumer perception of quality.

   The following factors are embedded in BMC’s costs and do not affect other institutions to the
   same degree. They might be appropriate reasons for differentiated prices:

         Socioeconomic factors: Because of its charitable and statutory mission and location
             BMC sees a disproportionate amount of low-income patients. This result has a profound
             impact on both its costs and revenue. Many of BMC’s patients do not have insurance;
             do not speak English; have mental health issues and drug or alcohol dependence; and
             lack proper support at home or are homeless. BMC has to expend resources beyond
             what most hospitals spend to treat patients, such as for translation services (the largest in
             New England), outreach counselors to find insurance programs that the patient qualifies
             for, transportation services, social services, and special low-income programs to provide
             support after patients leave the hospital.

            Higher wage costs (city/community; competitive labor market drives salary expense)
            Expenses related to patient acuity
            BMC’s academic/teaching responsibilities
            The need for cross-subsidies among services and among payers

6. What policy or industry changes would you suggest to encourage treatment of routine care at less
   expensive, but clinically appropriate settings? (Routine care is defined here as non-specialty care
   that could be provided at a community hospital or in a community setting).

   Building primary care capacity is the first step to managing care in the appropriate community
   settings. BMC, for example, has created open access scheduling in its primary care practices;
   carved urgent care out of its emergency department; extended walk-in hours at night and on
   weekends in its affiliated community health centers to better serve patients; and is piloting a
   patient-centered medical home in its Departments of Medicine and Family Medicine.

7. Which quality measures do you most rely on to measure and improve your own quality of care?

   BMC measures its quality improvement efforts with the BMC Quality and Patient Safety Dashboard.

   BMC’s Quality and Patient Safety Dashboard represents a balanced set of measures that BMC’s
   Trustee Quality and Patient Safety Committee, the BMC Quality and Patient Safety Council,
   senior leadership, physicians, and staff use to monitor BMC performance. Each year, based on
   past performance and criteria for setting priorities, BMC modifies its improvement priorities for
   the coming year.

   Key quality measures include:
      Serious Adverse Events and Never Events
      Central Line Related Blood Stream Infection
      Foley Catheter Related Urinary Tract Infection
      Influenza Vaccination
      Inpatient Mortality (observed to expected mortality ratio)
      Hand Hygiene
      Pressure Ulcer Prevalence Rate
      Acute Myocardial Infarction (AMI) (% of time care processes successfully delivered)
      Congestive Heart Failure (CHF) (% of time care processes successfully delivered)
      Pneumonia (PN) (% of time care processes successfully delivered)
      Surgical Care Improvement Project (SCIP) (% of time care processes successfully delivered)
      Patient Satisfaction (inpatient and outpatient, Press Ganey and HCHAPS)
      Inpatient Press Ganey Percentile Rank
      Percentage of ED Patients Left without Being Seen

8. We found that there is substantial price variation occurring for several types of health care
   services (although for some more than others), but that the wide variation in prices for hospital
   care does not appear to represent any corresponding gain in quality based on the existing quality
   measures that we were able to use in this analysis. Does your organization believe that price is
   correlated with quality? What role do you think quality should play in determining prices, and
   does the health care community currently collect the right types of quality measures?

   BMC does not believe that price is yet correlated with quality. In addition, BMC recommends
   that pay for performance (P4P) programs be created cautiously, because they may be biased in
   favor of providers who receive adequate rates. Such providers can create the infrastructure
   needed to demonstrate they are meeting quality outcomes. For example, Hospital Consumer
   Assessment of Healthcare Providers and Systems (HCAHPS) survey results improve with a
   telephone call to the patient after discharge. Among BMC’s patient population, however,
   telephone contact with patients after discharge can be unreliable. Moreover, wealthy systems can
   afford adding the additional human resources necessary for this outreach, others cannot.
9. We found that for many inpatient DRGs, a large portion of patient volume is clustered in the
   most expensive quartile(s) of providers. Please provide your organization's reaction to these

    BMC is not surprised by these findings. They seem to accurately reflect the current incentives in
    the healthcare marketplace and a provider selection process influenced by market leverage, brand
    recognition and benefit design.

10. What tools should be made available to consumers to make them more prudent purchasers of
    health care?

    Many people in the Commonwealth are only seldom purchasers of health care, and in a system
    that masks the true cost of health care choices. It will be very difficult to encourage prudent
    purchasing without price transparency.

11. What are the advantages and disadvantages of complete price transparency (e.g., consumers
    being able to see what prices are paid by carriers to different providers for different services)
    from your organization's perspective? What about complete quality transparency?

    BMC supports price and quality transparency and believes both would encourage the prudent
    purchasing of health care services. Quality transparency presents more of a policy challenge than
    price transparency. First, there continues to be lack of agreement about which quality measures
    are the most relevant. Additionally, less wealthy systems such as safety net hospitals tend to lack
    the infrastructure, information technology, etc. necessary to document, report and monitor
    quality measures.

    Price transparency must afford consumers sufficient information to make appropriate price
    comparisons. Differences in price may include legitimate and important factors such as the costs
    of teaching or costs of managing socio-economic factors such as poverty, homelessness, limited
    English proficiency, mental health issues and drug or alcohol dependence.
12. Before your organization decides to acquire new service lines, capacity, or major equipment, does
    it consider the current capacity of nearby providers? What do you feel the state's role should be
    in health care resource planning (beyond or including its current Determination of Need

    BMC, given its current resource constraints, is only investing in projects that are already
    underway or are essential replacements. In general, however, consideration of current market
    capacity is a factor when conducting return-on-investment analyses for the acquisition of new
    service lines, capacity, or major equipment.

    The Commonwealth is likely in the best position to analyze statewide hospital resource needs.

13. How ready does your organization feel it is to join, affiliate with, or become an Accountable Care
    Organization (ACO)? Please explain.

    a. Is your organization interested in joining a Medicare Shared Savings ACO, as recently
    outlined by the Centers for Medicare and Medicaid Services (CMS)?
   b. If your organization doesn't feel ready to join any type of ACD, what types of supports or
   resources would it need to be able to join one?

   ACOs are an interesting approach to modifying the way we provide healthcare, and the outcome
   of the current debate over their form and requirements will inform BMC’s capability or readiness
   to join, affiliate with, or become an ACO. As currently proposed, CMS’s regulations are geared
   toward hospitals that have large numbers of Medicare patients and the capital necessary for a
   significant up-front investment. BMC, with a patient population that is 50% low income, non-
   Medicare, is most interested in working with its community health centers on an ACO that
   serves low income patients and families.

14. Does your organization have any direct experience with alternative payment methods (bundled
    payments, global payments, etc.)? What have been the effects in terms of health care cost, service
    quality, and patient outcomes?

   BMC has only limited experience with alternative payment methods, so cannot comment on
   their effects for hospitals. But from its successful managed care organization, Boston Medical
   Center HealthNet Plan, BMC has learned that the keys to successful managed care are
   information technology, limited provider networks, and exceptional customer service.

15. Please identify any additional cost drivers that you believe should be examined in subsequent
    years and explain your reasoning.

   The socio-economic status of BMC’s patients; BMC’s urban location; BMC’s location in an
   intensely competitive market where expenses, most notably salary expenses, are set in relation to
   other institutions; and BMC’s mission as an academic medical center are all important cost
   drivers. In future years, the state might explore whether a fair payment system is possible when
   government payers consistently fail to pay safety net hospitals fairly – or adequately – for
   healthcare services.

16. Please provide any additional comments or observations you believe will help to inform our
    hearing and our final recommendations.

   Many of the dynamics of the health care market simply do not apply to Boston Medical Center, a
   safety net hospital. As a result, BMC urges against the temptation to fashion a “one size fits all”
   system that attempts to treat all hospitals equally. Rather, given the inherent market inequalities
   that safety net hospitals face, the wiser course is to incorporate a mechanism, as the Legislature
   did in Chapter 118G, that takes into account the market realities that a safety net hospital faces
   and levels the playing field among health care institutions.

I, the undersigned, am legally authorized and empowered to represent Boston Medical Center for
the purposes of this testimony, and I sign this testimony under the penalties of perjury.

                                                    Richard W. Silveria
                                                    Vice President and Chief Financial Officer

                           2011 AGO Questions for Written Testimony

                                      Boston Medical Center

1. Please explain and submit a summary table showing your annual operating margins (profit or
   loss) from 2005 to 2010 broken down by your commercial, government, and all other business
   (and please identify the carriers or programs included in each of these three aggregate margins).
   Please explain and submit supporting documents to show whether and how your revenue and
   margins are different for commercial carriers for your business operated through HMO, PPO,
   pas agreements, including any agreements subject to a global per member per month budget.

   Please see the summary table in the Appendix.

2. Please explain and submit a summary table showing your commercial operating income trend
   from 2005 to 2010, and how that trend results from: (1) changes in the unit price of health care
   services or procedures, (2) changes in utilization, and (3) changes in other factors, such as
   changes in mix of services, mix of location of services, member demographics, and plan design.

   Please see the summary table in the Appendix.

   BMC is not able to complete the requested trend analysis. Our commercial operating income
   derives from over 50 payors, many with multiple plan types. With additional response time, it
   might be possible to analyze rate and utilization trends for the largest plans, which make up
   approximately 50% of the commercial operating income.

3. Please explain and submit a summary table showing your gross operating expense trend for
   medical services (excluding research and other non-medical cost centers) from 2005 to 2010, and
   how that trend results from: (1) facility costs including rental, maintenance, construction, and
   depreciation, (2) equipment costs including rental, maintenance, purchase or depreciation, (3)
   non-physician labor costs, (4) physician labor costs, and (5) other factors.

   Please see the summary table in the Appendix.

I, the undersigned, am legally authorized and empowered to represent Boston Medical Center for
the purposes of this testimony, and I sign this testimony under the penalties of perjury.

                                                    ___/s/ Richard W. Silveria________________
                                                    Richard W. Silveria
                                                    Vice President and Chief Financial Officer
                                               Appendix to 2011 Written Testimony
                                                    Boston Medical Center
Exhibit C
Question 1
 Income/(Loss) from operations

                                FY 2005            FY 2006          FY 2007          FY 2008         FY 2009          FY 2010
  Commercial                 $ (42,910,954)     $ (42,684,386)   $ (43,371,895)   $ (55,438,587)   $ (60,858,922)   $ (50,551,275)
  Government                   (40,735,819)       (42,831,765)     (43,778,699)     (62,198,640)     (59,403,840)     (73,027,031)
  All Other                      (4,208,937)      (17,703,548)       31,439,381     (32,906,648)     (34,708,300)     (35,545,187)
  DSH/Supplemental              119,360,528        131,615,917       75,945,358      219,046,786     129,485,343      122,000,000
  Total Hospital              $ 31,504,818       $ 28,396,218     $ 20,234,147     $ 68,502,911    $ (25,485,718)   $ (37,123,493)

  Blue Cross
 Health Care Value Management
  HMO Blue
  HMO Harvard Pilgrim
 Neighborhood Health Plan Commercial
  HMO Other
  HMO Tufts
  HMO USHealth Care
  Workers Comp


  All Other
  HMO Medicare Senior
  HMO Medicaid
  Commonwealth Connector
  Free Care
  Self Pay
  O/P Pharmacy
  Roslindale CHC

  Hi Public Payor DSH
 State/Federal Supplemental Payments
Exhibit C
Question 2

Commercial         FY 2005   FY 2006   FY 2007   FY 2008   FY 2009   FY 2010
Operating Income   104,423   117,334   129,759   155,594   157,198   143,732
            Exhibit C
            Question 3

                                                                                                     % of          %
                                                                                        Increase     Total     Increase   Average
                                                                                          from     Operating     from      Annual
                                                                                          FY05-    Expense       FY05-    Increase
(‘000)                      FY05      FY06      FY07      FY08      FY09      FY10        FY10     Increase      FY10     FY05-09

Salaries & Wages          280,072   307,873   324,394   345,497   361,193   370,956     90,884        45.1%       32.5%      6.5%

Employee Benefits         58,157    77,493    79,651    86,434    87,232    95,288      37,131        18.4%       63.8%     12.8%

Physician Services        120,437   92,990    78,448    110,690   108,670   110,414     (10,023)       -5.0%      -8.3%      -1.7%

Drugs                     31,617    31,569    31,927    31,393    31,360    31,365      (252)          -0.1%      -0.8%      -0.2%

Insurance                 6,642     7,141     9,711     16,185    10,178    1,108       (5,534)        -2.7%     -83.3%     -16.7%

Other Expenses            56,394    58,364    56,679    54,965    54,908    57,216      822            0.4%        1.5%      0.3%

Purchased Services        28,110    30,119    40,828    46,966    36,297    47,361      19,251         9.6%       68.5%     13.7%

Consulting & Management   8,815     8,729     9,000     13,385    12,513    14,715      5,900          2.9%       66.9%     13.4%

Med/Surg Supplies         47,603    52,531    54,190    58,824    61,008    59,832      12,229         6.1%       25.7%      5.1%

Lab Supplies              9,096     10,363    10,607    10,916    11,520    11,954      2,858          1.4%       31.4%      6.3%

Utilities                 17,117    20,890    24,316    27,182    24,708    23,817      6,700          3.3%       39.1%      7.8%

Direct Research Expense   66,926    69,916    67,028    69,869    73,724    76,417      9,491          4.7%       14.2%      2.8%

Depreciation              37,112    41,272    44,220    49,339    54,834    65,660      28,548        14.2%       76.9%     15.4%

Interest Expense          12,617    11,069    11,840    10,166    8,317     9,057       (3,560)        -1.8%     -28.2%      -5.6%

Provision for bad debt    22,409    23,446    25,124    28,390    29,661    29,416      7,007          3.5%       31.3%      6.3%

Total Expense             803,124   843,765   867,963   960,201   966,123   1,004,576   201,452      100.0%       25.1%      5.0%

To top