Following the sudden closure of the 121-bed North Adams Regional Hospital (NARH), which left thousands of residents without access to local healthcare, Berkshire Health Systems (BHS)/Berkshire Medical Center (BMC) purchased NARH – now BMC North – and has been operating a satellite emergency room out of the facility, while providing inpatient care only at its Pittsfield campus. BMC has linked its willingness to provide inpatient care to receiving Critical Access Hospital (CAH) designation, which grants rural hospitals higher Medicare reimbursement for services. The following report clearly shows that restoration of inpatient beds is not only necessary, but is financially viable. Receiving CAH status would be desirable, but not necessary, for the ongoing viability of inpatient services in Northern Berkshire County. This conclusion is based on:
- An analysis of the cause of NARH’s financial problems and ultimate bankruptcy;
- An examination of the issues at stake in BMC’s attempted purchase of NARH before the closure;
- The inpatient needs in North County and loss of patients to Vermont hospitals;
- Financial security of BHS and the availability – and promise – of resources on the part of BHS and the Commonwealth
The report concludes with the finding that Berkshire Medical Center should restore inpatient services at its North County campus as soon as possible and that all stakeholders, including BHS and local and state policymakers should take whatever steps are necessary to ensure that the health care needs of this community are provided for within this community.
History of Financial Problems
For more than a decade, North Adams Regional Hospital (NARH) turned a profit on patient care, from the ER and outpatient centers to inpatient services.[1] But when NARH closed abruptly in March, the hospital simply pointed to its “finances” and the challenges facing rural hospitals as the culprits, leading many to believe that a hospital could not be sustained in North County. The truth, however, is that NARH’s parent company, Northern Berkshire Healthcare (NBH) made a series of non-hospital real estate investments, assuming nearly $65 million in debt through revenue bonds between 1996 and 2004, which, in the end, cost this community its hospital.
Following the assumption of $12.8 million in revenue bonds in 1996 to refinance old debt, NARH took on another $25 million in 1999 to purchase Sweet Brook Transitional Care & Living Centers and Sweetwood Continuing Care Retirement Community. This was an alarmingly large assumption of debt which bore no connection to the provision of hospital services. The real estate investment scheme immediately unraveled and the Sweets began costing NBH money. NBH then “took aggressive steps” – cutting staff and reducing operating costs – in order to “lend money” to the Sweets.[2] Ultimately, NBH sold the Sweets in 2010 for $7 million under pressure from bondholders. In the meantime, NBH took on another $27 million in revenue bonds in 2004, in part to pay off a portion of the 1996 debt. The 2004 revenue bonds immediately went into default, as the organization could not meet some of the financial covenants required by bondholders.
By the time NBH filed for bankruptcy in 2012, its debt burden still hovered around $44 million. In its court filings, NBH attributed its financial problems almost entirely to becoming “highly leveraged” through the series of bond issuances listed above. The final impetus for NBH’s 2012 Chapter 11 filing was bondholders’ refusal to make a voluntary deal to restructure the debt, again affirming the catastrophic impacts this debt took on North Adams Regional Hospital. And while NARH publicly wanted to lay blame for the closure on the healthcare environment or rural location, the data demonstrate that, despite constant competition with the larger and more prosperous Berkshire Medical Center, NARH turned a profit on patient care every year, a fact supported by BMC’s interest in purchasing it.
The Deal that Wasn’t & Ultimate Closure
Prior to the decision to shut NARH down, executives were in talks with Berkshire Health Systems (BHS; parent company of BMC) to purchase the North Adams hospital. BHS was reportedly willing to purchase the full-service hospital, but would not take on more than $4 million of its outstanding debt. During negotiations, the State offered to enhance Medicaid reimbursement to the struggling hospital in order to offset some of the acquisition costs facing the prospective owner. Debt-holders would not agree to the deal, and at the last minute, BHS walked away, leaving NARH to file for bankruptcy and close its doors.[3] But just two months after the closure, BMC had crafted a deal to open a satellite emergency department in North Adams and ultimately purchase the hospital for $4 million (a fraction of its value) without committing to provide inpatient care.
A report released last fall by the Maine-based Stroudwater Associates, a firm contracted by the Department of Public Health to evaluate the healthcare market in the Northern Berkshires, found that there is a need for inpatient services at BMC North yet indicated that Critical Access Hospital designation should be a precondition for providing inpatient services in North Adams. While BHS did not identify CAH status as necessary during its negotiations to purchase NARH prior to its closure, it has since claimed that it is a requirement for providing inpatient care.[4] In the months since acquiring the North Adams hospital, BHS has committed capital to expanding outpatient services, continues to assess the needs and possibilities for services in North Adams, and has repeatedly pledged to apply for Critical Access Hospital designation. Yet, Berkshire Health System has yet to file an application with the Centers for Medicare & Medicaid Services, the federal body that certifies Critical Access facilities. Why?
The Stroudwater Report: Service Needs
Although Stroudwater’s focus on the necessity of Critical Access designation was off the mark, what Stroudwater confirmed is that Northern Berkshire residents have asthma, heart disease, and most cancers at higher rates than other communities, and face public health issues including obesity and alcohol and tobacco addiction.[5] The fastest-growing segment of the population is the elderly, many of whom are disabled. And compounding health problems are barriers to access, like the lack of financial resources and transportation. The combination of these factors makes North County a “medically vulnerable population.”[6] The Stroudwater report affirmed the community’s need for inpatient services, saying that “market demand showed an existing need for 18-21 beds for acute inpatient medical services and 11-12 beds for inpatient behavioral health and substance abuse services.”[7]
1. Inpatient Medical/Surgical Services
In 2012 and 2013, of the more than 39,000 ER visits at NARH, 9,769 visits were considered “high severity,” and nearly 5,000 constituted an “immediate threat to life.”[8] Many of these patients needed access to emergency surgical care, which was available when NARH was a full-service hospital. Today, the safety of those same patients would be jeopardized by a forty-minute ambulance ride, delaying their access to care. And Stroudwater argues that inpatient medical/surgical services must also hinge, not on the need for those services, but on the “viability of physician recruitment” and high volumes of specific procedures to retain them.[9] When NARH was in direct competition with the larger and more profitable BMC, attracting and maintaining physicians was a challenge, and procedure volume suffered. Now that the North Adams hospital is a campus of BMC, BMC physicians can perform surgery and treat their patients at either campus, just as Baystate Health’s Springfield-based physicians travel to the even more remote communities of Franklin County. Stroudwater suggests that transportation to Pittsfield from North County is not too much of a burden for critically ill patients; surely BMC physicians can make the trip in reverse to treat their patients.
2. Inpatient Psychiatric Services
A 2013 Community Health Needs Assessment conducted by NARH revealed the following data from the Department of Public Health:
- Mental health disorders are the seventh leading cause of death for [North County];
- Mental health disorders and alcohol abuse are the second and eight leading causes related to hospital discharges;
- Both mental health and alcohol abuse exceed the state’s percentage rate for hospital discharges[10]
The DPH data show that demand for inpatient psychiatric care in North County is substantial and the Stroudwater report concurs. But absent CAH status, Stroudwater advises that the Brien Center, an outpatient human service agency, build its capacity and expand outreach services despite the fact that, in 2013, the average wait time for outpatient services in the region was between seven and ten weeks.[11] The underfunded human service industry, already struggling to provide supports for individuals whose care can be managed on an outpatient basis, cannot be expected to adequately serve those who need inpatient care. And while outpatient psychiatric care can be an important, complementary service to inpatient treatment, it is no replacement for inpatient, around-the-clock nursing and medical care.
3. Inpatient Obstetrics Services
The Stroudwater report states that obstetrics (OB) services were the most often-cited needs for inpatient care in North County, and the nearly 1,100 babies born in North Adams in the most recently-reviewed years support that claim. The firm recommends refocusing on prenatal care and forcing women in North County to deliver their babies at BMC’s Pittsfield campus. Citing physician recruitment as a roadblock to service provision, Stroudwater again forgets that BMC North is no longer NARH, but a campus of Berkshire Medical Center with access to the “largest Mother Baby Unit in the Berkshires” and its many physicians who can easily provide healthcare to women and their babies in North Adams.[12] Providing OB care at BMC North would eliminate real dangers of a lengthy drive from North County to Pittsfield, especially in emergency situations or for women with high-risk pregnancies, but Stroudwater recommends against inpatient OB care at BMC North.
Stroudwater maintains that in hospitals like BMC North with fewer than 500 deliveries per year, “providing comprehensive care for obstetric patients in these small units is extremely inefficient, not cost-effective, and frequently impossible,” and may also have worse outcomes for mothers and babies.[14] Yet BMC’s other operation, Fairview Hospital, boasts the full-service Family Birthplace, where fewer than 200 babies are born each year. Of course, the data also reveal that in addition to significantly fewer babies born in the more affluent Great Barrington community, less prenatal care is paid for by public payers[15] in Great Barrington than in North Adams, indicating that concerns about providing obstetrics care in North County are less about need and safety, and more about the payment per delivery.
Foregone Revenue & Impacts on Surrounding Community Healthcare
While Stroudwater identifies North County’s needs for inpatient services, the report assesses the North Adams hospital’s financial viability based on outdated information rather than as a part of Berkshire Medical Center. As a result, Stroudwater makes assertions about BMC North’s sustainability that simply do not make sense. For example, Stroudwater questions the viability of operating BMC North as a full-service hospital due to a 2011 analysis the firm conducted when North Adams Regional Hospital was a stand-alone hospital competing with Berkshire Medical Center for physicians, patients, and procedures – and still struggling with its own legacy of Sweetwater/Sweetbrook debt.[16] What was also true was that insurance companies paid NARH far less than BMC, which has the highest commercial payer rates of any teaching hospital in the state.[17] But these figures are no longer relevant because, as BMC North, the hospital can now enjoy BMC’s commercial payer price level and the purchasing power and efficiencies that being part of a system can offer.[18]
Stroudwater also claims that providing inpatient care at BMC North will cost Berkshire Medical Center an additional $2.1 million annually. The firm provides insufficient data to back up its claim, but even if this number approaches accuracy, BMC was willing to purchase NARH as a full-service hospital less than a year ago and certainly calculated that the purchase would be cost-effective. This claim also fails to factor in the revenue lost to Vermont hospitals. The Center for Health Information and Analysis reviewed the North Adams hospital to determine, among other things, the communities in which patients cared for at that hospital live. According to the most current data, of the eight cities and towns represented, three of them are in Vermont, a short distance from North Adams. In 2012, 69% of all patients from Stamford, VT, and 50% from Pownal, VT, were treated at NARH.[19] Even 30% of patients from Bennington, VT – where Southwestern Vermont Medical Center (SVMC) provides inpatient services – were treated at NARH. The distances from Stamford and Pownal to North Adams were ten and twenty minutes, respectively, while a trip from either town to Pittsfield would take nearly 45 minutes. Bennington patients treated in North Adams are very unlikely to travel nearly an hour to the Pittsfield BMC campus for services available in their local hospital. Likewise, some North County residents in need of care may choose the short drive to SVMC, which offers inpatient medical/surgical services and a Birth Center, rather than BMC in Pittsfield, which may further limit the patient care revenue available to BMC from Northern communities.
SVMC has, in recent months, commenced an aggressive strategy to attract both Vermont and Massachusetts patients who were left without a hospital following the NARH closure. For 2015, SVMC management has “budgeted approximately 100 additional medical/surgical cases and 50 births due to NARH closing.”[20] And SVMC maintains that “the volumes which we have seen as a result of the closure [have] assisted in SVMC’s positive financial performance in FY 2014 and in the FY 2015 budget development. The Hospital volume increases in the budget are mainly due to greater volume from the NARH service area.”[21] If an out-of-state hospital stands to gain revenue from the patients no longer served in North Adams, BMC ought to consider that providing inpatient care at BMC North may very well be an income-generator for the system. Providing inpatient care in North Adams could also reduce the stress on BMC’s Pittsfield campus, which continues to struggle with an increasing number of patients.
In a statement to the press in early December, BMC compared the average number of discharges in Pittsfield prior to the closure of North Adams Regional Hospital with the months following the closure, and found the hospital had treated ten percent – or 1,500 – more patients in that six-month period.[22] While it is impossible to know whether every additional discharge at BMC was the result of the NARH closure, the most recent state data show that NARH treated approximately 3,000 patients per year (or 1,500 per six-month period), suggesting a strong correlation between the NARH closure and BMC’s increased patient volume.[23] In recent weeks, nurses at BMC have raised concerns that the hospital cannot adequately handle the increased inpatient volume without providing more nurses to care for those patients. The closure of NARH, and the continuing lack of inpatient care in North County, is evidently impacting healthcare throughout the region.
Financing the Future of BMC-North
In October, the Health Policy Commission awarded BMC $3 million to create a “Patient-Centered Medical Neighborhood [PMCN] and enhanced behavioral health care” in the Northern Berkshires.[24] The program, which BMC expects to cost nearly $16 million, will focus on coordinating care with community healthcare providers and service agencies to address heart, cardiovascular, and renal diseases, diabetes, and behavioral health needs.[25] The PMCN also targets a dramatic reduction in ER visits and hospital admissions and readmissions. Reducing unnecessary hospitalizations and providing some healthcare services to North County patients are positive steps, but limited both by the short supply of primary care physicians, which will make it difficult for residents to access care through the PMCN, and the reality that hundreds of North County residents will still need inpatient care.
One Western Massachusetts hospital system has taken a more comprehensive approach to addressing the healthcare needs of the communities it serves. After more than a year of conversations with nurses and other community members about the need for more inpatient care in Franklin County, and an ER nearly “bursting at the seams,” Baystate Franklin Medical Center (BFMC) reopened shuttered med-surge floor in November. [26] Hospital CEO Steve Bradley noted that the Greenfield hospital increased its inpatient capacity rather than simply sending more patients south to Springfield because, “No one wants to be in the hospital . . . But if you or a family member need care, you want to be able to receive that care as close to home as possible.” [27]
The costs of providing inpatient care to the residents of the Northern Berkshires are not unmanageable, especially given how profitable Berkshire Health System’s facilities – BMC and Fairview – have been. In all but one of the last ten years, BMC has posted surpluses between $8M and $43M, and over the last five years, Fairview Hospital has had surpluses between $1.1M and $4.8M.[28] In FY14, Berkshire Health System hospitals had total margins (that is, revenue over expenses) of 7.3% and 7.6% respectively, double the average hospital margin of 3.8%.[29] In real numbers, BHS made a total of $23.9 million in profit in 2014 ($21.2m at BMC and $2.8m at Fairview), an impressive performance for a Massachusetts hospital system according to independent hospital financial analysts. Earlier this fall, Fitch Ratings upgraded BHS’s debt rating to “A-“ and called the system’s outlook stable, in part due to its low-cost acquisition of NARH and its new market dominance.[30] By all measures, BHS is a profitable and stable system. BHS has already devoted resources to operating the satellite emergency room; it has expressed a desire to expand various outpatient services; and its planned expenditures on the Medical Neighborhood are not insignificant. It is clear that BMC/BHS must bring the same commitment to establishing inpatient services in North Adams as it has to each of these endeavors and so, too, should state officials. During negotiations between Berkshire Health System and North Adams Regional Hospital prior to NARH’s bankruptcy filing, the Commonwealth reportedly offered to enhance Medicaid reimbursement to the North Adams hospital. If the Commonwealth recognized the need for this hospital to provide inpatient care then, it ought to still be willing to make good on that offer, given community demand and the Stroudwater report, which supports that demand.
Conclusion
The primary obligation of a hospital is to meet the healthcare needs of the communities it serves. The next consideration is whether or not all of those needs can be met based on the finances available to the hospital. Berkshire Medical Center’s early moves – to continue operating an emergency facility in North Adams and securing the grant to implement expanded outpatient services – are clear indicators that BMC understands the healthcare needs of North County are many. All evidence points to a sustainable community hospital, and the Stroudwater report and community input are indisputable: inpatient services are needed in North County. BMC has the financial resources and market dominance to restore and deliver a full spectrum of services to the Northern Berkshires in a fiscally responsible manner. This should be done now without further delay.
[1] Publicly-available information from 2000 to 2012; later data not yet available
[2] In re Northern Berkshire Healthcare, Inc., et al. (Chapter 11 Case No. 11 – 31114 (HJB)). United State Bankruptcy Court District of Massachusetts, Western Division. January 5, 2012
[3] Robert Weisman. “North Adams Regional Hospital to close: Financial woes, patient drop force a Friday closing; Unions says they’ll fight move that will idle 530,” Boston Globe. March 25, 2014
[4] The nurses at NARH have consistently supported CAH designation, but the federal government repeatedly denied status petitions
[5] Stroudwater Associates. Healthcare Market Assessment: Northern Berkshire County, Massachusetts. September 17, 2014. Hereafter, Stroudwater
[6] Stroudwater, p.18
[7] Stroudwater, p.50
[8] Stroudwater, p.35
[9] Stroudwater, p.38
[10]This data comes from the Department of Public Health’s Community Health Information Profile, and was included in NARH’s Community Needs Assessment, p.65
[11] Stroudwater, p.54
[12] BMC website
[13] Massachusetts Births 2009. Bureau of Health Information, Statistics, Research, and Evaluation. August, 2011; Massachusetts Births 2010. Massachusetts Department of Public Health, Bureau of Health Information, Statistics, Research, and Evaluation. March, 2013; Massachusetts Births 2011 and 2012.Massachusetts Department of Public Health Office of Data Management and Outcomes Assessment. August, 2014. Hereafter, Birth Data
[14] Stroudwater, p.52
[15] Birth Data
[16] Stroudwater, p. 50
[17] Center for Health Information and Analysis. Hospital Profiles. March, 2014
[18] Ibid.
[19] Center for Health Information and Analysis. Appendix, Massachusetts Hospital Profiles: Data Through Fiscal Year 2012. March, 2014
[20] Operating Budget Summary Fiscal Year 2015. SVMC. Delivered to the Green Mountain Care Board on June 25, 2014
[21] Stephen D. Majetich, CFO of SVMC. “Responses to Questions.” Letter to Michael Davis, Green Mountain Care Board. August 11, 2014
[22] Jim Kinney. “Nurses union complains of staffing at Berkshire Medical Center in Pittsfield, patient volume up 10 percent since closing of hospital in North Adams,” Masslive. December 03, 2014
[23] Center for Health Information and Analysis. Appendix, Massachusetts Hospital Profiles: Data Through Fiscal Year 2012. March, 2014
[24] David Seltz, Executive Director. Health Policy Commission. Letter to David Phelps, President and CEO of BMC. October 24, 2014
[25] Berkshire Medical Center CHART Phase 2 Operational Response.
[26] Kathleen McKiernan. “BFMC reopens in-patient wing,” The Recorder. November 24, 2014
[27] Kathleen McKiernan. “BFMC reopens in-patient wing,” The Recorder. November 24, 2014
[28] Acute Hospital Financial Performance. Center for Health Information and Analysis. Only five years of data is currently available for Fairview
[29] Massachusetts Acute Hospital Financial Performance: Fiscal Year 2014: Data through June 30, 2014, Center for Health Information and Analysis
[30] Fitch Removes Berkshire Health System, MA Revs from Rating Watch & Upgrades Rtg to ‘A-‘; Otlk Stable. Fitch Ratings. October 17, 2014
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