Lebanon — Revenue fell just short of recurring operating expenses during the most recent quarter at Dartmouth-Hitchcock, but at the end of December, the health system remained on course in its financial recovery plan, D-H financial managers said in a filing with regulators.
The health system’s results during the first six months of the current fiscal year were “tracking well with year-to-date expectations,” according to a quarterly report filed by D-H with the Municipal Securities Rulemaking Board, a federal agency that oversees the bond market.
“We are on track to produce positive margins for the next two quarters and end the year with a positive run rate as we move into our 2018 budget year,” Chief Executive James Weinstein said in an email sent out to D-H employees.
D-H’s goal is to “reach a break-even or better margin for 2017,” spokesman Rick Adams said in an email.
The latest news sounded good on Wall Street.
“This seems to be part of the operating improvement plan that they outlined for us in the fall,” said Margaret Johnson, an analyst with Fitch Ratings, a company that assesses the financial health of bond issuers.
Tuesday’s filing highlighted D-H’s $305,000 year-to-date surplus from operations, excluding restructuring charges incurred as the health system carried out layoffs and other measures to address a large deficit that was discovered near the end of the fiscal year that ran through last June.
But the year-to-date surplus was down from $1.3 million at the end of the first quarter after D-H posted a second-quarter deficit of $1 million.
Revenue rose to $396.8 million in the second quarter, with a negative operating margin of 0.2 percent, from $391.7 million in the first quarter, when the operating margin was positive at 0.3 percent.
The new numbers reflected “continued growth in patient services compared to the prior year,” the filing said. That growth was driven by the number of surgeries performed, the volumes of hospital admissions and outpatient appointments and the mix of services provided, according to the filing. “Cost management initiatives” also had some effect, it said. Net patient service revenue at D-H was $348.4 million during the most recent quarter, up 1.5 percent from $343.1 million a year ago.
The filings broke out results for D-H’s core facilities — its flagship Mary Hitchcock Memorial Hospital and clinics here and in four other New Hampshire locations (Manchester, Nashua, Concord and Keene) and in Bennington, Vt. D-H posted a $12.2 million deficit in fiscal 2016 in its core facilities.
In addition to the $1 million loss from continuing operations, D-H posted $17.7 million in restructuring charges during the quarter. Those charges reflected the costs of severance payments to laid-off employees and one-time accounting adjustments associated with changes in the timetable D-H is using to phase out its traditional pension plan, according to Adams.
On top of the $18.7 million in operating losses, D-H posted $2.8 million in non-operating losses, so that D-H’s second-quarter expenses exceeded revenue by $21.5 million, according to the filing, which was posted late Tuesday.
Including three affiliated hospitals — Cheshire Medical Center, New London Hospital and Mt. Ascutney Hospital and Health Center — that have pooled their bond repayment obligations with D-H, second-quarter revenue fell short of expenses by $24.1 million, the filing said. Alice Peck Day Memorial Hospital, which also is controlled by D-H, is not part of the bond repayment pool.
D-H’s entire health system, including all four smaller affiliated hospitals, posted a $39 million operating loss in fiscal 2016.
Health system officials blamed the deficit on problems that arose when D-H sought to simultaneously implement new systems for bill coding, electronic health records and data warehousing, and outsourced its billing and revenue management to a subsidiary of Tenet Healthcare Corp., which operates 86 hospitals.
The deficits prompted hospital officials to lay off 84 employees, stop non-essential hiring and slow discretionary spending. Another three dozen layoffs are in the pipeline after D-H pulled the plug on ImagineCare, a for-profit unit that monitored patients’ health using mobile devices.
Clouds still loom on D-H’s financial horizon.
For one thing, Gov. Chris Sununu’s proposed budget for the 2018 and 2019 fiscal years would cut to $166 million annual state spending on a program that supports hospitals that care for Medicaid patients. A settlement agreement in a lawsuit filed by D-H and other hospitals had committed the state to provide hospitals $236 million through the program in fiscal 2018 and $243 million in fiscal 2019, according to the New Hampshire Hospital Association.
Cuts in the so-called disproportionate share hospital payments could affect D-H’s revenue. During fiscal 2016, D-H received $56.7 million from the program, up from $10.2 million in fiscal 2015. D-H made provider tax payments in New Hampshire and Vermont of $58.6 million in fiscal 2016 and $52 million in fiscal 2015.
In response to a question about Sununu’s budget, Adams pointed out that the state “is bound by an agreement that requires the state to make (disproportionate share hospital) payments within certain limits in FY18 and FY19.”
“We expect the state to live up to its obligations under that agreement,” he added.
D-H’s financial future also could be shaped by changes to the Affordable Care Act, which could affect the number of clinic and hospital patients with health insurance coverage.
It is too early to anticipate the impact of changes in the health care law, Adams said: “We need to see what remains, what goes and what’s left of the ACA.”
Rick Jurgens can be reached at firstname.lastname@example.org or 603-727-3229.