Senior Vice President,
Chief Financial Officer
& Treasurer of Baystate Health
In 2020, the financial performance of healthcare organizations across the Commonwealth and the nation were dramatically impacted by the COVID-19 pandemic. The state's mandate to shutdown elective surgeries and procedures; increasing cost and disruption to supply chain distribution channels for personal protective equipment; hospitalization, treatment and testing of COVID-19 patients; critical staffing shortages; higher labor costs; a spike in uninsured patients due to unemployment; as well as non-COVID-19 patients postponing routine care, has led to lower revenues accompanied by skyrocketing expenses. Despite these many challenges, Baystate Health's financial performance for Fiscal Year (FY) 2020 remained relatively stable due in large part to funding from federal and state agencies through the stimulus relief packages and actions taken by management to control expenses and other mitigation strategies.
Throughout 2021 the financial performance of healthcare organizations continued to be negatively impacted by COVID-19 with subsequent waves that were more prolonged and challenging than the initial outbreak in 2020. Despite these challenges, Baystate Health finished the 2021 fiscal year with a positive operating margin of $37 million or 1.3 percent. This year’s operating margin performance was slightly better by approximately $2 million compared to 2020 ($35 million). Total operating revenues grew to $2.8 billion which was a 14% increase compared to 2020 ($2.5 billion). Approximately 63 percent of Baystate's patient related operating revenues were generated from our four acute care hospitals, our employed provider group with over 1,000 providers and our visiting nurse and hospice entities. The other large component of Baystate's operating revenues (28 percent) was generated on premiums from our managed care health insurance company, Health New England (HNE) with over 182,000 members.
Operating Margin (OM) %
There were several significant factors that impacted Baystate’s financial performance in 2021. Strong inpatient volumes and revenues associated with treating more complex COVID/non-COVID cases was partially offset with lower outpatient volumes as some elective procedures and non-urgent cases were cancelled in addition to patients continuing to defer their routine and preventative care. Included in revenues in 2021 was $68 million in COVID stimulus funding from the government to partially offset $100 million in lost revenue and increased expenses. Throughout 2021, Baystate, like all healthcare organizations across the country, experienced unprecedented workforce challenges as early retirements, resignations and increased vacancies tightened the labor supply. These workforce issues led to skyrocketing operating expenses for agency, temporary and contract labor, as well as the need for Baystate to invest in critical care, special pay and shift differentials for our employed workforce. The additional cost on these labor related expenses exceeded prior year spending by $42 million. Lastly, HNE had a significant operating margin loss in 2021 of nearly $25 million caused by several unexpected factors including: increased COVID related expenses (testing & non-testing), pandemic related flexibilities instituted throughout the Public Health Emergency period, higher medical loss ratios due to increased utilization and premium shortfalls in the Worcester market related to membership growth. Action plans are underway at HNE to address these issues going forward.
Total Operating Revenues & Expenses
($ in Millions)
|Net patient service revenue: $1,651M - 60%|
|Premiums: $837M - 30%|
|Other revenue: $289M - 10%|
|Salaries and wages: $1,013M - 37%|
|Supplies & expense: $1,128M - 41%|
|Medical claims & capitation: $524M - 19%|
|Depreciation, amortization & interest: $85M - 3%|
Baystate's balance sheet ratios continued to remain strong with Days Cash on Hand at over 230 days and a lower long-term debt to capitalization ratio under 30%. These metrics, coupled with strong investment market returns exceeding $100 million, provided additional liquidity during these turbulent times. Overall, Baystate's total assets for the fiscal year ending September 30, 2021, increased to almost $3.0 billion compared to $2.8 billion in 2020.
Assets, Liabilities & Net Assets
($ in Millions)
Our independent public accountants, Deloitte & Touche LLP, completed their annual audit of Baystate Health's financial statements for FY 2021 and issued an unqualified opinion. In addition, in 2021 we continued to maintain our A+ rating with a stable outlook from both rating agencies - Standard & Poors and Fitch. This strong rating is reflective of the continued strength of Baystate's integrated delivery system, stable financial performance and market leadership position even during the midst of a pandemic.