BWH Financial Overview
Much has been said in the media and in communications from the Massachusetts Nursing Association regarding
the state of finances at Brigham and Women’s Hospital and Partners HealthCare. Here are the facts:

Brigham and Women’s Hospital, along with Massachusetts General Hospital, is part of a not-forprofit health care system, Partners HealthCare, which also comprises several community
hospitals, a physician network, Partners Continuing Care (PCC - a continuing care organization),
McLean Hospital and our network-wide mental health services, and a predominantly medicaidbased insurance product (Neighborhood Health Plan).

Virtually all of the margin for Partners HealthCare is earned at Brigham and Women’s Hospital
and Massachusetts General Hospital. All of the other community based components of the
system, including North Shore Medical Center, Partners Continuing Care, our mental health
services, and Neighborhood Health Plan require substantial subsidy in order to operate at breakeven. These entities typically require subsidy - as a result of poor public payor mix - amounting
to about 45% of the total Partners HealthCare margin, leaving about 55% for other purposes (see
below).

Here’s the picture for BWH:


BWH generates about $2.5 billion in Total Revenue per year – a very large organization, and
this is almost entirely offset by our Total Expenses. The difference, revenue minus expenses,
is our operating margin.

Last year, fiscal year 2015 (FY15), BWH had a total operating margin of $62 million for the
entire year. For comparison purposes, the total cost of compensation for our nurses for FY15
was $427 million, of which $339 million was salary and $89 million was benefits.

For FY16, which began October 1, 2015, we are budgeted to earn $148 million, roughly
$12M/month. In the first two months of the fiscal year, we missed budget by over $25
million. These operational and financial challenges required us to undertake an enormous
organization-wide effort to boost our revenue. Our efforts have shown improvement, and at
the half way point of the year, which ended March 30, 2016, we had total year-to-date
earnings of $47 million, which remains $12 million off budget.
Why do we care about margins?

The hospital’s margin is used to provide capital to build new buildings, renovate and update
existing facilities, support research and education and provide financial stability for our
health care system. Major investments at BWH over the past few years, all of which require
margin dollars to fund, are:

Our share of the investment in Epic

NICU addition ($90 million)

BWH Building for the Future ($500 million)

Cafeteria, Thorn Building, and other renovations/updates



The hospital borrows money on the bond market to do these large capital projects (like the
BBF), in a way similar to taking out a mortgage to buy a home, and has to make payments on
these borrowings (like for the Shapiro building) – just like homeowners have to make
payments on a mortgage (and investors expect a strong balance sheet).

In order to make sure we can do these things, the Board has determined that we need to earn
an operating margin of at least 5%.

Similar to margin earned by most other teaching hospitals in Boston.

Slightly less than the higher margins earned by national peers, like Johns Hopkins and
Cleveland Clinic.
What are the pressures on BWH?

Year over year, our revenues are going up at a rate of 1% while BWH’s expenses are going
up at a 4% rate. This is because the state and payers are holding down payments for health
care (Medicare and Medicaid increases year over year are zero, commercial payers are less
than 2%), while the costs of delivering healthcare continue to rise at a much higher rate
(implants, devices, cancer drugs, other specialized pharmaceuticals, medical supplies, labor).

BWH is a higher cost hospital and there is a great deal of pressure to control costs

The percentage of Medicare and Medicaid patients at BWH is growing, and Medicare
and Medicaid pay below actual cost for patient care.

Because of our higher costs, insurance products are excluding BWH and MGH, or
requiring high deductibles.

There are more dollars at risk in bundled reimbursements, rather than the traditional fee
for service model.

Competition for mainstream services, such as cardiac care and surgery, is increasing and
many hospitals charge much less than BWH for these services.
How does BWH intend to address those challenges?

We can increase efficiency, but we have to manage expenses, too.

Labor (salary & benefits) represent 48% of hospital costs; we cannot lower costs without
controlling the rate of increase of labor costs. Nurses are 22% of our total labor force and
account for 45% of our total labor costs.

To control the rise of labor costs, we have undertaken:

$10 million in salary reductions from non-patient care positions through attrition and
layoffs, as necessary, late in September, 2015 and another $10 million over the past three
months.

Keep salary cost increases in line with revenue rate increases and consumer inflation –
estimated at 2%.

Ensure comparable annual average wage increases for all employee groups. All other
employee groups, including our physicians, have had annual merit raises of 2% or less for
many years.