Raymond McCarthy, 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.
For Baystate's fiscal year ended 2020, we finished with a positive operating margin of $35 million or 1.5 percent on total operating revenues of $2.5 billion. This operating margin performance was lower by $10 million compared to 2019, however this decline was primarily related to the pandemic. Approximately 67 percent of Baystate's operating revenues are generated from our four acute care hospitals and employed provider group of over 1,000 providers. Another large piece of Baystate's operating revenues (26 percent) are generated from our managed care health insurance company, Health New England (HNE). HNE had a significant positive operating margin in FY 2020 due to reduced medical claims which contributed $16 million to income from operations.
Operating Margin (OM) %
As mentioned previously, funding received from federal and state agencies through stimulus relief packages and grants was a large component of our FY 2020 financials. The total amount of funding under these programs amounted to $113 million during the year. In addition to these funding sources, management implemented several mitigation strategies during the summer months to reduce operating expenses that realized $15 million in savings. These expense strategies included leadership salary reductions, limited furloughs, use of paid time off, a prohibition on corporate travel, reductions in vendor agreements, a hiring freeze, and reduced contract and temporary labor. We also implemented a temporary freeze on $31 million of capital projects.
Total Operating Revenues & Expenses
($ in Millions)
|Net patient service revenue: $1,440M - 58%|
|Premiums: $773M - 31%|
|Other revenue: $279M - 11%|
|Salaries and wages: $963M - 39%|
|Supplies & expense: $966M - 39%|
|Medical claims & capitation: $436M - 18%|
|Depreciation, amortization & interest: $92M - 4%|
Baystate's balance sheet and liquidity position grew stronger during the pandemic. We received $222 million in advances from the state and federal government and deferred Medicare Social Security payments of $23 million. Both programs in addition to a significant appreciation in our investments, increased Baystate's days cash on hand to over 250 days and has provided additional liquidity. These advances and deferrals do not need to be fully repaid until the end of calendar year 2022. Baystate's total assets for the fiscal year ended September 30, 2020 increased to over $2.8 billion compared to $2.2 billion from 2019.
Assets, Liabilities & Net Assets
($ in Millions)
Due to the pandemic and the adverse impacts on the economy, all major rating agencies in 2020 revised their outlook for the healthcare sector from stable to negative. Companies are routinely evaluated by rating agencies and Standard & Poor's performed a review of Baystate’s financials and affirmed our existing A+ rating with a stable outlook. 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.
Our independent public accountants, Deloitte & Touche LLP, completed their annual audit of Baystate Health's financial statements for FY 2020 and issued an unqualified opinion.