Becker's Hospital Review

18 CFO / FINANCE Dana-Farber Operating Income Plunges 66% on Unplanned Costs of CMS Review By Alya Ellison D ana-Farber Cancer Institute saw rev- enue increase year over year in the first two quarters of fiscal year 2017, but the Boston-based cancer hospital ended the period with significantly lower operating income. Dana-Farber recorded revenues of $762.7 million in the first six months of fiscal year 2017, up 11.8 percent from the same period of fiscal year 2016, according to recently re- leased bondholder documents. e financial boost was largely attributable to increases in patient care revenue and research revenue, which climbed 10.1 percent and 18.1 percent year over year, respectively. However, higher expenses offset the hospital's revenue gains. In the first six months of fiscal year 2017, Dana-Farber recorded operating expenses of $753.3 million, a 15 percent in- crease from the same period of the year prior. e hospital said general administrative and plant expenses grew 5.9 percent year over year, which is primarily attributable to ex- penses related to an ongoing CMS review. At the direction of CMS, the Massachusetts Department of Public Health surveyed Da- na-Farber Cancer Institute Aug. 4, 2016. e survey revealed the hospital "was not in sub- stantial compliance" with six Medicare rules, according to a letter CMS sent to Dana-Far- ber in August. e hospital told Becker's Hospital Review in March that most of the issues CMS identi- fied were related to the "oversight and ad- ministration of care" provided in its 30-bed inpatient unit. Although Dana-Farber and Boston-based Brigham and Women's Hospi- tal are independent organizations, Dana-Far- ber's inpatient unit is housed in Brigham and Women's. According to CMS, Dana-Far- ber violated Medicare rules by relying on Brigham and Women's to handle a number of processes, including verifying staff creden- tials and managing patient complaints. Dana-Farber, which has until the end of June to correct the issues, submitted a plan to CMS to fix the problems. In its financial documents, Dana-Farber said CMS and the Massachusetts Department of Public Health have approved the hospital's plan to fix the issues identified by CMS. Da- na-Farber also said that during a follow-up survey conducted June 7-8, the Massachu- setts Department of Public Health said it would recommend to CMS that Dana-Farber be considered in full compliance with Medi- care rules. "While final resolution will not occur unless and until CMS makes its final determination and it rescinds the termination date, manage- ment believes this issue is likely to be resolve d satisfactorily," Dana-Farber stated in its fi- nancial disclosure. In addition to the CMS review, higher depre- ciation and interest expenses related to the issuance of Series N debt also affected the hospital's revenue growth in the first half of fiscal year 2017. e proceeds of the Series N financing will be used to purchase the hos- pital's research space in Boston's Longwood Center, which is tentatively scheduled to oc- cur in July, according to the bondholder doc- uments. Dana-Farber ended the first six months of fis- cal year 2017 with operating income of $9.4 million, down 66 percent from $27.3 million in the same period of the year prior. n Lawsuit Claims CHS Failed to Provide up to $110M in Charity Care By Ayla Ellison A nonprofit group filed a lawsuit June 12 against Franklin, Tenn.-based Community Health Systems, alleging the for-profit hospital operator failed to provide sufficient charity care at two of its Washington hos- pitals, according to the Nashville Business Journal. Empire Health Foundation, a nonprofit formed with the pro- ceeds from the sale of Spokane, Wash.-based Empire Health to CHS in 2008, filed the lawsuit in U.S. District Court. Empire Health, which included 388-bed Deaconess Hospital in Spo- kane and 123-bed Valley Hospital in Spokane Valley, Wash., dissolved with the sale to CHS and the foundation took on the obligations and rights of the system. Empire Health Foundation alleges that when CHS acquired Deaconess Hospital and Valley Hospital it agreed to provide charity care at levels at least equal to the average provided by hospitals in Eastern Washington. The foundation claims CHS' charity care spending fell at least $55 million below the levels promised. The suit says that figure could reach $110 million because CHS allegedly inflated the value of the char- ity care it did provide, according to the report. The lawsuit accuses CHS of breach of contract and breach of implied duty of good faith and fair dealing and seeks damages and an injunction to force CHS to meet the char- itable care conditions in the sales contract. Tomi Galin, senior vice president for corporate commu- nications and marketing at CHS, told The Spokesman Re- view that CHS will contest the lawsuit. She said state law requires CHS to only make "reasonable efforts" to meet charity care averages for Eastern Washington. The foundation filed the lawsuit as CHS is divesting the two hospitals. CHS signed a definitive agreement in November to sell Deaconess Hospital and Valley Hospital to Tacoma, Wash.-based MultiCare for $425 million. n

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