Northern Light Health looks to turn around steep operating losses
File photo / COURTESY, Northern Light EASTERN MAINE MEDICAL CENTER
Eastern Maine Medical Center, in Bangor, is the 411-bed flagship facility of Northern Light Health.
Northern Light Health, Maine’s second-largest health care system, is trying to reverse a trend of steepening financial losses.
“What may have worked in the past to stabilize performance will not lead us to a more stable future,” Tim Dentry, the systems’ president and CEO, said during a recent community webinar.
Operational losses have averaged over $100 million per year over the last three years and Northern Light Health has debt of $620 million.
In October, S&P Global Ratings placed Northern Light on a credit watch based on fiscal 2024 results through the nine months ended June 30. S&P issued a warning that it was possible that the system would be unable to meet its debt service covenant for the year.
Headquartered in Brewer, Northern Light Health has 10 hospitals across Maine, with 987 licensed beds, a physician-led medical group, eight nursing homes with 585 long-term beds, five emergency transport members and 37 primary care locations. The health care system employs more than 10,000 people.
Reimbursement shortfall
James Rohrbaugh, hired in July as Northern Light’s executive vice president and CFO, said the pandemic accelerated and intensified pressures on the largely rural health care provider.
Factors contributing to operating losses include inadequate reimbursement for care, labor shortages and increased costs, Rohrbaugh said.
Many patients are older or economically disadvantaged. He said that 66% are insured by Medicaid, known in Maine as MaineCare, or Medicare. The government programs reimburse far less than actual cost of care and payment adjustments have fallen well short of inflationary pressures, according to Rohrbaugh.
Since 2020, overall expenses increased more than 20%, while Medicare and Medicaid in-patient reimbursement rose only 7.5%. The gap between government reimbursement and cost is more than $300 million annually, Rohrbaugh said.
‘Skyrocketing’ costs
Northern Light has also had to absorb the “skyrocketing” cost of clinical talent, particularly as the system remains reliant on contract labor due to a shortage of personnel, he said.
This year, Northern Light invested over $150 million in contract labor, he said.
Northern Light facilities are concentrated in the northern two-thirds of Maine with a dispersed rural geography that makes shared resources difficult, he explained.
Lack of available staffed nursing home beds contributed to challenges related to patient flow. Last year, Northern Light had 55,000 patient days at hospitals where patients should have been discharged to a nursing home or other acute care setting, if beds had been available. Unnecessary hospital days caused bed availability challenges, more costs and pressures on labor shortages, he said.
Administrative streamlining
Rorbaugh said Northern Light is taking action to position itself for the future.
That includes structural changes around care delivery, and reducing and streamlining administrative costs. In the last few weeks, Northern Light eliminated several leadership positions and is partnering with health care organizations such as Compass One to provide support services.
The system is also looking at developing common processes and shared resources, while also continuing to invest in educational partnerships across Maine and recruiting from abroad.
And it’s working to ensure timely payments by insurance companies, and for the amount they contracted for, Rohrbaugh said.
The system is looking at ways to share services among Northern Light hospitals.
For example, in Hancock County, the Blue Hill Hospital is focused on outpatient care with a small number of inpatient beds. Surgeries and other acute-level procedures are provided at Northern Light Maine Coastal Hospital in Ellsworth and at Northern Light Eastern Maine Medical Center in Bangor. The leadership teams at Ellsworth and Blue Hill are shared, he said.
‘Unprecedented challenges’
Steven Michaud, president of the Maine Hospital Association, said health care systems overall “are in a situation right now of unprecedented challenges.”
He continued, “We’re seeing financial losses we’ve never seen before” and the depths of the losses are “in some cases staggering.”
Much of that is due to what he referred to as a “pandemic hangover.”
“I think a lot of us were hoping we’d go back to normal after the pandemic,” Michaud said. “And we didn’t do that.”
Like other industries, health care was hit with inflation.
“We also came out of the pandemic with an exhausted and burned-out workforce” resulting in personnel shortages, he said.
One of the industry’s top problems during and after the pandemic has been the need to use temporary traveling staff, particularly nurses but also other professionals, said Michaud.
The cost of labor is up 20%, with other increases: supplies 23%, pharmaceuticals 19% and purchased services 20%, Michaud said.
Maine hospitals experienced a 6.8% average increase in operating expenses for the third quarter of 2024, compared to third quarter 2023.
Medicaid and Medicare pay only a fraction of health care costs, Michaud said.
At the national level, Michaud said, hospitals that have about 50% Medicaid or Medicare payers are more likely to be in the black. Hospitals that consistently lose money receive 60% of their revenue from Medicare and Medicaid. Maine’s payer mix is 67% Medicare and Medicaid.
Striking a balance
“We believe we can get our finances straightened out,” said James Clarke, a senior physician executive at Northern Light Eastern Maine Medical Center.
Clarke noted that no decisions have been made at this time to reduce services at Eastern Maine Medical Center.
“But we are looking at the services we provide,” he said.
He added, “I don’t have answers at this point. Our goal is to preserve sustainable, high-quality services.”
Rohrbaugh noted that the system’s financial problems can’t be solved quickly.
“We’re taking immediate actions to improve our performance,” such as integration of medical groups and streamlining administration, which could deliver improvements in 2025, he said.
He continued, “We expect to see considerable improvement in 2025 and additional improvement in 2026.”
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