Tufts Medicine facing existential challenges

First of two parts. Read part two here. 

 I’M WORRIED about Tufts Medicine. The latest news, that its current financial woes could trigger violations of bond covenants by late September, raises the possibility that key services could be shut down, employees laid off, and assets sold. Tufts may even have to partner up with some health system whose priorities may not include maintaining the full breadth of Tufts Medicine’s diverse charitable mission of teaching, research, patient care, and provision of community benefits.

To allow Tufts Medicine to fail, or even let its current bondholders make the most important decisions about what happens next, would be a bad societal event—having both significant negative implications for our state’s health care market and for medical education.

This last point is important to understand, as it is not only Tufts Medicine’s future that is at stake here. Tufts Medical School, which graduates around 200 or so doctors a year, is also potentially at risk if Tufts Medicine were to cease operation or have to undergo major service line cutbacks that could threaten clinical clerkship experiences.

In fiscal year 2022, Tufts Medicine lost over $400 million, and recent data from the Center for Health Information and Analysis for the first six months of this year indicate Tufts Medicine lost nearly $83 million even after netting $42 million in COVID relief.

Let’s start with understanding how Tufts Medicine (composed of Tufts Medical Center, Lowell General Hospital, MelroseWakefield Hospital, a home care and hospice organization, and over 2,000 affiliated physicians) got to this point. Some of the factors I note below reflect some of the structural ills of our state’s health care system, while some are particular to specific happenings or less than stellar management at Tufts Medicine.

Market competition and patient volume: Tufts Medicine is sixth in the state as a health system by patient volume, well behind Mass General Brigham and Beth IsraeI-Lahey, which  dominate in the adult patient space. Competing to both fill beds and see growing numbers of outpatients is still the name of the game, and CHIA data for Tufts Medicine from 2017 through 2021 (the most recent available on is site) indicate the system’s total patient volume growth numbers are performing much worse than its competitors—especially in the outpatient realm during the first years of the COVID era. Likely, the failure to recover outpatient volume was a key factor in the disastrous 2022 fiscal year. Of note, however, is that CHIA data also show that Tufts Medical Center has both the highest occupancy and lowest length of stay among academic medical center providers in the state, strongly suggesting that the hospital’s challenge is not having enough total staffed beds available to admit more patients and gain more inpatient revenues.

Provider payment levels: One continuing trend over the last decade is that the hospital’s payor mix has evolved away from commercial patients to a much higher proportion of Medicaid patients. Tufts Medicine’s Medicare and Medicaid patient proportion is now almost 70 percent, but unlike Boston Medical Center or Cambridge Hospital, flagship Tufts Medical Center does not qualify every year for high public payer status for purposes of receiving enhanced Medicaid payments. Tufts Medical Center also has the second lowest relative commercial price among its academic hospital peers.   Community hospitals Lowell General and MelroseWakefield have also received below average commercial prices as compared to their high public payer community hospital peer group. In sum, the system has been challenged by its inability to receive either higher commercial prices or higher Medicaid payments to help with revenue growth—giving it a longstanding disadvantage to compete in the Massachusetts market.

Operating expenses: CHIA data for 2017-2021 indicate nothing exceptional in terms of overall operating expense growth for Tufts Medicine, but the Boston Globe reported that contract labor expenses soared in fiscal year 2022. I have also heard the hospital has incurred nearly $100 million in unexpected losses associated with implementing its Epic medical record system. Still, it doesn’t appear Tufts Medical Center’s total operating expenses or labor costs per adjusted discharge makes it a significant outlier. Lowell Hospital and MelroseWakefield Hospital also seem to have labor and operating expenses comparable to their peers.

Research identity and brand: Tufts Medical Center is well behind its academic medical center colleagues in its research grant generating activity.  Physician recruitment, brand identify to attract patients, and the ability to attract larger, philanthropic gifts are all made more difficult by this fact—especially when compared to the major Harvard-affiliated hospitals.

Smaller cushion of net assets: Tufts Medicine does not have the sort of savings in the bank that its competitors have been able to generate through consistent positive operating margins, investment returns, or philanthropic support. So when it experiences the sort of operating losses that has come its way in the past few years, the system’s liquidity has severely dropped, leading to worries now about triggering bond covenant provisions. As of March 31 of this year, Tufts Medicine’s net assets, which totaled $967 million 18 months ago, were down to $369 million. The reality is that Tufts Medicine simply has less financial cushion to weather any storm.

Deferred capital replacement: On average, Tufts Medicine has an older physical plant, raising both issues of maintenance costs as well as patient attractiveness issues.

Management and governance challenges: It clearly seems that Tufts senior management has been off the mark in recent years. COVID-era shutdowns and their impact on elective admissions and outpatient visits affected all hospitals, but they seemed to be handled less well by Tufts Medicine as compared to its competitors. No new strategic partnerships seemed to be successfully pursued with physician groups in recent years, and the system has been slow to rebuild outpatient visits after the COVID shutdown. The incredible rise in expenses for contract labor in 2022, much above their peers, seems hard to explain, as is the mishandling of its Epic implementation. While management clearly seemed to have made some errors here, the lack of action by the Tufts Medicine governing board is even more concerning. Where have they been during the past 18 months or so in terms of asking hard questions about operating performance? Health systems have finance committees to stay on top of these kinds of issues and act as fiduciaries to protect the health system’s ability to carry out its diverse missions. Tufts Medicine’s finance committee seemed to be asleep at the switch.

Not on my list is the quality of care offered by Tufts Medicine clinicians. While I am not familiar with the medical staff or quality of care at Lowell General or MelroseWakefield, I do strongly feel based on my own knowledge as a Tufts Medical School faculty member over many years, that the Tufts Medical Center clinical staff can be characterized overall as having a very high-quality group of clinicians. I do not think that challenges in that realm have in any way contributed to the situation they find themselves in today.

With this as background as to why Tufts Medicine now finds itself facing some challenging existential questions, the important question now is what happens next, and whether state leaders, particularly the Healey administration and the Legislature, may need to take some actions to keep Tufts Medicine afloat.

Paul A. Hattis is a senior fellow at the Lown Institute.