Dana-Farber operating income plunges 66% on unplanned costs of CMS review

Dana-Farber Cancer Institute saw revenue 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 released bondholder documents. The 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 increase from the same period of the year prior. The hospital said general administrative and plant expenses grew 5.9 percent year over year, which is primarily attributable to expenses related to an ongoing CMS review.

At the direction of CMS, the Massachusetts Department of Public Health surveyed Dana-Farber Cancer Institute Aug. 4, 2016. The survey revealed the hospital "was not in substantial compliance" with six Medicare rules, according to a letter CMS sent to Dana-Farber in August.

The hospital told Becker's Hospital Review in March that most of the issues CMS identified were related to the "oversight and administration of care" provided in its 30-bed inpatient unit. Although Dana-Farber and Boston-based Brigham and Women's Hospital are independent organizations, Dana-Farber's inpatient unit is housed in Brigham and Women's. According to CMS, Dana-Farber violated Medicare rules by relying on Brigham and Women's to handle a number of processes, including verifying staff credentials 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 recently released 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. Dana-Farber also said that during a follow-up survey conducted June 7-8, the Massachusetts Department of Public Health said it would recommend to CMS that Dana-Farber be considered in full compliance with Medicare rules.

"While final resolution will not occur unless and until CMS makes its final determination and it rescinds the termination date, management believes this issue is likely to be resolve satisfactorily," Dana-Farber stated in its financial disclosure.

In addition to the CMS review, higher depreciation 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. The proceeds of the Series N financing will be used to purchase the hospital's research space in Boston's Longwood Center, which is tentatively scheduled to occur in July, according to the bondholder documents.

Dana-Farber ended the first six months of fiscal year 2017 with operating income of $9.4 million, down 66 percent from $27.3 million in the same period of the year prior.

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