Digging Out

Peter Banko says he wasn’t necessarily looking for a turn-around job when he was exploring options for his next career opportunity, but he found one as the new president and CEO at Baystate Health.

Still, he was quick to note that, these days, there are very few CEO opportunities at large hospitals and health systems that do not involve turn-around efforts.

The one at Baystate certainly does, as was made clear in a press release of sorts — it was more of a statement, actually — issued by the institution early this month. It detailed everything from $300 million in operating losses over the past few years to a Leapfrog Safety Grade of ‘D’; from erosion on the balance sheet (particularly days of cash on hand, which declined from 180 days in FY 2020 to 109 by early October) to the launch of a 24-month ‘focused transformation’ to improve core operations (acute care, ambulatory, and physician enterprise) by more than $225 million.

The statement was issued in an effort to be transparent about the system’s current fiscal situation and the plan in place to return it to sound financial health, and also prepare the ground for steps that may come next, including workforce reductions, said Banko, who arrived in Springfield in June, fully aware of exactly what he was getting himself into.

He elaborated on its various points in a recent round of interviews with media outlets from across the state, including one with BusinessWest, during which he noted that Baystate is suffering from the same affliction as most all other healthcare providers in these post-pandemic years — a situation where revenues are simply not keeping pace with expenses — and will have to make some hard decisions, and many of them, to get back on track.

“We have a clear path, and we’re working on implementing it; it’s a two-year plan to improve our core operations by more than $225 million.”

“We have a clear path, and we’re working on implementing it; it’s a two-year plan to improve our core operations by more than $225 million,” said Banko, noting that the basic playbook in this case, as it does with any struggling business in any sector, calls for growing revenues and reducing expenses, efforts carried out simultaneously.

“We’re leaving no stone unturned,” he went on, noting that the system has already taken several steps, including the termination of its defined-benefit pension plan, sale of its laboratory to Labcorp, and the pending sale of Health New England to Point32Health, a move that will “remove a distraction we don’t need right now” more than it will help the bottom line, he noted.

In the growing-revenues category, he said the system is engaging in a strategic-planning process, one involving the entire organization and community, and one that will define where the system wants to grow. Elaborating, he explained that the system is working on revenue-cycle management, especially billing-and-collection operation, “to make sure we’re collecting every dollar, no more, no less.”

Meanwhile, the system is also working on improving access to physicians as well as the larger issue of throughput — in the operating room, endoscopy, heart and vascular, and more.

On the expense side, the system is looking to reduce corporate overhead, “things that don’t touch the bedside,” he said. “We’re looking at external spends — supplies, pharmacy, the must-haves versus nice-to-haves, what pens and paper we’re using.”

But obviously, the largest item on the expense side is workforce, Banko went on, adding that reductions are all but inevitable, although he could not say where they will come or how many.

Peter Banko says he arrived at Baystate fully understanding the challenges facing the health system.

“We’re still working on the plans and execution, and we will be transparent as we make those changes, both externally and internally,” he said, adding that the system will start with reducing corporate overhead and improving billing and collections.

As he goes about leading this ‘transformation,’ a word he used instead of ‘turnaround’ to describe what’s taking place, Banko said he will call on his considerable experience with such efforts (more on that later).

Ultimately, he is confident that Baystate can and will pull out of this dive and return to something approaching profitability.

“I have complete confidence in where we’re headed,” he said. “Everyone knows where we need to go; we’re aligned about where we want to go. Everything here is fixable, and there’s a great path forward to be able to invest $1.2 billion over the next six years and get into the fun stuff.”

For this issue, BusinessWest talked at length with Banko about how Baystate Health arrived at this moment, but mostly about what happens now — especially those hard decisions, the turning over of all those stones, and everything else needed to move the system into recovery.

“The light at the end of the tunnel can’t be another train coming — it has to be something better.”

While doing so, he provided some insight into the challenges facing virtually every healthcare system in the region — and the country, for that matter.

Numbers Game

As noted earlier, Banko knew exactly what he was facing when he agreed to succeed Dr. Mark Keroack as president and CEO at Baystate Health.

“The board was very transparent, and there have been no surprises,” he said, joking that, while there was a very short honeymoon period as he transitioned into the job, it is long over, and the hard work of returning the system, which includes four area hospitals — Baystate Medical Center, Baystate Noble Hospital, Baystate Wing Hospital, and Baystate Franklin Medical Center — to sound financial health is well underway.

Similar work is taking place almost everywhere in healthcare, especially across the Commonwealth, he said, noting that a recent Massachusetts Hospital Assoc. report noted that, in 2023, 75% of the hospitals in the state lost money, with some losing at a more dramatic rate than Baystate, while most others lost less.

“The American Hospital Association reported that, over the past few years, inflation grew by 12.5%, so let’s say it’s 6.25% per year,” he said, while explaining how Baystate arrived at this moment. “Our revenue at Baystate over the past 10 years has grown 5.3%, and there’s the issue: our expenses have been growing faster than our revenue.

“We have an aging population, so more than 70% of our patient base is Medicare and Medicaid, and we know neither of those cover their costs,” Banko went on. “So we rely on the other 30% to cover the cost of Medicare and Medicaid. We’ve lost commercial market share and key services to Boston and Hartford, including cancer, heart and vascular, and to a lesser extent orthopedics, neurosurgery, and gastroenterology. So all the key procedural areas that are profitable for us … we’ve lost some business to elsewhere, and for a variety of reasons.”

Listing some of them, he mentioned access to physicians — “if you call us and it’s a month and you call someone in Boston and it’s ‘we’ll see you next week,’ you’re going to go to the place that will see you next week, if you have the ability to get there” — as well as a lack of awareness within this region of the talent and services available at Baystate.

This loss of revenue, compounded by rising expenses, has had far-reaching ramifications, he said, adding that it limited the system’s ability to reinvest back into itself and the community, while also stunting its ability to grow and impacting the balance sheet.

The plan to stem this tide is fundamental, Banko said, adding that it involves both growing revenue and reducing expenses, and, ultimately, growing revenues faster than expenses.

“That means we have to start growing revenue 6% to 8% a year, and we’ve got to transform our cost structure to get below that,” he said. “We’re still early on, so the more we get on the revenue side, it takes some of the pressure off on the cost side, but we’re still early in the process.”

He said Baystate is not interested in cutting back on operations or discontinuing services, in large part because it is a safety-net hospital, and many of those services are not available elsewhere.

Bottom Line

As the system goes about putting a plan in place and then implementing it, it will use some consultants, while also drawing on some of the lessons generated by providers who have managed to recover financially from the pandemic quicker than most others.

There are only a handful of those, Banko said, stressing, again, that most systems — in this region, across New England, and across the country — are fighting the same battle, although Baystate has a deeper hole from which to dig out.

“We got hit harder — our fall, post-pandemic, was further than most systems, and our recovery has been slower,” he noted, adding that those that recovered faster made the hard decisions earlier.

As noted earlier, Banko has considerable experience with turn-around projects. He’s confronted them at several of his earlier career stops, including Centura Health in Colorado, and others as a turn-around specialist in New Jersey, Tennessee, Texas, Pennsylvania, and elsewhere.

As he looked around his office at the system’s corporate headquarters on Chestnut Street, Banko said that, somewhere, there’s a book on turn-arounds he read earlier in his career.

He doesn’t have to reread it because he’s lived through many of them now, and also because it isn’t exactly rocket science. It’s about fundamentals, execution, and “not relying on luck,” he noted. “For me, what’s more important than what you do is how you do it.”

Elaborating, he said one key is maintaining morale and getting buy-in on the strategic plan that is developed. This comes through transparency and focusing on the endgame. He noted that the poor Leapfrog score was a “gut punch” for the system, one that doesn’t reflect the work being done and the quality of talent within the Baystate family of hospitals.

“Still, it’s a grade, and it’s how we’re being graded; I said we’re going to be an ‘A’ organization — everyone wants to work for an ‘A,’ said Banko, who said he also serves as ‘chief culture officer’ for Baystate Health, and in that role it’s his job to set a tone and generate optimism for the system moving forward.

“The light at the end of the tunnel can’t be another train coming — it has to be something better,” he noted. “We’ve got a really nice picture of being able to grow the organization and invest a significant amount of money over the next six years if and when we do the plan.

“We don’t have to sell to someone, we don’t have to turn over the keys, we’re not in the same situation as Steward,” he said, referencing the Texas-based health system that filed for bankruptcy in May and has closed several hospitals, including two facilities in the Bay State. “We have a clear path, and if we execute on the path, we’re going to be healthy and growing and thriving for the next 140 years.”