The health pressure cooker: UPDATED

A few weeks ago I warned that it would take more than a band aid to fix the problems affecting the Bermuda Hospitals Board. The story, then, was largely overlooked, but it has resurfaced today with a dire warning that the Bermuda Hospital Board could soon run out of money. Alongside this story from HSBC, it all made for pretty grim reading.

Picture courtesy of Bernews.
Picture courtesy of Bernews.

In regard to the BHB issue, there are several questions that have not been answered, or posed. 1. The new wing was being built at the height of the recession – what forecasts did the BHB use in terms of bed and service use and debt repayment? By that time, the Island’s population had already fallen significantly. 2. If I interpret the Minister’s statement correctly (she said: “The additional costs per annum of the new acute care Wing to the Bermuda Hospitals Board will be in the order of $40 million”) the $40 million is the annual debt repayment. What happened to the $40 million raised through corporate and private donations? I understood that this was for the first payment – if that is the case, where was the budgetary planning for the second installment? (i.e, they had one ‘free’ year.) Indeed this story from January 2013 states: Allaying fears of hidden costs associated with the project, BHB CEO and president Venetta Symonds pointed out that once the board signed its contract with Paget Health Services in 2010, the contracted cost was settled upon, and cannot be changed.

“This level of cost certainty is a major benefit of this kind of delivery model for a construction project,” Ms Symonds said. “There are no unanticipated costs due to unexpected construction issues or delays, as these risks are assessed up-front and transferred to the private partner.”

In an indication of the complexity inherent to the hospital’s long-term financing, Ms Symonds said the $40 million due next March was just the start of a lengthy partnership.

“There are also annual payments which include a 30-year maintenance contract for hard facilities maintenance and life cycle costs, which includes the infrastructure, roof, and systems such as heating, ventilation and air conditioning,” she said.

“As publicly released in February 2011, the first payment is $26.7 million, and this will not change. Thereafter, 70 percent of the annual payment is locked, and 30 percent could be impacted by variables such as inflation and insurance.

The last paragraph is particularly pertinent – have the variables really added another $13 million, give or take the odd cent? If that is the case, why and how? If my interpretation is wrong – it simply means the BHB has to find $40 million in savings on top of the debt repayment, which are locked in for some 30 years …. almost equally bad news. Because this was a public private partnership – the new wing is in reality owned by the construction company that built it until the debt is paid off – BHB is saddled with a very significant annual debt, that has to be paid. With a declining population meaning less services being used and therefore less income coming in, coupled with the pressure on services from an increasingly ageing population, Bermuda is, quite simply, sitting on top of a health pressure cooker about to go off. The BHB is already making savings and more, I am sure, will have to be made with the potential to cut services. Prices will no doubt rise and those rises will be passed to the consumer in the form of higher health insurance payments. While the headlines have been about furlough days, pay cuts, protest marches, bus cancellations etc, this crisis has gone largely unnoticed and unacknowledged. Questions remain: did we need such a large and luxurious new ‘wing’? Despite all the protestations, how are we going to bring back to the Island the number of people needed to make the hospital at least break even? How are we going to cut the cost of health care? I wish I had the answers as it is another crisis about to hit the Island.

UPDATE

I received an email from Anna Nowak |Vice President, Public Relations at the BHB which said:

Hi Jeremy

I just read your post – and thought I’d offer the following as background. It doesn’t change the financial picture, but might add some context for you.   The numbers below provide some background to the points you were making.

1. Work planning the facility began in 2007 and specifications were completed by 2009. The Johns Hopkins Medical International report looked into demographics, needs, etc, as well as recommended that we needed more clinical space as the old hospital could not sustain services (two reports issued in 2008) – click here for the reports on our website; a Clinical Advisory Team undertook further research as the specifications were detailed – click here for the release about its activities.  If  you stay in the KEMH Redevelopment Project section of the website you should be able to find all the releases and background info relating to the project.

  1. The BHCT was aiming to raise the $40m for the one-off  completion payment, not the first year of payments.  Click here for the release issued in February 2011 which explains the payment obligations.
  2. Hopefully the above makes the financial details clearer – here is the link to our latest community update issued last month that included our latest unaudited financials: http://www.bermudahospitals.bm/bhb/news-media/articleDetail.asp?ItemID=453&Lang=EN
  3. Below are a number of stories that ran in the RG where we have talked about financial concerns in the last two years.  The cost cutting to date has worked, in that we have been able to postpone going into debt, but the problems are deeper and wider, and go beyond just BHB. All of the healthcare system has gone up at the same rate (BHB’s portion has not changed significantly according to BHeC figures).  The Modernization Project aims to go beyond just budget cuts to ensure that we change how we work to bring year on year savings.

February 2015:  “BHB unveils cost-saving measures”  (coverage of the release linked above) http://www.royalgazette.com/apps/pbcs.dll/search

March 2014: “Hospitals face squeeze in year of ‘hard decisions’” http://www.royalgazette.com/article/20140308/NEWS/140309753

November 2013: “We Must Modernize” http://www.royalgazette.com/article/20131101/NEWS/131109968

October 2013: “Rising healthcare costs ‘should concern us all’ – BHB Chairman”

http://www.royalgazette.com/article/20130911/NEWS/130919923

July 2013: “BHB seeks to reduce medical tests taken to cut costs” http://www.royalgazette.com/article/20130725/NEWS06/707259939

July 2013: “BHB could go into debt within a year” http://www.royalgazette.com/article/20130626/NEWS06/706269979

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