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As leadership changes, Memorial Health's focus remains on its mission

Subheadline: 
Nonprofit faces financial hurdles, questions about health care, push for new business mode

Savannah attorney and businessman J. Curtis Lewis III is a veteran of more than 12 years on the board of the parent corporation of Memorial University Medical Center, a journey he compared to a roller coaster ride.

Last month he agreed to return to the Memorial Health Inc. chairman’s seat to help steer the nonprofit health care provider through continuing financial hurdles as the system seeks financial stability. Serious issues, including the future of the system itself, remain unresolved.

He conceded that recent events there have been a series of ups and downs, but he remains optimistic.

“The mission of Memorial will continue,” said Lewis, 64. “There’s no question about that. … The mission is more than just buildings. It is the members who work here and perform that mission every day and night, 24/7.”

His comments came during a week in which Memorial Health Inc. announced the hiring of Kerry Watson, a veteran of 20 years in hospital management, as interim CEO beginning the week of April 17 to replace outgoing Maggie Gill, the president/CEO since 2011 who resigned last month.

Lewis said the search for a permanent CEO will begin as early as next month, even as the health care provider continues to work with the Chatham County Hospital Authority to find a strategic partner to help return the system to profitability.

Watson comes on board as officials are also anticipating completion of a $195,000 independent audit by the Charlestown, W. Va., accounting firm of Arnett Carbis Toothman, ordered by Chatham County on behalf of the Chatham County Hospital Authority.

The annual financial report showed a loss of almost $44 million for 2016, a significant increase from the previous year’s $22.5 million, but one that officials had warned of for several years.

Lewis is joined by 16 other Memorial Health Inc. board members, each of whom has a day job and must rely on the professional management team to handle day-to-day hospital operations.

Watson will oversee that function until a permanent CEO or new partner can be brought on board.

“It been an educational experience, but during those 12 years it’s been a roller coaster ride,” Lewis said. “The sky’s not falling here. I’m actually very optimistic about the future of Memorial.”

 

Changes in business model

“I think it is past time for some restructuring,” at Memorial, said Chatham County Commission Chairman Al Scott.

But he quickly added that while changes in the business model of Memorial and its related facilities are in store, he is confident Memorial will remain a vital institution.

“In my opinion, Memorial is not in any danger of going away or anything else,” Scott said. “It will be here in some sort of form or fashion.”

“Under no circumstances can we sit back and let anything happen to Memorial,” Scott said, adding that it is a “major health care provider, teaching institution, major community asset and employer with a broad economic impact on the community.”

Addressing the audit, Scott said, “I think the auditors have had some preliminary discussions with at least some members of the Chatham County Hospital Authority.

“My understanding is (the authority) sent (the auditors) out to do some more work,” he said, specifically to include a review of the 2016 annual report, which had not been looked at in the preliminary report.

Scott called for the independent audit in August on behalf of the authority, and the commission approved $195,000 for the work. It was in part prompted by what Scott said at the time were concerns “given the publicized statements by some (Memorial) board members that (North Carolina-based Novant Health) was a ‘make or break’ deal.”

Scott said this week that the audit, once complete, should provide recommendations to cut losses, reduce costs and shore up the finances for the hospital that Memorial management should consider.

On Friday, the commission approved an authority request for a reimbursement agreement to pay Ponder &Co., an independent financial consultant that has reviewed proposals from possible suitors, to modify Memorial’s business model.

Scott said he met with Dr. Frank Rossiter Jr., authority board chair, to discuss the request that would include reimbursement by the entity selected.

None of those have been made public as the process continues.

 

Ongoing woes

Lewis follows J. Harry Haslam Jr. as board chair – the man who succeeded him three years ago and another ardent champion of Memorial’s mission and its role both locally and regionally.

Last year saw the breakdown of a shared partnership agreement with North Carolina-based nonprofit Novant Health Inc., which Haslam and Gill called a “make or break” deal. They said it would have provided a deep-pocket partner, the infusion of $295 million over 10 years and coverage of a $164 million bond issue through the Chatham County Commission.

Authority members have been insistent that protection of several core services — level one trauma care, neo-natal level 3 and the residency program with Mercer Medical School — be assured in whatever happens next.

But Rossiter, who sits on both boards and participated in the temporary CEO hiring, said this week that the process to select Watson as interim CEO involved members from both boards and went well.

“It couldn’t have been more cordial,” Rossiter said. “We’re looking to pull things together.”

That collegiality was welcome in light of a sometimes frosty relationship between some members of the two groups.

Underlying the financial woes are a list of things Lewis and hospital officials said are ongoing.

Lewis points out that losses suffered by the health care provider are aggravated by the recurrent financial hurdles that have plagued Memorial including losses under the Affordable Care Act, commonly known as Obamacare, reduced Medicare and Medicaid payments as well as reduced state disproportionate share payments for care for the indigent and under insured.

A recurring drag on the bottom line is the cost of providing care for indigent and charity-care patients.

Last year, that cost almost $31 million for 1,876 admissions, an increase from the $27.5 million for 1,556 admissions the year before, Memorial records show.

Total number of charity care patients, including outpatients, in 2016 was 10,409, up from 8,591 the year before, Memorial said. Charity care are those patients who are not legally indigent but cannot pay their bills and qualify for a write-off by the hospital.

To maintain the service levels, Memorial officials face the fact that the trained specialists — doctors and nurses — “don’t come cheap,” Lewis said.

“To keep level one trauma care is expensive, but we think it is very vital not just for this community but the region as well,” he said.

He points out that without the local trauma care provided at Memorial, the closest similar care is about 150 miles away in Charleston, Jacksonville or Macon.

Added to that, Memorial officials said, is the fact that Memorial remains the only level one trauma care safety net hospital in the state that does not receive financial assistance from the county government.

Grady Memorial Hospital in Atlanta, which has a similar mission as Memorial, receives $82 million annually from DeKalb and Fulton counties, Memorial officials said.

That has not been lost on Memorial’s leadership.

Lewis notes that as recently as 1971, Chatham County provided 11.7 percent of Memorial’s revenues.

 

Scott: ‘A fact of life’

Grady is a multi-county hospital and that facility also got a sales tax from the state legislature, Scott said, adding: “People want to ignore that.”

Scott also pointed out that the county’s support for Memorial exceeded just guaranteeing the 2012 bond issue.

“Their bond rating was almost junk, and they were paying high interest rates on that,” Scott said. “The county’s action allowed them to pay a much lower interest rate, reducing the old bonds at $176 million to $164 million.

”The intent of the debt restructuring was to free up available cash for operational purposes and to provide funding for plant and equipment,” he said. “Cash was freed up due to relaxed debt covenants, restructured debt terms and debt service payments.”

The net result was a more than $21 million savings over the life of the bonds through 2034, largely through the difference in interest rates, but with the new bonds reducing or restructuring the required principal payments.

In addition, $11.6 million was distributed to Memorial at bond closing for funding capital projects including renovations at the Children’s Hospital including Pediatrics ICU, and expanding the Neo-Natal ICU — with a cost of $24 million.

Scott said the county is paying about $5 million annually for the Curtis Cooper Primary Health Care on East Broad Street and the J.C. Lewis Health Center on Fahm Street, which cares for low-income or uninsured patients.

Without those two sites, most of that population would be showing up at Memorial’s emergency room, Scott said.

And, he added, 25-30 percent of indigents are coming from outside of Chatham County, including Bryan and Effingham counties, with no reimbursement from those counties, he said. (Memorial officials place the number of indigent patients coming from outside of Chatham County at 20 percent.)

Bottom line, Scott said, “First you’ve got to convince folks you have a business model that would get you back in the black,” then you can seek other funding support.

“I recognize that things happen that make them less profitable. That’s just a fact of life.”

Lewis said they need a deep pocket partner, “otherwise we’ll have to seek some reduction in critical services that are part of our mission. Or we need to look at cutting some of those services.”

“But I’m optimistic that we won’t have to do that and we will find a solution to the financial challenges of the mission.”

 

Gill initiatives

Under Gill, the health care provider mapped out expansion of the Dwaine &Cynthia Willett Children’s Hospital of Savannah and the Level 3 Neo-Natal Intensive Care Nursery, both key features of their core program.

Both projects have gotten started, but again they are limited by the available financing.

An April ground breaking for the children’s hospital capped a 24-year journey to provide the region’s only standalone children’s hospital, but work has slowed, again in face of a financial shortfall.

And Lewis points out those issues only add to a recurring challenge that has been the cost of providing care for the largest portion of indigent and underinsured patients who are attracted to Memorial based on its tradition of care for that demographic.

In June, the Memorial board approved establishing a new negotiating committee for a strategic partner and authorized Haslam to appoint three members of the Memorial board and three from the authority to work toward resolution of the new partner discussion.

That team has increased to eight – four from each board — which has quietly continued without public resolution.

In July, Gill unveiled a new management plan to retool the systems provider’s course over the next 18 months.

Pathway to Excellence, Memorial’s $20 million-a-year action plan that includes help from Premier Inc., a Charlotte, N.C.-based health care improvement company, focused on Memorial University Medical Center improving quality of care and additional financial stability and improve quality of care, but for the long term, it doesn’t provide the resources needed for capital and growth, Gill said.

The plan moved away from the partnership expansion and integration format — in wake of the recent breakdown of an option to work with Novant and instead focus on stand-alone ideas to help the hospital meet upcoming health care challenges, Gill said.

Since implementing the program, Memorial officials say they have identified and are implementing changes that will save as much as $20 million through February.

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