Discussions about an integrated system of care in a two-hospital Massachusetts town have collapsed under the weight of a debt load carried by one of the hospitals.
Saints Memorial Medical Center, a 351-bed Roman Catholic facility in Lowell, and 254-bed Lowell General Hospital had begun in February to explore ways to develop a local system of inpatient, outpatient and rehabilitation care (March 7, p. 65).
But after talks commenced, Lowell General became aware of financial problems at Saints Memorial caused by declining revenues and $78 million in debt from a bond issue.
"We had no idea of the magnitude until we got into the discussions," said Robert A. Donovan, Lowell's president and chief executive officer.
"The debt was so high that we were concerned that the merged entity also would be financially ailing," Mr. Donovan said. "It's something we wanted to do," he said about the consolidation effort, "but we just couldn't get over the debt."
He said Lowell General has "a strong balance sheet and a sizable endowment," and the hospital expected a return on net revenues of about 7% in 1994.
In 1993, Lowell earned $1.8 million in operating income on net patient revenues of $58.6 million, according to HCIA, a Baltimore-based healthcare research firm. The hospital's total profit margin in 1993 was 5.4%, HCIA said.
Meanwhile, Saints lost $3.8 million on operating revenues of $21.6 million in the first quarter of fiscal 1994 ended Dec. 31, 1993. And the hospital was not generating enough of a cash cushion to satisfy legal requirements related to bond repayment, said Fitch Investors Service. The New York bond-rating company downgraded the Saints debt to B from BBB- in April (May 2, p. 44).
Saints Memorial was formed in October 1992 by the merger of St. Joseph and St. John hospitals, and the bond issue consolidated the debt of both Catholic hospitals, said Arthur Dunn, who was brought in by the Hunter Group of St. Petersburg, Fla., to provide interim management.
The Hunter Group was hired in February to develop a turnaround plan, which is being reviewed by Saints board members, Mr. Dunn said.
The debt from both predecessor hospitals was taken on for building and expansion programs in the 1980s, "before the managed-care market was even thought of," he said. Massachusetts has since developed the highest concentration of managed care in the nation (See related story, p. 102).
The Hunter Group's basic premise is still "to restore this institution on a stand-alone basis," Mr. Dunn said.
Saints isn't in danger of default, he added: It has $6.4 million in a reserve for debt repayment as well as $7 million in unexpended proceeds from the bond issue.