To turn around its financial situation, a small hospital in western New York state has dumped its national management company in favor of the expertise of an even smaller hospital.
In January 134-bed Lockport (N.Y.) Memorial Hospital retained Intensive Resource Group, a division of Brentwood, Tenn.-based Quorum Health Group. During the past seven months IRG pulled some unusual financing strings to help keep the small not-for-profit facility afloat.
But interested parties are debating whether IRG did little more than that.
"I guess they at least kept our heads above water," allowed Ed Robisch, staff and program director for the United Professional Nurses Association (UPNA), the union representing 167 registered nurses at Lockport. "But I'm not sure we are in any better shape than we were on Jan. 1 when they first arrived."
On July 31 the hospital's board of directors made a clean sweep of the executive suite, ending IRG's engagement. On Aug. 1 the facility turned over management duties to a tiny community hospital in Newfane, N.Y., 10 miles to the east.
Clarr Haar, chief executive officer of 71-bed Inter-Community Memorial Hospital, along with three of her top administrators, now are in charge at Lockport Memorial.
Erich Wolters, an IRG employee who served as Lockport Memorial's CEO, was reassigned in early July. An interim CEO from IRG filled the slot for the remaining weeks under the contract.
David Speltz, an IRG senior vice president, said Wolters' performance had "absolutely nothing" to do with the board's decision to end the company's six-month contract, which was later extended through July.
George Muscato, Lockport's board chairman, concurred: "I have no ax to grind with IRG. I thought they did what we asked them to do."
Rather, he said, the decision was financially motivated. "With a company like IRG, obviously . . . they're expensive, and we need to consider our costs at every level."
Although IRG would not discuss its fee, the UPNA's Robisch estimated the total cost at just shy of $1 million, including executive salaries and a $71,000 per month retainer.
Lockport Memorial could hire IRG thanks to an $800,000, no-interest loan from a state pool administered by the Dormitory Authority of New York State.
Authority spokeswoman Claudia Hutton said the pool was created to help New York hospitals make necessary changes to compete in a deregulated-rate environment. The state deregulated hospital rates in 1997.
IRG also managed to pull off an unusual but not unprecedented release of reserves deposited by Lockport Memorial with the U.S. Department of Housing and Urban Development under a mortgage guarantee agreement. With that money, the hospital paid some of its vendors, albeit at a discounted rate of 50 cents on the dollar.
In some respects, the hospital is no different from other western New York hospitals that failed to predict the effects of state rate deregulation, managed-care discounts and the federal Balanced Budget Act of 1997, said William Pike, president of the Western New York Healthcare Association.
Masked in part by problems with the hospital's switch to a new computer system, those revenue setbacks did not surface until July 1998, when the board hired a new chief financial officer. Instead of posting an anticipated $150,000 profit for the year, Lockport lost $5.5 million on revenues of $35 million.
"I think that our administration should have done a better job of anticipating just where we would be," Muscato said.
Michael Vlosky, the CEO before IRG's involvement, was asked to resign after the board learned of the hospital's losses, Muscato said.
When IRG took the helm in January, Lockport Memorial was losing $400,000 per month, Muscato recalled. In the span of seven months, IRG employed a variety of financial remedies, including a 20% work force reduction and the closing of several ancillary health facilities. Lockport's losses now run roughly $150,000 per month, he said.
Still, the hospital struggles with huge debts. Accounts payable to vendors, which reached $7 million at one point, still need to be whittled down. The board hopes to resolve the issue out of bankruptcy, but Muscato admitted it might not be possible.
At this point, a foolproof financial remedy may be hard to find.
Lockport is carrying roughly $20 million of debt, including a $14 million federally insured mortgage provided by the dormitory authority.
The agency sees partnership as the key to Lockport's viability, but Lockport didn't start shopping for a partner for months after IRG's arrival, Hutton said.
"We have said to them several times when they have considered bankruptcy, we don't think they need to go that route. We just want to urge them to find a partner to help them row the boat," she said.
IRG's Speltz said the plan was for Lockport to partner with four-hospital Kaleida Health in Buffalo on July 1, but the deal fell apart during due diligence.
"Kaleida came in as the white knight and then backed out," he charged.
But Kaleida defended its actions. During the standstill, the Buffalo-based system discovered that Lockport was losing a lot of money, said Richard Braun, Kaleida's senior vice president of finance. The deal did not make financial sense to system executives.
Also standing in Kaleida's way, said Braun, was a vocal group of Lockport physicians who preferred a partnership with Inter-Community, where the bulk of the troubled hospital's doctors have privileges.
But Kaleida still has a stake in Lockport Memorial's future. The hospital owes Kaleida $900,000 for a computer billing system-the equipment at the center of the billing-system switch-over that prompted a closer look at the hospital's financial condition. Lockport's board now is engaged in "affiliation" discussions with Inter-Community, its interim manager.
Inter-Community, which is licensed for 71 beds but rarely fills more than 33, is said to be shopping for financing to back the deal. Sources speculate that acute-care services may be consolidated at Lockport, freeing Inter-Community for other uses, such as long-term care.
Because Inter-Community is so much smaller than Lockport, the UPNA's Robisch is skeptical about the latest change in management. What they need to do, he said, is hire a management team with a commitment to the community and the hospital.
Muscato did not venture to say when a deal might be consummated.
"We obviously have significant financial problems that are day to day and critical, and we need to resolve this issue quickly," he said.
Meanwhile, a grass-roots community coalition is establishing an independent foundation to raise charitable dollars on the hospital's behalf.
