Dimensions Health Corp. set off on a fishing expedition earlier this year.
Through its investment banker, PaineWebber, the Landover, Md.-based healthcare system cast a line for a healthcare partner with strong access to capital, a commitment to expanding Dimensions' two-hospital network of health services and the ability to generate economies of scale.
It went home empty-handed.
Dimensions' request for proposals got a few nibbles. One was from Universal Health Services, the investor-owned healthcare chain, whose proposal was rejected off the bat.
"We responded to the RFP, and we were informed by their broker that they were going to negotiate with another party," says Richard Wright, vice president for development at King of Prussia, Pa.-based UHS.
There were others, too, says Taylor Watkins, Dimensions' executive vice president, "but basically the proposals that came in did not meet our objectives."
Without a bigger fish to carry foundering Dimensions, executives were forced to regroup. The plan now is to revitalize the system by slashing costs and paring down to its "core competencies."
Dimensions' move from Plan A to Plan B exemplifies the nationwide scramble by sinking healthcare systems to get back on firmer financial ground-one way or another.
If bidders offered less than what executives wanted, the reasons seem obvious. In April, the state recalculated the hospital rate reimbursement system. That change alone extracted $4.5 million from the rates that Dimensions' flagship, Cheverly, Md.-based Prince George's Hospital Center, could charge, Watkins says.
The revised rate-setting system links rates to the facility's ability to control expenses.
The system's overall financial picture was losing its luster, too. By June 30, the end of its fiscal year, Dimensions posted a loss of $9.9 million on revenues of $255 million, Watkins says. Just a year earlier, it had been $2.2 million in the black on revenues of $254 million.
Fitch IBCA, a New York-based bond-rating agency that had questioned Dimensions' plan to find a partner, downgraded the credit to BBB from A- in June. Although the system controls 24% of the market, and its volume is growing, there are plenty of trouble spots. It has $100 million of long-term debt, or $114 million including affiliate debt and operating leases. Cash on hand slipped to 66 days on March 31 from 104 days on June 30, 1997. During the same period, accounts receivable rose to 84 days from 58.
Potential bidders might have snapped up the system's suburban Laurel (Md.) Regional Hospital, a 185-bed community hospital, in a heartbeat. But Prince George's, a 370-bed teaching hospital two miles north of Washington, has tougher reimbursement issues. According to Fitch, the system's collective payer mix is 12% self-pay, 10% traditional Medicaid and 28% managed care, including Medicaid managed care.
Dimensions has been down this troubled road before. In 1995, the corporation, then known as Community Hospital and Health Care Systems, hired outside management to reverse multimillion-dollar losses. Watkins and Winfield Kelly, Dimensions' president and chief executive officer, clearly have their work cut out for them this time. The plan, as Watkins outlined it, is multifaceted:
* The system sold an outpatient imaging center to a radiology company for an undisclosed sum. Dimensions was losing $60,000 per month on that business.
* The system is divesting 20 physicians at 10 practices. It lost $2 million per year on those practices.
* In a one-time recoupment of underpayments from a charitable trust that supports pediatric care, Dimensions will receive a $4 million cash infusion.
* That settlement, plus the sale of an office building, will help Dimensions reduce its short-term debt obligations of $17 million.
* The system also is phasing out a family practice residency program as of June 30, 2000, saving $1 million annually on resident and faculty costs. It is thinking of doing the same with internal medicine.
Watkins also wants to renegotiate vendors' contracts and reduce the system's costly reliance on agency nurses to fill vacancies. The use of temporary nurses forced the system to spend $2 million more than it had budgeted for salaries.
Watkins is projecting a $1.2 million bottom line on revenues of $249 million in the fiscal year ending June 30, 2000, a dramatic reversal of fortune by anyone's measure.
Can Dimensions pull off a turnaround without filing for bankruptcy? "Let me assure you, they are not going under," says Larry Grosser, executive director of the Professional Staff Nurses Association, the Columbia, Md.-based bargaining unit for 714 Dimensions nurses.
But Fitch is leery. The proposed cuts make sense, says Jody Madala, a Fitch analyst. "But it's still $6 million of additional cash flow (that the outlined steps will generate) on a negative $6 million as of March 31, (a loss) that has only gotten worse." To close the June 30 gap of $9.9 million and post a profit, Dimensions would need to come up with several million dollars more. "We're still unclear how that's going to be achieved," she says.
The answer may lie in a county bailout. Watkins says Dimensions may seek help from Prince George's County. "We would submit a proposal just like anyone would do in the budget process," he says.
There is precedent for such county aid. Dimensions previously received a $2.5 million annual appropriation to subsidize indigent care, he says, but in recent years it has absorbed those costs.
In a recent example of government intervention, Greater Southeast Healthcare System received $8.5 million in assistance from the District of Columbia as part of a bankruptcy resuscitation plan.
If Maryland's Prince George's County agreed to help Dimensions, it could spell trouble, warns Madala. "That's going to signal significant difficulties, because people are going to automatically think of Greater Southeast," she says.