Centegra unexpectedly loses money after opening its latest hospital

Centegra Health System made a risky bet last August that most systems in Illinois have avoided, considering the glut of empty hospital beds. It opened its third hospital, in northwest suburban Huntley, wagering that a population boom in McHenry and Kane counties would fill the new facility's 128 beds.

The gamble is costing Centegra. The Crystal Lake-based system says it lost $30.1 million over the first three quarters of its current fiscal year, which could deepen to $40 million by year's end on June 30, according to a financial filing recently made public and Fitch Ratings. The third-quarter loss—three times more than longtime CEO Michael Eesley had budgeted—follows a small annual loss in 2014, then two years of small annual profits. Operating revenue during the three-year period rose 15 percent to $500.6 million.

Centegra executives blame the bleeding partly on being stiffed by patients who won't pay or can't afford their medical bills, not on the health system not being able to fill its new hospital.

Could the timing be worse? Centegra signed a letter of intent more than a year ago to team up with powerhouse Northwestern Medicine. The deal was supposed to have been completed by the end of 2016. Now it's expected to be finalized this fall, Northwestern spokesman Christopher King says.

Though state regulators in 2011 also predicted a need for more hospital beds in the far northwest suburbs, supply is outweighing demand, as rivals upgrade or open facilities and the health care industry pushes people away from hospitals in favor of outpatient treatment. Advocate Health Care, the state's largest hospital network, has two nearby hospitals that combined are being infused with almost $450 million to woo patients. That includes an outpatient center in Huntley set to debut later this year. And Mercyhealth wants to build a 13-bed hospital in Crystal Lake, 9 miles from Centegra's new Huntley hospital.

Then there's the state's fiscal crisis. After two years without a budget, the state's overdue bills could hit $16 billion by June 30. That includes payments to hospitals. Meanwhile, President Donald Trump and the GOP-controlled House are intent on undoing Obamacare and slashing Medicaid. That could hurt all hospitals if more patients become uninsured or their health plans become so expensive that they skip out on paying their bills.

"This is certainly one of the most challenging times for hospitals," says Wendy Netter Epstein, faculty director of the Jaharis Health Law Institute at DePaul University in the Loop. "I think the uncertainty alone of what the laws are going to look like in a week, a month, a year down the road is making it very difficult for hospitals to make decisions and adapt."

Hospitals are feeling a financial squeeze for many of the same reasons. Downers Grove-based Advocate, a 12-hospital network, is making $200 million in cuts to offset mounting debt from unpaid patient bills, and state and federal upheaval, among other woes.

Centegra, a community health system about 50 miles northwest of the Loop, declines to make anyone available for an interview. In a statement, system spokeswoman Michelle Green says: "As anticipated, we started incurring operational costs six months before we opened Centegra Hospital-Huntley to orient staff and prepare the hospital to serve patients. Like other health systems throughout Illinois and the country, we have been affected by changing reimbursements and additional financial pressures."

When Eesley defended his then-proposed Huntley hospital at a 2011 public hearing, he seemed confident that the new facility was needed. "We promised to provide increasing access to care to area residents as they grew with us," he said.

But the anticipated population spike never happened. In fact, metro Chicago and Illinois are generally losing population.

Centegra didn't expect the big loss until it discovered unpaid patient bills that "were previously deemed collectible," the company says in the financial filing. At the same time, Centegra started to treat more people covered by low-paying government health plans.

On May 3, citing a "significant unexpected loss," Fitch Ratings downgraded Centegra's debt to BBB-, the last rating before going below investment grade. "Centegra is finding it increasingly difficult to compete as a smaller system in this suburban market against larger providers," Fitch says.

Its partnership with Northwestern can't come soon enough.

"Centegra​ unexpectedly​ loses​ money​ after​ opening​ its​ latest​ hospital"​ originally​ appeared​ in​ Crain's​ Chicago​ Business.