Five months after ProMedica's bold acquisition of post-acute provider HCR ManorCare closed last year, the not-for-profit health system's long-term debt had more than quadrupled.
Toledo, Ohio-based ProMedica reported Wednesday its long-term debt had ballooned to $1.9 billion as of the end of 2018, compared with just $429 million at the end of 2017. ProMedica funded its $1.4 billion acquisition of bankrupt HCR, which closed in July 2018, through a combination of debt and cash.
The deal prompted S&P Global Ratings to place the health system on CreditWatch. The agency said the designation reflects its concerns over the additional debt and cash required, which could lead to rating stress.
Mike Browning, ProMedica's chief financial officer, said about $1.2 billion of the $1.9 billion in debt is related to the HCR deal.
As part of the integration process to create "the new ProMedica," the system has set financial synergy targets surrounding the HCR integration for years one, two and three with the clock beginning Jan. 1, 2019. Browning said the team is already ahead of where it expected to be at this point in 2019.
ProMedica's revenue increased 56.5% in 2018 to $4.9 billion, compared with just under $3.2 billion in 2017. Expenses rose 57.4% in that time, to $4.7 billion in 2018. ProMedica has said the HCR deal will boost its annual revenue to $7 billion.
ProMedica drew $43.3 million in operating income last year, up from $7.6 million in 2017.
"HCR really contributed positively to ProMedica in 2018," Browning said. "We feel really good about that acquisition."
The system recorded a net loss to the tune of $66.5 million in 2018, compared with $134.5 million in net income in 2017. The loss in 2018 was mostly due to investment income, Browning said. ProMedica wasn't alone in that. Twelve of the country's largest not-for-profit health systems reported $3.7 billion in collective investment losses last year.
ProMedica generated $179.4 million in cash from operating activities in 2018, a noteworthy improvement from $46.2 million in 2017.
Part of ProMedica's HCR deal entailed the real estate investment trust Welltower buying HCR's landlord, fellow REIT Quality Care Properties. Welltower and ProMedica then formed a joint venture for QCP's real estate, in which Welltower owns 80% and ProMedica owns 20%.
In April, ProMedica laid off about 100 people. Browning explained that healthcare is changing and the health system is adapting to a new climate. He said ProMedica tries as much as possible to remove vacant positions.
"When we reduced those 100 people, that's what we thought would be best at that point in time," he said.
