Sunday, October 15, 2017 1:00 am
Candor essential to Lutheran's survival
Drs. William Cast, Matthew Sprunger and J. Philip Tyndall
In May, Northeast Indiana Citizens for Healthcare Excellence was founded to educate the community about health care issues and advocate for improved health care quality. In the months since, the question we've been asked most frequently is, “What will happen to Lutheran Health Network?”
While that question is difficult to answer, our belief is that Lutheran – whether in its existing form or under some other name – will persist, but what it will look like remains to be seen. The only certainty is that the Lutheran Network is not sustainable based on how it's currently being run. Here's why.
The primary problem stems from the compromised financial position of Lutheran's owner, Community Health Systems. CHS is struggling with huge debt and is shrinking in size as it reorganizes its corporate holdings. Thus, it cannot support the capital needs of its hospitals. For Lutheran, the result is an outflow of local money. This leads to what many believe are arbitrary and harmful decisions as maintenance at its facilities has declined and infrastructure aged.
The financial community – brokers, analysts, bankers – has indicated serious doubts about CHS' survival. From 2015 to 2016, following its disastrous purchase of 71 hospitals from Health Management Associates in Florida, CHS' stock price fell from more than $50 per share to nearly $5 per share. CHS debt prices have also fallen into junk bond status.
This isn't the only issue, however. Health care quality at Lutheran depends on the talents of its local medical staff, but that staff is considerably smaller and less well equipped given that several physicians have chosen to sever ties with CHS and Lutheran Health. Attention is rightly focused on recent departures such as Drs. Rich Cardillo and Mark King, but there's an even larger problem: a national physician shortage, specifically among the specialties. The estimated shortfall, as estimated by the American Academy of Medical Schools, is as many as 60,000 physicians. If the trend continues, recruiting challenges may mean that the Lutheran network will be greatly and perhaps irreversibly weakened within two to three years.
So, what will happen to Lutheran Health? The best predictor may be what bankers, brokers and financial analysts are saying – and how CHS is responding. Lutheran Health CEO Michael Poore recently read a letter to his managers stating why CHS would avoid bankruptcy. Whether it is a Moody's downgrade rating of debt, J.P. Morgan Chase's concerns of growing dependence on Fort Wayne profits, or predictions of bankruptcy within a year by other analysts, the consensus is a general lack of confidence in CHS and Lutheran Health management. Too many corporate employees have departed and it's becoming too difficult for analysts to rationalize CHS' earnings updates with what analysts believe to be the truth. News sources report that CHS' math is “fuzzy” and that CHS' reported sales prices for hospitals seem incorrect. One investor, for example, is quoted as saying this in an Oct. 3 Axios article: “There's a history of deceptive communication practices.” That's a very serious claim – and one that local elected officials, business leaders, and Lutheran network employees can no longer afford to ignore.
Lurking in the background are lawsuits against CHS from previous sales in Washington state and a class-action suit, claiming fraud, relating to the CHS stock offering spin-off of hospitals to Quorum Health. And then there's a contingent value right of as much as $250 million that CHS may be responsible to pay stockholders relating to the aforementioned Florida deal. An analyst has told us, without ambiguity, the contingent value right “will be paid.”
There are other matters that will greatly affect Lutheran Health: the expensive closure of St. Joseph's Hospital, the prospect of a land deal for a St. Joseph's replacement, the renewal of ambulance financing and more. While much is in question, one thing is clear: greater transparency and candor from CHS and Lutheran Health executives is long overdue. The past can't be changed, but there's still a chance for a recovery if they truly have a commitment to our community. Ultimately, the question of what will happen to Lutheran Health Network is in their hands – and its fate is ultimately their responsibility.
Drs. William Cast, Matthew Sprunger and J. Philip Tyndall are the founders of Northeast Indiana Citizens for Healthcare Excellence.