A recent Journal Gazette headline reported that “Lutheran Health Network's parent company posted a $511 million profit last year, ending several years of losses that totaled billions of dollars.”
Using the term popularized by Stephen Colbert on Comedy Central, it has the quality of truthiness. We want it to be true. It sounds as if it could be ...
To many in Fort Wayne, the parent of Lutheran Health Network, Community Health Systems in Franklin, Tennessee, is known for taking on $15 billion in debt to grow rapidly.
Its purchase of 70 HMA hospitals in Florida peaked its ownership at 206 hospitals that were expected to grow their parent's earnings. The failure to do so caused CHS to sell hospitals rapidly; its current ownership is 85 hospitals.
This week, Community announced that the most recent sales of 40 hospitals from 2018 until now had brought net proceeds of “nearly $1.6 billion.” Community reports debt at $12 billion – billions more than before it bought 70 and sold 120.
It is altogether good that finances have improved for Community and that the company can strike an optimistic note. In last week's financial conference call, company officials reported that it aimed to “produce positive cash flow annually” and to focus on “financial goals to deliver increased stakeholder value.” But the conference call did not fill in all the gaps in data.
They reported decreases from 2019 to 2020 of 12.5% in adjusted admissions and 12% in surgeries. Other than for a few replacement hospitals, capital expenditures have been down from $953 million in 2015 to a current level of $440 million, now only 2.7% of net revenue.
How can fewer hospitals, many of which need refurbishing and installation of the latest equipment, pay off billions in debt?
From the conference call: “For full-year 2020, our cash flows provided by operations were $2.2 billion. This compares to cash flows from operations of $385 million during the full year of 2019. The increase in the 2020 cash flows over the prior year was attributable to the company receiving approximately $1.1 billion of Medicare accelerated payments. The company also received approximately $705 million in Provider Relief Grants under the CARES Act. The company was able to defer approximately $140 million of payroll tax as a result of the CARES Act and other increases and decreases were generally offsets, including improved cash from AR collections and working capital management.”
One might visualize Community as a man treading water, nose just in the air. No longer just under water, but far from a safe shore.
Survival requires careful management of cash and improvement in day-to-day operations. Management has been astute financially, at times able to buy back its own debt at decreased “junk bond” value, and Community has kicked the can down the road by refinancing debt from 2023 to as far out as 2031. This provides breathing room.
But the need for Community and for Lutheran Health Network is for cash. Our local hospitals are profitable, but past history shows that Fort Wayne profits are too often sent to Franklin, Tennessee. Lutheran is due for an infusion of cash, and not only downtown. Lutheran Hospital needs space and new equipment.
We like optimistic headlines, but we worry that things are not always as they seem. As the lyrics say: “Skimmed milk masquerades as cream.”
When government money disappears and Medicare advanced payments are no more, will Lutheran's shrinking market share supply enough cash? That will be the story behind last week's headline.
Dr. William Cast wrote this on behalf of Northeast Indiana Citizens for Healthcare Excellence.