Despite recent uptick, four years of losses led to bonds being downgraded to risky this week.
Community General Hospital on Onondaga Hill has lost more than $7 million in the over the last four years.
A merger with Upstate Medical University may be just what the doctor ordered for Community General Hospital, given its weak financial health, health experts said.
Over the last four years, the 306-bed nonprofit hospital on Onondaga Hill has lost more than $7 million and seen patient volume drop nearly 15 percent.
The hospital’s cash flow was so low at the end of last year it was in danger of defaulting on its bonds, according to a report by Moody’s Investors Service.
Community officials say the hospital is doing better and has operated profitably for the first four months of the year. But credit rating agencies that keep a close eye on its finances remain pessimistic.
Standard & Poor’s Rating Services on Thursday reaffirmed its BB- rating on the hospital’s bonds, which means it considers them below investment grade or risky. It also issued a “negative outlook,” which means it may lower the rating again over the next 18 to 24 months.
Community and Upstate are talking about merging. Last week Upstate got the go-ahead from the SUNY board of trustees to explore an acquisition of Community. Upstate is a Syracuse academic medical center that operates a medical school and three other colleges and the 409-bed Upstate University Hospital.
Community broke off merger talks with Crouse Hospital in May.
Hospital officials say it’s too early in the process to explain how such an acquisition would work.
But Tom Dennison, a Syracuse University professor and health care expert, speculated that in such a deal Upstate might get Community’s assets in exchange for assuming or paying off its liabilities, agreeing to invest in upgrades at Community and maintaining its nonprofit mission.
Upstate and Community are on different trajectories. Upstate’s hospital is full, its market share is growing rapidly and it wants more beds so it can expand enrollment in its schools and provide more clinical training sites for students. It finished 2009 with a surplus of more than $38 million.
Community, which lost $2.03 million last year, is the smallest of Syracuse’s four acute care hospitals. It has been struggling to fill its beds, especially on its maternity ward, where patient volume plummeted more than 30 percent over the last three years.
In a report issued in December, Moody’s called Community’s balance sheet, the summary of its financial condition, “anemic.” The report said the hospital’s cash available to make payments on its bonds was in danger of dropping to a level that could trigger a default, possibly prompting bondholders to demand the hospital immediately pay off its outstanding debt.
That never happened, said Tom Quinn, Community’s president and CEO. He said the hospital’s financial performance has improved this year.
For the first four months of this year, Community made an operating profit of $765,000, better than expected, according to Standard & Poor’s.
The hospital is trying to bounce back from several setbacks. It lost money when the state forced it in 2007 to close a 50-bed nursing home on the hospital’s sixth floor. Its maternity unit volume plummeted after two obstetricians left the hospital.
Last year’s loss of $2.03 million was more than the hospital had anticipated. Much of the loss was caused by a higher than expected level of denied Medicare and Medicaid insurance claims, according to Standard & Poor’s.
Last month, St. Joseph’s Hospital Health Center pulled its family medicine residents — doctors in training — out of Community, ending a 38-year relationship. St. Joseph’s officials refused to say why they did that.
To make up for the loss of residents, Community has made arrangements to get hospitalists — doctors who care exclusively for hospital patients — from Upstate, which already has doctors working in Community’s emergency room and physical medicine and rehabilitation department.
Community has filled its obstetrician vacancies. Earlier this year, the hospital opened a new $7.6 million orthopedics unit, paid for with a state grant, in the former nursing home space on its sixth floor. The hospital’s orthopedic volume has been picking up.
“We believe the worst is behind us,” said John Zacharek, a Community vice president. “We’ve made some moves that are going to place us in the best position to be profitable now and in the future.”
Dennison, the SU health care expert, said Syracuse’s other hospitals would not be able to handle all the patients if Community closed.
Despite its financial problems, Community has many strengths that make it attractive to Upstate, Dennison said. Community has a lot of primary care private practice doctors with plenty of patients, while Upstate is more heavily staffed with specialists, he said. Dennison said Community can provide many basic hospital services such as orthopedics at a relatively low cost.
Community also has close ties with Van Duyn Home and Hospital, the county-owned nursing home next to the hospital. The two institutions formed a nonprofit in 2007 to do joint planning for their campuses.
“Upstate with its access to capital may be able to enhance the whole Community and Van Duyn campus with the idea of Van Duyn, Upstate and Community as a force going forward,” said Dr. Andrew Merritt, Community’s medical director.
Community also has a relatively low level of long-term debt, $8 million, due to be paid off in eight years.
Quinn said Community wants to be part of a larger health system so it can maintain and improve services and be prepared for changes likely to come about as a result of federal health care reform.
The Health Care Association of New York State, a hospital trade group, recently did a study estimating Syracuse’s four hospitals could get $424 million less in Medicare and Medicaid payments over 10 years as a result of health care reform. Community’s cut would amount to $35.3 million. Some of that is expected to be offset by revenues from newly insured patients, but no one knows yet how much that will be.
Jennifer Soule, an analyst with Standard & Poor’s, said the prospect of big cuts in payments and other changes related to health care reform may prompt more hospitals to look at mergers and acquisitions. She said merging with Upstate might be a good for Community.
“A larger health system has bargaining power with managed care organizations and suppliers, and they have greater efficiencies,” Soule said. “They can weather a tough storm better than a smaller little hospital.”
Contact James T. Mulder at 470-2245 or jmulder@syracuse.com.