Citizens consultant outlines why selling hospital must be considered
Oct. 13, 2012 at 5:13 a.m.
Updated Oct. 14, 2012 at 5:14 a.m.
Citizens Medical Center faces an uncertain future as it anticipates a $10 million loss this fiscal year.
This bleak outlook is forcing board members to grapple with the hospital's future, hiring a consultant to consider what paths could be taken.
In a detailed report, obtained by the Victoria Advocate through an Open Records request, the consultant recommends several possible futures for Citizens.
The $75,000 report, prepared by Cain Brothers, takes a dim view of the hospital remaining an independent, county-owned operation, calling this path "unlikely to be easily attained."
The report outlines three other possible steps:
• Hiring a management company to run the hospital.
• Leasing the hospital.
• Selling to a nonprofit or for-profit company.
The hospital's board of directors would recommend any changes regarding Citizens' operations to the Victoria County Commissioners. The commissioners court has the final say about the county-owned hospital.
"No one on the board or court has decided to sell, in my opinion," said Victoria County Judge Don Pozzi. "I'm confident that we'll make it work. We don't expect this to be easy to turn around."
Board chairman Donald Day supported the position the hospital was not for sale. Other hospital board members did not return repeated phone calls for comment.
Citizens Chief Executive Officer David Brown said he was confident the hospital still could break even financially next year. In the meantime, the hospital can pull from its reserves of more than $90 million, he said.
Since 2008, Citizens' earnings have been in a free fall, dropping from $30 million to $1.3 million, according to the report. Part of the problem is admissions have dropped in every department since 2007.
Another reason for the anticipated loss is because of the way insurances pay hospitals. Payouts are decreasing, Brown said, making it harder for the public hospital to operate.
To offset the financial situation, the hospital has stopped hiring, Brown said. He also said the hospital was not contemplating layoffs.
A possible revenue generator Citizens anticipates is the 1115 waiver program, which expands Medicaid-managed care statewide. Citizens, however, will not receive the initial payments until March 2013.
Iain Briggs, a senior managing director at FTI Consulting, a firm that advises hospital officials among other clients, said a scenario similar to Citizens' triggers hard choices.
"Hospitals cannot make losses," he said. "Eventually they will run out of money and close."
The consultant's report also notes the hospital's key financial strengths:
• A strong cash position.
• Lack of long-term debt.
• Favorable ability to get long-term debt financing.
• No pressing need to borrow for maintenance or capital expenditure items.
Although Pozzi, Day and Brown have emphasized the hospital was not for sale, the report lists several potential buyers Citizens could look to if that route were taken.
One of those potential buyers includes Community Health Systems, which owns DeTar Healthcare System in Victoria.
Unsure about Citizens' future, DeTar Chief Executive Officer William Blanchard said he welcomed the idea of Citizens joining forces.
"There are very good reasons to consolidate the two," he said. "Both hospitals are limiting, but combining would make them more complete."
The report also offers a possible sale price for the hospital, but Citizens' attorney redacted that information before releasing it to the Advocate, saying it could hinder any future negotiations.
The 17-page report concludes with a possible timeline for a sale, which could happen in February 2013.
However, Day said that timeline was not in effect.
"It hasn't started yet," Day said. "We're not in a panic to do anything."