Report Tracks 10-Year History of North Adams Regional Hospital, Finds Absent Poor Management and Real Estate Investments, NARH Hospital Was a Going Concern
NORTH ADAMS, MA — As Berkshire Medical Center, local and state officials continue to work on re-establishing desperately needed health care services for Northern Berkshire County following the recent illegal and unexpected closing of North Adams Regional Hospital (NARH), researchers with the Massachusetts Nurses Association/National Nurses United (MNA/NNU) have completed and released a detailed financial analysis of Northern Berkshire Health records, which show that restoration of a full-service hospital is a viable and necessary option for the region, which serves more than 38,000 residents. The full report is displayed below.
The report, which tracks NARH finances over a ten-year period, clearly shows that as a provider of health care services, the hospital was a going concern, making millions of dollars in profits on outpatient, inpatient and emergency services between 2000 and 2012. However, a series of poor management decisions including millions of dollars of debt generated to support a failed real estate venture is what ultimately doomed the facility, which was illegally closed by NBH management in late March with only three days’ notice.
According to the report, between 2000 – 2012, NARH “patient services revenues grew by 78%, while expenses only rose by 29%. The surplus derived from patient services made the system a $23 million profit in 2012, up from $4.3 million in 2000 – a 435% increase (see chart in the report below). And while profits from patient services fluctuated from year to year, they never fell below $4.3 million, and the average profit was over $9 million. In short, that means that the health care services NARH has offered to its community have made the hospital millions of dollars in each of the last twelve years.”
Unfortunately, while the hospital was making money fulfilling its mission of caring for the sick and injured of Northern Berkshire County, the new report found Northern Berkshire Healthcare executives made ill-fated decisions to acquire more and more debt. Between 1996 and 2004, Northern Berkshire Healthcare assumed nearly $65 million in debt through revenue bonds. This included approximately $25 million in debt to finance the purchase of Sweet Brook Transitional Care & Living Centers and Sweetwood Continuing Care Retirement Community – an alarmingly large assumption of debt which bore no connection to the provision of hospital services. This real estate investment scheme immediately began unraveling and the Sweets began costing NBH money. NBH then “took aggressive steps” – cutting staff and reducing operating costs at NARH in order to “lend money” to the Sweets.
Last week, plans were finalized in bankruptcy court for the opening of a satellite emergency service at the site of NARH as of May 19 under the auspices of Berkshire Medical Center, while the state Department of Health and Human Services has hired a consultant to explore the need for additional services.
“This report provides valuable information to support our strong contention that a satellite emergency service is only a small first step to meeting the needs of this community,” said Robin Simonetti, RN, a long time nurse at NARH and an active MNA member who is working on the community-wide campaign to restore needed services. “The real solution to this crisis is the restoration of a full service hospital, which this report shows can and will be successful.”
Since the closing, the community has been urging all parties working on this issue to establish a plan and the funding needed to maintain a full service hospital that meets the needs of the residents of Northern Berkshire County. Right now, Berkshire Health Systems operates Fairview Hospital in Great Barrington, a full service hospital for Southern Berkshire County that serves a smaller population than NARH “We believe the residents of Northern Berkshire County should expect the same level of care as the rest of the County and that all policymakers and all stakeholders who are accountable for the safety of this community work to that end,” Simonetti concluded.
In addition to working with the community and stakeholders in North Adams to save their community hospital, the MNA/NNU is also working on the state level to implement policy changes that will protect other hospitals from closure in the future. Specifically the organization is promoting a bill and ballot measure – the Hospital Profit Transparency & Fairness Act – which will call for greater transparency of hospital financial and investment activity, while also establishing a funding mechanism to support hospitals and services threatened with closure. If this law were in place, it is unlikely that NARH would have had to close. For more information on the initiative, visit: www.HospitalTransparencyAct.com
Text of Full Report
Financial Analysis Shows a Full Service Hospital is Viable in Northern Berkshire County Absent Poor Management and Bad Real Estate Investments North Adams Regional Hospital Was a Going Concern
Northern Berkshire Healthcare (NBH) announced last month that it was forced to close North Adams Regional Hospital (NARH) with virtually no notice because the hospital had defaulted on its debt and could not be sustained on its purportedly poor reimbursements. But a review of NBH records reveals that the financial troubles facing the system were not connected to patient service revenue, and that North Adams Regional Hospital can be sustained as a full service hospital by the community that relies upon it for care.
Despite claims from NBH executives, North Adams Regional Hospital has long been making money on its patient-care services.
NBH finances shows that NARH made millions of dollars on outpatient, inpatient, and Emergency Department services between 2000 and 2012[1]. In that time period, patient services revenues grew by 78%, while expenses only rose by 29%. The surplus derived from patient services made the system a $23 million profit in 2012, up from $4.3 million in 2000 – a 435% increase (see chart). And while profits from patient services fluctuated from year to year, they never fell below $4.3 million, and the average profit was over $9 million. In short, that means that the healthcare services NARH has offered to its community have made the hospital millions of dollars in each of the last twelve years.
Since closing the hospital, NBH has suggested that NARH’s fate was simply the result of its community hospital status and changes in federal reimbursement, but an analysis by the Center for Health Information and Analysis (CHIA) proves that this is not the case.
Disproportionate Share Hospitals (DSH) are hospitals in communities with large poor populations that receive a minimum of 63% of their revenues from public payers like Medicaid and Medicare, which typically reimburse hospitals at lower rates than private health insurance companies. At NARH, public payers represent less than 65% of its payer mix, which is below the state average, and of the remaining eight Disproportionate Share Hospitals in Western Massachusetts, seven of them are considerably more dependent on public payers than NARH[2]. The remaining 35% of NARH revenue, unlike other community hospitals, comes directly from patients and their insurance companies. And CHIA compared what large private insurance companies paid to hospitals in 2012 and discovered that NARH received higher payments than the majority of its community hospital counterparts[3]. What the CHIA data tell us is that NARH is less reliant on lower-reimbursing federal payers than most community hospitals, has a higher proportion of insured patients, and those health insurers are paying NARH more than they pay other hospitals.
Since it is clear that patient care services have been profitable every single year for more than a decade, and NARH has not suffered from some of the issues facing other community hospitals in the state, what has driven Northern Berkshire Healthcare’s financial problems? In short, it has been Northern Berkshire Healthcare’s decisions to acquire more and more debt. Between 1996 and 2004, Northern Berkshire Healthcare assumed nearly $65 million in debt through revenue bonds issued by MHEFA/MassDevelopment:
- In 1996, North Adams Regional Hospital took on $12.8 million in revenue bond debt, in part to refinance older debt.
- In 1999, NARH assumed approximately $25 million in debt to finance the purchase of Sweet Brook Transitional Care & Living Centers and Sweetwood Continuing Care Retirement Community – an alarmingly large assumption of debt which bore no connection to the provision of hospital services. This real estate investment scheme immediately began unraveling and the Sweets began costing NBH money. NBH then “took aggressive steps” – cutting staff and reducing operating costs in order to “lend money” to the Sweets[4]. Ultimately, NBH sold the Sweets in 2010 for $7 million under pressure from bondholders.
- In 2004, NBH took on another $27 million in revenue bonds, in part to pay off a portion of the 1996 debt. The 2004 revenue bonds immediately went into default, as the organization could not meet some of the financial covenants required by bondholders.
- Right up until the day NARH closed, the majority of NBH’s crippling debt service was not the result of expenditures related to the provision of patient care or even hospital capital improvements. Instead, the deep debt of purchasing the Sweets and the resulting significant annual operating losses incurred for the next ten years of operating the Sweets, were the primary factors contributing to NBH’s financial ruin.
By the time NBH filed for bankruptcy in 2012, its debt burden still hovered around $44 million[5]. In its court filings, NBH attributed its financial problems almost entirely to becoming “highly leveraged” through the series of bond issuances listed above. And NBH laid out the many ways it had sought to deal with its long-term debt burden, including cutting costs and laying off staff in order to pay off the debt. It appears that, while patient care services did not contribute to NBH’s financial distress and were, in fact, a consistent source of revenue year after year, Northern Berkshire Healthcare sought to remedy its indebtedness by making cuts to those very services. The final impetus for NBH’s Chapter 11 filing was bondholders’ refusal to make a voluntary deal to restructure the debt, again affirming the catastrophic impacts this debt took on North Adams Regional Hospital.
As Berkshire Medical Center assumes the operations of the hospital in North Adams, it will face the challenges any community hospital does: populations of sick and poor patients, less than ideal public payer reimbursements, and changes in the healthcare industry that are as yet unknown. But the history of North Adams Regional Hospital clearly indicates that the Northern Berkshires can sustain a hospital that offers the full spectrum of services which meets the needs of the community in a fiscally viable manner.
REFERENCES
[1] IRS Form 990s (financial reports): 2001-2012
[2] Hospital Cohort Profile: Community, Disproportionate Share Hospitals. Center for Health Information and Analysis. March, 2014; Hospital Profile: North Adams Regional Hospital. Center for Health Information and Analysis. March, 2014
[3] Ibid. The average DSH commercial payer price level is in the 41st percentile; NARH’s price is in the 65th percentile.
[4] In re Northern Berkshire Healthcare, Inc., et al. (Chapter 11 Case No. 11 – 31114 (HJB)). United State Bankruptcy Court District of Massachusetts, Western Division. January 5, 2012
[5] Ibid.
“
