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Report: Massena Memorial Hospital bankrupt by 2017 under status quo scenario

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MASSENA - If they maintain the status quo, Massena Memorial Hospital will be bankrupt by 2017, according to a report from financial analysis consultants hired by the hospital in November.

“Right now there are not a lot of options,” MMH Chief Executive Officer Charles F. Fahd II told his Board of Managers Monday night.

“We can continue to lose money and eventually go bankrupt. That bankruptcy will take place in a couple of years. We can ask the community to support the hospital through taxation. I don’t think that is a viable option. Or we can cut millions and millions of dollars out of our budget. That would be a reduction of people and a reduction of services because that’s what it’s going to take over a long period of time to survive,” Mr. Fahd said.

Certified Public Accountant Alan Gracie, a director with FreedMaxick Healthcare, said they have been working with management to provide what they envision would be the financial impact under a couple of different scenarios - maintaining the status quo or converting to a 501(c)(3) not-for-profit facility. The facility is currently in a municipal hospital status.

They examined actual financials from 2010 to 2013 and forecast financials for 2014 through 2018 under both scenarios.

“We went through a fairly rigorous exercise looking at outpatient volumes, considering what the payer mix may look like in the future, what the case mix may look like. We examined what rate increases are expected to be with various commercial payers, as well as governmental payers. Likewise, we looked at the expense profile of the institution,” including what the projected expenses would be for everything from salaries to maintenance of the facilities, Mr. Gracie said.

“In 2017 the institution would run out of cash,” he said.

In 2017 the hospital would be $3.2 million in the red for cash and equivalents. The hospital would have $53 million in operating revenue, but $56.2 million in operating expenses and the net loss in income would be $3 million.

In 2018, the hospital would be $7.8 million in the red for cash and equivalents. Operating revenue would $54 million and operating expenses would be $57.9 million, with a net loss in come of $3.8 million.

On the other hand, Mr. Gracie said, the hospital would have a small operations loss in 2018, but would have $6.6 million in cash and equivalents on hand if they changed their status to a not-for-profit organization. They estimated operating revenue of $53.9 million and operating expenses of $54 million, for a net income loss of $27,000.

“More important, you would be able to preserve a reasonable amount of cash through that period. The primary take-away is the not-for-profit scenario appears to offer a clear financial advantage to the institution,” he said.

“It’s not to say that you couldn’t stay status quo. But if you did, it would require significant expense reductions to maintain cash on the balance sheet in sufficient amounts to continue operations,” he added.

Mr. Fahd projected they would need to cut $4 million annually if they maintained the status quo.

According to the report provided to board members Monday, under a status quo scenario and with the projected deficit in 2017, the town of Massena would be required to fund the deficit through the tax rolls at an approximate tax levy increase of $3.2 million per year or risk bankruptcy or receivership.

Under the not-for-profit scenario, “the financial results would significantly improve,” the report noted.

“The current NYS retirement pension expense would be replaced with a 403(b) defined contribution plan; based on a percentage of salary. The overall cash improvement, between the scenarios, would be approximately $14.4 million by 2018. While the net income would still deteriorate throughout projection period, the hospital would remain operational and be able to explore other affiliations. The not-for-profit scenario contemplates staffing at continued levels and bargaining unit representation,” it noted.

“Again, I want to say what Mr. Spanburgh (former board Chair Andrew Spanburgh) said a number of months ago, that this process is in no way an attempt to remove our collective bargaining agreements from the facility,” Mr. Fahd said.

“If we have our druthers, and we hope that we do, this should be a seamless process. The hospital’s name should not change and the daily work we go about would remain the same as well. We’re going to try our best to work through this scenario to provide as many options as we possibly can,” he said.

Mr. Fahd said this was the first release of information the hospital has had, and they anticipate another release forthcoming in the next couple of months. Information had been shared with members of the hospital’s Board of Managers and Massena Town Council in an executive session prior to the regular meeting.

“We wanted to get more information from FreedMaxick and Hancock Estabrook (the hospital’s legal firm) on what our next steps could be. The report was I believe well-received by both the town and the hospital board,” he said.

Still, Mr. Fahd said, there were “lots of questions that were raised,” which will still need to be addressed before they move forward.

The bottom line from FreedMaxick, however, was to the point in their report.

“Based upon the financial results above, it is clear MMH should move forward with the not-for-profit scenario especially when considering the cash position of MMH. The status quo option would, more than likely, require significant additional expense reductions in order to remain financially viable,” it said.

Massena Memorial Hospital began studying possible privatization in 2013 because of cost concerns, as well as their inability to share services with other hospitals because of their municipal status.

Facing projected financial hurdles in the future, they have said they need to investigate the transition from a town-owned hospital to a private, not-for-profit facility.

Mr. Fahd had said that what was a $124,200 contribution to the state’s pension program in 2002 has jumped to $4.4 million in December 2013, with a projected $4.8 million contribution in December 2014.

He has also said that among the losses they’re projecting is a reduction of $10.5 million in Medicare reimbursement over the next 10 years because of the federal Affordable Care Act; a $1.9 million reduction in Medicaid reimbursement over the next 10 years because of sequestration; and a $2.7 million reduction in Medicaid reimbursement over the next 10 years because of inpatient coding adjustments.

In addition to the loss of Medicaid and Medicare reimbursements and the increased pension costs, Mr. Fahd has also noted that the state Department of Health also wants north country hospitals to seek formal affiliations, collaboration, mergers or other sharing agreements to reduce duplicated services such as capital equipment acquisition and overall health care expenses in the region. But, as a municipal hospital, Massena Memorial is unable to do that because of the taxpayer money involved.

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