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Massena Memorial Hospital CEO says not for profit status is key to facility’s survival

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MASSENA - In the first of what he said would be several community meetings over the next few weeks, Massena Memorial Hospital Chief Executive Officer Charles F. Fahd II made his case Thursday for converting from a public hospital to a not-for-profit facility.

The meeting at the Massena Town Hall, which lasted nearly two-and-a-half hours, drew such a large contingent of employees and community members - along with the Massena Town Council and MMH Board of Managers - that some audience members listened to the proceedings from the hallway.

The bottom line, Mr. Fahd said during his PowerPoint presentation, was that the hospital would be broke by 2017 if they maintained the status quo, based on a study by Freed Maxick Healthcare, consultants hired by the hospital’s Board of Managers to examine the financial implications of a possible conversion to a not-for-profit facility.

Mr. Fahd said that, while they recognize the importance of the hospital to the community, as well as its more than 400 employees, their financial picture was less than healthy heading into the next few years. But, he said, the decision would be made by everyone and not just the town and hospital boards.

The Board of Managers has already recommended that the move take place, but the ultimate decision is up to the Massena Town Council.

“MMH faces an imminent financial crisis and possible closure. We, as a community, face difficult choices. We need to consider all options and make a decision together. It’s time to begin a public discussion. The stakes are high for everyone,” Mr. Fahd said.

He said he will be making a number of presentations in the next couple of months and said, during that time period, he wants to hear questions and concerns from community members.

“Our goal is to serve the best interests of all the people who depend on MMH. I don’t say that last item lightly,” Mr. Fahd said, noting whatever decision they make will affect the approximately 425 employees, as well as the 12,000 residents of Massena and those in surrounding communities who use the hospital.

He said they’re looking at financial picture that, if left unchanged, would see them bankrupt in 2017. He attributed the estimated loss of $1.3 million in 2014, $1.2 million in 2015, $2.5 million in 2016, $3 million in 2017 and $3.8 million in 2018 to a number of factors including reductions in Medicare and Medicaid reimbursement, reduction in revenues from private insurers, an increase in uncompensated care and an increase in pension costs.

“The pension is certainly the most important. If we continue down this path, the hospital will not have sufficient funds to operate in 2017,” Mr. Fahd said.

Certified Public Accountant Lloyd Arakelian from Freed Maxick Healthcare said Massena Memorial Hospital wasn’t unique in looking at a dim financial picture in the future.

“We’ve been in probably six of these,” he said.

The “key contributors” to the financial outlook at Massena Memorial Hospital were decreased revenue and declines in patient volumes, Mr. Arakelian said.

“What’s really driving that is volume,” he said, noting that although outpatient numbers from 2010 to 2013 rose, “it doesn’t cover all the fixed costs it needs to cover.”

Comparing operating expenses as a percentage of operating revenue, Mr. Arakelian said salaries and fringe benefits were the biggest issues facing the hospital. From 2010 to 2012, he said, salaries represented 45 percent of the operating expenses, while benefits represented 17 percent. In 2013, those numbers had climbed to 48 percent for salaries and 20 percent for fringe benefits.

Maintaining the status quo, he said, the hospital would have $4.5 million in cash and equivalents on hand at the end of 2014, but that would drop to $3.3 million in 2015 and $710,000 in 2016 before the hospital entered the red at a negative $3.2 million in 2017. Their cash and equivalents would be a negative $7.8 million in 2018.

“With continued losses, by 2017 you’re basically out of cash,” he said.

Mr. Arakelian said that the hospital would have an expected loss in net income of $1.4 million in 2014. It would be $1.2 million in 2015 and $2.5 million in 2016, “and it just gets worse,” he said, as patients volumes continue to decline.

The reason for the decline in patient volumes is because the state and federal government are putting pressure on hospitals to eliminate unnecessary admissions and emergency room visits, among others.

“It’s already happened to hospitals across the state,” he said.

Mr. Fahd said that what were once in-patients are now becoming observation visits, which cuts back on the reimbursement they receive for that person. Previously, he said, they would admit the patient and perform a battery of tests, a process that could take three to four days, and would receive $6,000 in reimbursement from Medicare.

Now, Medicare is telling hospitals to put the patient in an observation station, although they’re receiving the same care, and that drops the reimbursement to $1,200, he said.

“Ten years ago the number of observation visits was an 18 to 25 average a month. This month we’ll have 85 observation visits. That’s a difference in a lot of the cash we’re not seeing. We’re just getting paid a lot less money,” Mr. Fahd said.

Councilman Albert N. Nicola wondered if the amount of reimbursement would change if they became a not-for-profit facility.

“Not a bit,” Mr. Fahd said. “Reimbursement will not change.”

Because of that decreased reimbursement and other expenses out of their control, he said they are trying to control expenses.

“To remain solvent, control of major expenses is essential - payroll, fees and services, and employee benefits, including pension. The pension is a large, increasing expense that is outside of our control,” he said.

The CEO said they’ve been advised that the required 2014 contribution will be $4.2 million. They had paid approximately $125,000 in 2002.

“MMH will not have sufficient funds to make the required contribution,” Mr. Fahd said.

Their options at this point are to take no action and cease operation in 2017, which would likely mean a reduction in staff and services. Mr. Fahd said his estimate is that they would go bankrupt in early 2017 rather than late 2017.

“We do not want the town of Massena to be liable for our debt,” he said, noting that while most hospitals have debt in the $40 million to $50 million range, Massena Memorial’s is $6 million through tax exempt municipal bonds.

They could also consider a merger, which he said would be difficult because of their municipal status and their estimated losses.

“It’s highly unlikely anyone is gong to want to merge with us,” Mr. Fahd said.

They could also sell the hospital, which is also unlikely, according to Mr. Fahd.

“Our facility is not going to be very attractive because we’re losing so much money,” he said.

In addition, they could ask for a state or federal bailout, which was unlikely with so many hospitals in distress; convert to a public benefit corporation, which would provide no improvement in the financial condition, or convert to a not-for-profit.

The final option, Mr. Fahd said, “sets the stage for improvements in financial condition and may open opportunities for collaboration with other health care entities.”

He said becoming a not-for-profit would potentially improve the hospital’s financial condition by allowing them to collaborate with unions to choose a new retirement program, join forces with other health care organizations for greater purchasing power and expansion of services, work with federal and state regulators and policy makers for fair reimbursement, and continue to support local economic development efforts.

“It allows for continued partnership with unions and collective bargaining agreements with employees,” he said.

“It’s not a cure-all for the organization, but it does buy you a lot of time. The bottom line is it would allow you to keep the organization operating,” Mr. Arakelian said.If they were no longer municipally owned, new employees would no longer be eligible for the state retirement program, but employees already enrolled would keep all benefits to which they have earned

“New employees would be offered a new retirement program. MMH would work with CSEA (Civil Services Employees Association) and NYSNA (New York State Nurses Association) to develop a new retirement program,” Mr. Fahd said.

He said their timetable calls for listening sessions with individuals and groups throughout the community to be held in April and May. They also plan to launch an enhanced website in April and issue a report to the community and the Massena Town Board in May that would outline the community’s views, concerns and ideas.

“MMH is a community asset. We want a community-wide decision base done with the best available information. We will do this together,” he said.

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