Category: University of Louisville Hospital

How Close Really Is KentuckyOne Health To Selling Its Louisville Assets?

Catholic Health Initiatives (CHI) just published its financial report for the first quarter of Fiscal Year 2018– the three months ending Sept 31, 2017.  One initial media report led with what CHI would no doubt wish to emphasize, that the company has cut its “quarterly operating loss by more than half.”  The actual reported system-wide loss from operations in Q1-FY2018 was $77.9 million compared to a loss of $180.7 million in Q1-FY2017. This change is being attributed chiefly to more efficient purchasing and to decreased labor costs.  Indeed, CHI reported a decrease of 2,667 full-time-equivalent employees over the quarter.  Whether such cuts are healthy for the company in the long run remains to be seen.  I await more expert financial analysis than I am able to offer and to see how the financial markets or potential new partners or asset-purchasers react.  It appears these latter are not being hasty.  As I plow through the numbers, I see many other measures going in what appear to me to be the wrong directions.

The report gives special attention to what has been going on here in Kentucky.  [I extracted all mentions of Louisville or Kentucky from the 61-page report into a separate document available here.]  The percent of operating revenues contributed from the Kentucky Region was 7.5% this last quarter compared with 16.2% in 2013. This represents a drop from 2d place to 5th place among the 11 or 12 regions or operational segments.  Perhaps the most newsworthy item is the first notice of which I am aware that the anticipated (hoped for?) date for a closing on the sale of CHI’s KentuckyOne Health facilities in Louisville has been put off six months to June 30, 2018.  A reasonable person might conclude that KentuckyOne is having a difficult time finding a motivated buyer for its hospitals, outpatient medical centers, and physician practices here in Louisville.  I am not surprised. The return of control of University of Louisville Hospital to the University has not improved the financial performance of Jewish/Sts Mary & Elizabeth Hospitals.  With respect to apparently continuing discussions between CHI and Dignity Health to align their activities, the report uses the same language it did at the beginning of this year.  No substantive indication is given as to how things are going.  Although some media reports use the word “merger” to describe the process, that word seems to be carefully omitted in accounts by CHI itself. Continue reading “How Close Really Is KentuckyOne Health To Selling Its Louisville Assets?”

Catholic Health Initiatives Releases Annual Financial Report.

Catholic Health Initiatives (CHI) released its Annual Report for Fiscal Year 2017 last week. Given that the company is in the middle of discussions with Dignity Health about a possible merger or alignment, and the attempted sale of half of its hospital beds in Kentucky, the report is of considerable interest. I cannot pretend to understand the arcane rules of accounting underlying the numbers and discussion in the report. Others in a position to do so emphasize the increasing $585 million loss in operational income from the company’s core healthcare business, and the considerable outstanding debt of $8.7 billion. There is a reason that bond rating agencies have been downgrading CHI’s rating and assigning a negative outlook. What I intend to do below is to highlight material from the report that is specific to Kentucky, to offer a few general comments, and to ask my readers to help us interpret what is at stake for Kentucky.

Earnings Before Interest, Depreciation, and Amortization (EBIDA).
CHI uses this method of accounting to present much of its financial numbers. EBITDA is (according to Wikipedia) “not recognized in generally accepted accounting principles” but intended to allow comparison of profitability between different or heavily leveraged companies. [The ‘T’ in EBITDA is for taxes, which are less relevant for a non-profit.]  It has been suggested that “EBITDA doesn’t give a complete picture of a company’s performance.” and that because it is not defined in GAAP, “companies can report EBITDA as they wish.” Furthermore, CHI lists its EBIDAs “before restructuring, impairment, and other losses.” In short, I have no confidence in my ability to interpret the financial health of CHI from this report. Can anyone help us?

Items Specific to Louisville.
From the 127-page document, I extracted all paragraphs in which Louisville (or Kentucky) is mentioned, along with the page number from the original document. A lot is stuff we already knew here in Louisville. There is a good bit of repetition, boiler-plate, and business-speak language that seemed not very specific or informative to me. Maybe that is the nature of annual reports. Allow me to highlight (in sequence) some of the mentions. Continue reading “Catholic Health Initiatives Releases Annual Financial Report.”

Catholic Health Initiatives Gives Investors an Update: Substantial Challenges Ongoing.

Senior executives from Catholic health initiatives (CHI) hosted a webcast and teleconference on May 31 to respond to questions about their FY17 3d Quarter Fiscal report. My colleagues at Insider Louisville have already commented on the update. You can read the slides that accompanied the presentation yourself. The following items were particularly significant to my listening.

1. Except that it was going to occur on July 1, nothing was said about the transfer of University of Louisville Hospital back to University control. Successful relationships with academic medical centers including at Baylor and Creighton were claimed.

2. Little was said about the sale of assets in Kentucky other than the process was “evolving,” that the company was moving with its advisors, that there is “a fair amount of interest,” and that they were “moving as quickly as possible” and “ready to move forward.” However, there has been no release of a Request For Purchase (RFP) so apparently no formal process has yet begun. I have no feeling on how rapidly things are moving or not. I suspect it will be challenging to find buyers for all the properties, certainly all at one group.

CHI will focus on regrouping around its “Legacy Lexington” facilities. I interpret this to imply that those hospitals are not currently on the chopping block. Where KentuckyOne will keep its administrative headquarters was not mentioned at this level of discussion. Continue reading “Catholic Health Initiatives Gives Investors an Update: Substantial Challenges Ongoing.”

Catholic Health Initiatives Third Quarter Financial Report, FY 2017

Is it good enough to turn the tide for CHI?

Catholic Health Initiatives released today its most recent quarterly report covering the first 9 months ending March 31, 2017. Making sense out of the raw financial numbers is for me probably like having a banker decipher a complicated clinical trial or biochemical research paper. I will leave it to the financial experts to explain it to us. To my first pass and naive evaluation, it looks like CHI is hanging on, but not improving to the extent needed to deal with its $8.8 Billion dept. I suspect this is not going to help their bond rating very much. This report reveals much about why CHI is taking the drastic downsizing actions in Kentucky that we are now seeing unroll. This may be an existential move for the company.

At the end of this article, I show extracted verbatim text from the report that I think will be of interest to us here in Louisville and Kentucky. You can read the full report yourself here.

In summary:

• It is very clear that KentuckyOne Health is the weak sister of the CHI regions.

•In Louisville, University Medical Center (UMC) making a profit. (This is not the same as University of Louisville Hospital, is it?) On dissolution of the UofL partnership. CHI expects to incur a loss of $279.4 million, but I have no understanding what that means. Who can help us?

•CHI hopes to close on its facilities that have been designated for sale by the end of 2017. Those facilities lost $61 million in the first three quarters. The estimated total assets for the KentuckyOne operations being divested as of March 31 2017 is $534.9 million. KentuckyOne/CHI hopes to complete the sale(s) by the end of the year.

•The possible merger with Dignity is not a sure thing.

•CHI has been selling other of its physical assets to raise money to the tune of over $1 billion in gross proceeds. (Does this go to its current bottom line and make matters look better in the current year?) It now must pay rent to the new owners of $52.7 million yearly.

•KentuckyOne Health won its first few cases in the litigation over unnecessary angioplasties in St. Joseph London, but began to lose the most recent cases with high monetary verdicts. Settlements are now being made for at least some cases. I suspect this is not going to be cheap.

What does the statement say to you? I expect many others in the business world are going to help us tomorrow. If I have made mistakes in reading this report, help me fix them.

Peter Hasselbacher, MD
President, KHPI
Emeritus Professor of Medicine, UofL
May 19, 2017 Continue reading “Catholic Health Initiatives Third Quarter Financial Report, FY 2017”