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Hospital could close, CEO warns

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MASSENA — The head of the financially imperiled Massena Memorial Hospital made his case before a packed meeting Thursday for why the facility must convert from a public entity to a nonprofit organization.

The hospital “faces an imminent financial crisis and possible closure,” Chief Executive Officer Charles F. Fahd II said. “We as a community face difficult choices. We need to consider all options and make a decision together.”

The hospital will be broke by 2017 if it maintains the status quo, according to Freed Maxick Healthcare, consultants hired to study a conversion to a nonprofit facility. The hospital Board of Managers has recommended such a move, but the decision is up to the Town Council.

The meeting at Massena Town Hall drew so many employees, residents and town and hospital officials that some listened from the hallway. Town Supervisor Joseph D. Gray said the Town Council might conduct its own financial review of the hospital before making a decision. “We haven’t set a time frame,” he said.

Mr. Fahd said he will make several presentations in the coming months to hear residents’ questions and concerns.

“Our goal is to serve the best interests of all the people who depend on MMH,” Mr. Fahd said, noting the decision will affect about 425 employees as well as 12,000 residents of Massena and nearby communities.

He attributed the projected losses of $1.3 million this year, $1.2 million in 2015, $2.5 million in 2016, $3 million in 2017 and $3.8 million in 2018 on several factors, including cuts in Medicare and Medicaid reimbursement, reduced payments from private insurers, an increase in uncompensated care provided and a jump in pension costs. “The pension is certainly the most important,” Mr. Fahd said.

Certified public accountant Lloyd Arakelian from Freed Maxick Healthcare said Massena Memorial Hospital isn’t unique in its dim financial outlook. “We’ve been in probably six of these,” he said.

The Massena hospital’s financial morass is chiefly due to decreased revenue and a decline in patient volume, Mr. Arakelian said.

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

Taking its current course, Mr. Arakelian said, the hospital would have $4.5 million in cash and equivalents on hand at the end of 2014. That would drop to $3.3 million in 2015 and $710,000 in 2016, before the hospital arrives at negative $3.2 million in 2017 and minus $7.8 million in 2018.

The decreased patient volume can be blamed partly on pressure from the state and federal governments to eliminate unnecessary admissions and emergency room visits, he said. “It’s already happened to hospitals across the state,” he said.

Mr. Fahd said that what were once in-patients are now often observation visits, which reduces reimbursement. Previously, he said, the hospital might admit a patient and perform tests that could take several days, generating some $6,000 in Medicare reimbursement. Now, Medicare is telling hospitals to put the patient in an observation station, he said, with reimbursement dropping to some $1,200.

“Ten years ago the average number of observation visits was 18 to 25 average a month,” Mr. Fahd said. “This month we’ll have 85 observation visits.”

Councilman Albert N. Nicola wondered if reimbursement would change if the hospital became a nonprofit facility.

“Not a bit,” Mr. Fahd said. “Reimbursement will not change.” Because of that, he said, hospital administrators are trying to control expenses.

“To remain solvent, control of major expenses is essential — payroll, fees and services, and employee benefits, including pension,” Mr. Fahd said. “The pension is a large, increasing expense that is outside of our control.” The required 2014 contribution will be $4.2 million, up from about $125,000 in 2002. “MMH will not have sufficient funds to make the required contribution,” Mr. Fahd said.

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

The hospital could consider a merger, but this would be difficult because of its municipal status and projected losses. “It’s highly unlikely anyone is going to want to merge with us,” Mr. Fahd said.

The Board of Managers could also sell the hospital, but this too is unlikely, Mr. Fahd said. “Our facility is not going to be very attractive because we’re losing so much money,” he said.

Or, they could ask for a state or federal bailout, Mr. Fahd said. Again, this is not likely with so many hospitals in distress. MMH could convert to a public benefit corporation, but this step would not improve its financial condition.

And then there’s the nonprofit option. This “sets the stage for improvements in financial condition and may open opportunities for collaboration with other health care entities,” Mr. Fahd said.

Mr. Fahd said becoming a nonprofit would allow the hospital to collaborate with unions to choose a new retirement program; join forces with other health care organizations for greater purchasing power and expanded services; work with federal and state regulators and policymakers for fair reimbursement; and support local economic development.

“It’s not a cure-all for the organization, but it does buy you a lot of time,” Mr. Arakelian said. “The bottom line is it would allow you to keep the organization operating.”

MMH’s timetable calls for listening sessions with individuals and groups throughout the community to be held through May, Mr. Fahd said. The hospital also plans to launch an upgraded website this month and issue a report to the community and the Town Council in May that would outline the community’s views and concerns

“MMH is a community asset,” Mr. Fahd said. “We want a community-wide decision based on the best available information”

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