With the boards of Augusta’s two largest hospitals meeting Thursday, University Hospital and Georgia Regents Health System revealed very different financial pictures for the first of this year.
A key rating agency, however, changed to a negative outlook on University – which showed a positive margin of $7 million in its first quarter – and warns its pursuit of a Columbia County hospital could lead to a downgrade of the rating on its bonds.
University’s first quarter showing was an improvement of $8 million over a disastrous first quarter last year when the system spent a lot on installing its Epic information technology system. In its most recent three months, Georgia Regents saw a loss of $6 million due primarily to bad weather, canceled appointments and surgeries and a lack of bed turnover and new patients, officials said.
The snow in January and ice storm in mid-February had a direct impact, said Chief Business Officer Anthony E. Wagner.
“Elective surgeries were canceled for that period of time,” he said. “Admissions were down 44 percent, surgeries were down 69 percent, clinic visits were down 81 percent for the three days.”
Hospitals are paid by discharge and length of time patients stayed in a bed increased, which limited new patients, left 20 patients waiting on a bed in the Emergency Department and actually added costs, Wagner said.
“The hospital was chugging along busy,” he said. “It was just not busy in a profitable way.”
The volumes did not recover in March, which also hurt, Wagner said.
“March is normally a high volume month so the fact that it is actually down, year over year in volume, was a very significant issue leading to this very significant shortfall,” he said. The hospital is now looking at $10-15 million in capital projects that can be delayed but is not considering a reduction in force because that would only be a short-term gain and the health system is very low cost compared to its peers anyway, Wagner said.
“It would probably impair our ability to return to profitability the way we need to (next fiscal year),” he said.
And some turnaround efforts are already bearing fruit, Wagner said.
“In April, we’re seeing improvement,” he said. But part of it is realizing the Augusta market is extremely competitive, Wagner said.
“There are too many beds in Augusta,” he said.
Adding even more in nearby Columbia County could be costly to University, according to Moody’s Investors Services. It issued a report April 16 that kept University’s bonds rated as A1 but downgraded its outlook to negative. University CEO Jim Davis said Moody’s issued a negative outlook to the entire hospital industry two or three years ago. Part of University’s change was based on a “softer performance” financially over the last few years, due to costly initiatives such as Epic and buying physician practices, the report found. It noted University is making a bid for a 100-bed, $144 million hospital in Columbia County and that financing was still unclear. To add to its $145 million in outstanding bonds, “given (University’s) highly leveraged operations, an increase in debt could result in a downgrade,” the report found. That made no sense to Davis, who insists that University has plenty of debt capacity.
“We can get debt very inexpensively right now so we’re making the decision, why would we take money out of investments that are doing very well in the market versus buying debt that is cheap,” he said.
University could pay for it from its $498 million in cash and investments and still have more cash on hand than others with its same Moody’s rating, Davis said.
“That’s a financing decision and I’m not sure we’re going to let Moody’s force us into bad financing decisions,” said Davis.
The hospital said it will file notice next week to seek the Certificate of Need to build the Columbia County hospital, which will then mean its has to file its application within 30 days. Georgia Regents and Doctors Hospital of Augusta also expressed interest in a hospital in Columbia County, which officials have acknowledged will need to qualify under an exception to the need standard because of the number of hospital beds in Augusta.