SWEETWATER COUNTY — The following is a press release issued by the Sweetwater County Board of Commissioners.

On February 7, 2017, the Board of County Commissioners voted unanimously to remove the existing Memorial Hospital Board of Trustees and reconstitute a new Hospital Board of Trustees.

This difficult decision was for one reason; to prevent the hospital from defaulting on its loan obligations. Failure to act, would place the fate of the hospital, it’s nearly 600 employees and the healthcare of Sweetwater County at the mercy of the bank.

To understand the gravity of this problem, we must understand how banks measure the performance of hospitals. One such measure is the number of day’s cash on hand. As defined in the loan document, day’s cash on hand includes all the money (including securities) that the hospital has available to pay bills and fund operations. Specifically, the loan document states; “Days’ Cash on Hand Requirement: The Hospital covenants that it shall maintain a minimum Days’ Cash on Hand of 75 Days, commencing on the First Test Date and on a semi-annual basis thereafter for the twelve months ending June 30 and December 31.”

When the loan was executed in June of 2013, the hospital had 236 days of cash on hand, meaning the hospital had enough cash to fund operation for 236 days. Today, the hospital has approximately 88 days of cash on hand.

The following graph details this consistent erosion of cash on hand over time. It is also worthy to note that in April of 2015, the County Commission refused to approve the hospital’s request to borrow $50 million to construct a surgery center. The stated reason for denying this request was the declining financial performance of the hospital, as shown on the accompanying graph, as well as the local and national economic recession.

The hospital currently has approximately 88 days of cash on hand. The hospital spends approximately $232,000 per day to fund operations. As such, 88 days of cash on hand translates to approximately $20,416,000 (88 * $232,000). In a recent radio program, Artis Kalivas, a former hospital board chairman, acknowledged the hospital having this 20 million “in the bank”.

However, he failed to mention that the bank requires the hospital to retain 75 days of cash on hand, or approximately $17,400,000 (75 * $232,000). The difference between these days of cash on hand numbers shows that the hospital, at their current rate of expenditures and without intervention, will default on the loan once 13 days of cash on hand is spent down.

Only $3,016,000 ($20,416,000-$17,400,000) of cash stands between the hospital’s current financial position and default.

Further illustrating the problem, on September 27, 2016, Will Douglas, Director Public Finance-Healthcare Investment Banking for Wells Fargo Securities met with the hospital CEO and CFO to discuss concerns about the hospitals declining performance. In that presentation, Mr. Douglas advised the following;

•  Over the past five years, despite a significant increase (51%) in Net Patient Service Revenue
•  Operating margin has declined from 5.5% to (1.6%)
•  EBIDA Margin has declined from 15.9% to 10.1%
•  Days Cash on Hand has dropped from a high of 236 days in 2013 to 107 days in 2016
•  MADS Coverage without SPT revenues and related debt has dropped from a high of 4.5x in 2015 to 3.1x in 2016
•  All financial ratios compare negatively to Standard & Poor’s BBB hospital medians as well as the two peer group hospitals
•  Retention of Memorial Hospital’s investment grade rating (BBB-) is not likely.

By January 2017 the hospital’s bond performance measures had further declined, prompting Mr. Douglas to articulate his concerns to the Board of County Commissioners in an e-mail dated January 9, 2017. In that e-mail, Mr. Douglas advised the County

Commissioners as follows, “Our analysis shows a significant decline in the financial condition of Memorial Hospital, largely due to costs rising faster than revenue. This situation is unsustainable and I hope something can be done before any bond covenants will be breached.”

For the past two years the County Commission has repeatedly attempted to impress upon the hospital board the need to correct the hospital’s financial slide, especially given the struggling economy. Most recently, the County Commission asked the hospital board for a plan to arrest their fall. Once again, the trustees demonstrated that they were not engaged in the problem and had no well-reasoned business plan to address the challenge before them. As such, the County Commission saw no choice but to remove trustees and to put in their place a new board to correct the problem.

The Board of County Commissioners sincerely hopes that despite what has transpired, we can all realize the significance of this situation and can set aside personal concerns to assist in returning the community hospital to financial prosperity and continued quality healthcare.