South County Hospital to explore affiliation
SOUTH KINGSTOWN — Last week, South County Hospital announced it will enter into exclusive talks with Massachusetts-based Southcoast Health System regarding a possible affiliation.
Southcoast Health System is a regional, non-profit organization based in New Bedford, Mass., that operates more than 40 locations in Rhode Island and Massachusetts, including St. Luke’s Hospital in New Bedford and Charlton Memorial Hospital in Fall River.
After reviewing two proposals at a Feb. 24 meeting, the South County Hospital Healthcare System and Endowment Boards of Trustees — the same individuals sit on both boards — voted to “proceed to engage in exclusive discussions with Southcoast Health System to work toward a Letter of Intent reflecting and clarifying the elements of its proposal.”
This decision comes about a year after hospital leadership began considering partnering with a larger organization, joining a trend of independent hospitals that have done so to face the challenges of rising health care costs.
“This is absolutely consistent with what’s happening around the country, there’s safety in numbers,” said Robert Hackey, a professor and director of the health policy and management program at Providence College and a Wakefield resident.
Hackey said the benefits of merging or partnering with a larger organization include a “larger bargaining cloud with insurance companies” which offers the opportunity to purchase products at a bulk discount price, and the ability to share some core employee services, such as marketing and billing.
“I think the fact that [South County Hospital is] potentially merging with a non-profit chain could be a benefit to the community,” Hackey said. “Non-profit chains tend to have a more community orientation [than for profit hospitals], with their level of care more focused on free care.”
South County Hospital remains the only independent hospital in Rhode Island, following the 2013 sale of the financially troubled Westerly Hospital to Connecticut-based Lawrence+Memorial Hospital. Westerly Hospital filed for receivership, a form of state bankruptcy, in December 2011. In April 2012, L+M Hospital purchased it for $69 million.
While South County Hospital’s finances have not been as grim, it has faced some troubles in recent years. In its 2006 fiscal year, the hospital reported losing $2.5 million, despite having a positive cash flow that year. Reasons for the loss included increased bad debt, including growing uncollected patient balances, and increased free care service to patients who couldn’t afford services, President and CEO Louis R. Giancola told the South County Independent at that time. Giancola was unavailable for comment before the article went to press.
The hospital took a financial hit at the start of the Great Recession when it was holding approximately $52 million in auction rate securities as part of financing for construction projects like the Frost Family Pavilion. That market collapsed in 2008 and hospital officials took $9 million out of its endowment to recover.
“They’ve struggled for years — about a decade,” Hackey said. “Nationally, free care and bad debt expenses have been up since the recession.”
But the hospital’s finances have improved in recent years. Last year, it announced an operating gain of $2.69 million in fiscal year 2011, after a $59,000 loss in 2010 and a $6.9 million loss in 2009. Giancola had credited the stabilization of the bond market and careful management of expenses for some of this financial shift.
Despite an improved financial picture, in previous interviews, Giancola has said South County Hospital’s unique position as the only independent community hospital in the area poses some challenges, mostly because of the hospital’s small size.
In Dec. 2013, the hospital approached three possible partners: Southcoast, Lifespan, and Care New England. The boards received two proposals for review, one from Southcoast.
According to a press release, the Southcoast proposal “offered a commitment to substantial local governance, resources to enhance services in the community and the development of a system that can preserve existing patterns of care in Rhode Island.”
South County Hospital will hold a series of open forums for staff to voice questions and identify issues they would like the boards to consider in their discussions with Southcoast, according to a hospital press release. In addition, Giancola and Eve Keenan, chairwoman of the board of trustees, will talk about changes in health care and how they affect the hospital at a North Kingstown Chamber of Commerce Network at Noon function March 13 at noon. The event will be held at Quonset Development Corp., Annex Building, 95 Cripe St., North Kingstown.