🔒Amid debt covenant breach, consultants recommend AI, efficiencies to improve Bristol Health’s financial position

Bristol Health has been working with consultants in recent months to get advice on how to turn around its struggling financial position.

Those experts have made multiple recommendations, from fixing inefficiencies to using artificial intelligence to quickly appeal insurance claim denials.

Bristol Health includes Bristol Hospital and a network of about 100 healthcare providers in 20 central Connecticut locations.

The health system at the end of its 2022 fiscal year violated a financial covenant tied to a $34.6 million bond offering it was issued in 2019. Those funds helped finance a major renovation and expansion of the hospital’s emergency department, in addition to refinancing older debt.

The September 2022 covenant violation was a result of the health system not having enough days of cash on hand to satisfy its bondholder’s agreement. That forced Bristol Health to negotiate a default waiver with bondholders, which was granted, and to hire an outside financial consultant, according to Bristol Health CEO and President Kurt Barwis.

Bristol Health ended fiscal year 2022, which ran through Sept. 30, with 35 days of cash on hand vs. the minimum 45 required by bondholders. Days of cash on hand is a key financial metric that indicates the number of days an organization can continue to pay operating expenses, given the amount of available cash.

It recently notified bondholders it had 16.89 days of cash on hand as of May 31, 2023.

By comparison, at the end of fiscal year 2021, Connecticut hospitals averaged 115 days of cash on hand, according to data from the state Office of Health Strategy (OHS), an industry regulator.

The covenant violation followed several years of financial struggles for Bristol Health, which reported a $16.5 million operating loss in fiscal 2022.

Connecticut’s hospital industry in general has faced headwinds coming out of the pandemic. Earlier this year, the Connecticut Hospital Association issued a report that said Connecticut hospitals recorded a combined $164 million in losses in fiscal year 2022, the worst year financially for the industry since the COVID-19 pandemic began.

Challenges include dramatically rising costs and inflation, workforce shortages, and treating sicker patients than before the pandemic, the report said.

Barwis noted that Bristol Health has not missed a debt payment. He also expressed confidence his health network will successfully make it through its current financial challenges.

However, a future merger with another healthcare system isn’t off the table.

In the short term, the health system is focused on implementing consultants’ recommendations as soon as possible, he said.

“We are going to right this ship,” Barwis said. “When you get in this situation, you want as many ideas as are available to come forward, so you can pick and choose the ones that give you the fastest return. We obviously aren’t in a position to dilly-dally.”

Financial headwinds

In addition to securing a deal with bondholders, Barwis said, Bristol Health has also received backing from the state legislature, which has pledged to provide the hospital $7 million in aid over the next two fiscal years, pending completion of a financial turnaround plan.

That support amounts to an estimated 14 days of cash on hand, he said.

The system also anticipates other one-time cash infusions and grants that will provide a more stable financial footing, according to Bristol Health Chief Financial Officer Timothy Ajayi.

Bristol Health in fiscal 2022 paid back $9.5 million in a Medicare advance loan that contributed to its days cash on hand deficiency, Ajayi said.

In May, Bristol Health indicated it had $137,913 in cash and cash equivalents. In fiscal year 2022, it reported $209 million in operating revenue and $123.3 million in overall assets.

Bristol Health faces myriad challenges.

It remains one of the few independent hospitals in Connecticut, which is dominated by two large health systems, Yale New Haven Health and Hartford HealthCare. That means Bristol lacks a deep-pocketed parent company as well as the scale of those larger systems.

In addition, nearly three-fourths of Bristol’s patient base has government insurance, either Medicare or Medicaid, which hospitals have long complained provide inadequate reimbursement rates. That’s a much higher percentage of government-insured patients than the statewide average, which was 49% in fiscal 2021, according to OHS data.

State Medicaid reimbursement rates are “hovering at the fifth lowest in the nation,” Barwis said.

Meantime, Bristol Health is experiencing a high rate of payment denials from Medicare Advantage plans, the increasingly popular privatized version of the government-controlled Medicare program now used by more than 26 million Americans, including hundreds of thousands of Connecticut residents ages 65 or older.

It’s an issue faced by hospitals nationwide that has caught the attention of federal policymakers.

A 2022 report from the federal inspector general’s office of the U.S. Department of Health and Human Services concluded there were widespread and persistent problems related to inappropriate denials of services to patients and payments to providers by Medicare Advantage organizations, prompting the need for greater industry oversight.

State regulators are also looking into the issue, according to Dr. Deidre Gifford, executive director of the Connecticut Office of Health Strategy.

A law passed during the most recent legislative session calls for a report to state lawmakers on Medicare Advantage provider payment practices, including the impact on the costs to hospitals.

Joan W. Feldman, a partner with law firm Shipman & Goodwin and chair of its health law practice group, represents healthcare institutions in Connecticut, but not Bristol Health.

According to Feldman, reimbursement by commercial and government payers has not kept pace with the cost of providing high-quality health care, putting pressure on providers, particularly smaller, independent hospitals.

“Without the ability to achieve economies of scale and share resources, standalone community hospitals will continue to be financially challenged,” Feldman said. “Instead of trying to regulate (health) provider costs, greater focus should be on the adequacy of provider reimbursement for its reasonable costs.”

Righting the ship

Bristol Health in recent months has been working with two national healthcare consulting firms — Illinois-based Impact Advisors and New York-based ToneyKorf Partners LLC — to address its financial issues.

It has received several recommendations and has already begun implementing corrective actions.

Barwis indicated the health network is seeing early positive results, noting that May 2023 was “cash positive.”

One recommendation was an evaluation of the health system’s efficiency with scheduling patients and doctors. The network is also looking at improving its billing and collection processes and evaluating its labor force needs.

“A lot of organizations will just say, ‘I will cut my way to a bottom line, I am just going to lay off all these people.’ But we are not doing that,” Barwis said.

Instead, leaders throughout the organization are evaluating staffing ratios to optimize the workers it has, Barwis said. He noted that staffing shortages are still an issue.

One recommendation involves using artificial intelligence to reduce the number of insurance payment denials, including those related to Medicare Advantage claims.

“A lot of insurance companies now use AI to just trigger and find anything to deny payments,” Barwis said.

Artificial intelligence can write an appeal letter in seconds, and handle many more appeals in an hour than humanly possible, he noted.

“We are in the process now of likely being the first hospital in the state of Connecticut to actually use AI in that fashion,” Barwis said. “I’m not aware of anyone else. We are in the process of kicking the tires.”

Using AI potentially will mean more insurance money for the health system, and freeing up time for staff to spend on other duties, he noted.

“As a small organization, we don’t have significant resources to deal with all the challenges that the insurance companies now present,” Barwis said. “Our physicians are spending too much time fighting to get patients what they need.”

Partnerships 'always an option'

When asked if Bristol Health would consider a merger with a larger health system to solve its financial woes, Barwis said that has always been an option. Consolidation can result in cost savings through sharing of resources and administrative costs.

“We have never not contemplated the need to enter into a partnership,” Barwis said.

In the past, Bristol Health has engaged in conversations with Yale, but a deal ultimately fell apart, according to Barwis. Pursuing any potential future merger would be up to Bristol Health’s board of directors.

However, he noted Bristol Health needs to improve its financial position before any merger would even be an option.

“Because of the financial downturn in our industry, it has been horrible for the last two years,” Barwis said. “No one is doing a deal with a hospital that loses money. When you join an organization, you have to add value.”

“So, one way or the other, we have to turn this place into a financially sustainable model,” he added.

Bristol Health had similar financial challenges around the 2008 financial crisis, Barwis said, and survived. Since that time, it has added more services, improved quality and invested in its facilities.

He pointed to projects such as a new emergency department and upgraded HVAC systems.

Barwis said Bristol Health has continued to build its core services, including adding specialists in areas such as endocrinology, psychiatry and rheumatology.

“We are going to fix financial performance, and we will grow stronger from it, as we always have in the past,” Barwis said. “We aren’t going anywhere.”