The interim president and CEO of Johnson Memorial Corp., says the eastern Connecticut-based health care provider will likely exit bankruptcy by the end of this month and maintain its status as an independent organization.
Peter J. Betts, a corporate turnaround specialist who has a long history of salvaging financially-troubled hospitals, said the court has approved a reorganization plan for the hospital, which is arranging financing to exit bankruptcy as soon as this week.
And despite two years of merger speculation, Johnson Memorial Corp., which owns several assets like Johnson Memorial Hospital in Stafford Springs and the Evergreen Health Care Center nursing home, will stay independent, at least for now, Betts said.
That would represent a remarkable turnaround for the company, which Betts predicted in 2008 likely would not survive long-term without a merger.
“When we first started looking at aligning with someone in 2008, we were in a different place,” Betts said. “That pressure doesn’t exist at the moment.”
Johnson Memorial’s decision to remain independent comes at a time of much uncertainty within the industry. Many industry experts are predicting consolidation among Connecticut hospitals in the coming months and years as new demands from health care reform, and other continuing financial pressures, make it difficult for smaller, independent hospitals to remain economically viable.
Betts did say that the organization is still exploring opportunities to partner with other area hospitals, but it’s not interested in selling any assets or giving up management control.
“We still think we ultimately need to have some mutually agreeable relationship with a larger organization,” he said. “If we can make a competitor a partner, it will be better for us.”
Betts also said the hospital’s board of directors has asked him to become the permanent CEO, a position he has accepted and will keep for at least the next three years.
Johnson Memorial Corp., which entered bankruptcy in late 2008, employs 1,200 people. It is coming off a tumultuous two-year stretch that included dismal financial performances and a litany of speculation about potential mergers, including one deal that fell apart at the 11th hour.
Johnson Memorial Hospital ended fiscal 2009 with -8.48 percent total margin, making it the worst performing hospital in the state.
But Betts said the health care provider is in a much better financial position now. Cost reductions — including laying off 140 staffers — and revenue enhancements have led to a $30 million improvement to the hospitals bottom line, he said.
One of the biggest savings came from renegotiating contracts with insurance companies, which led to a $6 million swing. Once out of bankruptcy, the health care provider also will shed an annual $4 million expense for legal fees.
Betts projects that Johnson Memorial will end this fiscal year with a positive EBITDA — earnings before interest, tax, depreciation and ammonization — which is a key indicator of a company’s financial performance.
Gary Roman, chairman of Johnson Memorial’s board of directors, said “it’s a pleasant surprise,” that Johnson Memorial is exiting bankruptcy without having to partner with another hospital or even liquidate.
Roman said Johnson Memorial has had several suitors, but decided to remain independent because any affiliation likely would have forced the company sell off certain assets.
“Some suitors would have taken apart entities that we own,” he said. “We didn’t want that to happen.”
Among the suitors was Eastern Connecticut Health Network, which abruptly terminated a $65 million agreement to purchase Johnson Memorial Hospital late last year. ECHN backed away from the deal citing concerns about Johnson’s falling patient volume and revenue, and greater-than-expected capital costs.
As Johnson Memorial leaves bankruptcy it will be guided by a new vision, mission statement, and a three-year strategic plan, Betts said.
The plan includes making capital investments to improve information systems and electronic medical records, upgrade clinical equipment, and modernize other facilities and infrastructure.
The hospital has been able to add an infusion therapy center and an Alzheimer’s unit.
