Shands Jacksonville, on West Eighth Street, owes $232 million in long- and short-term debt. The hospital has been in financial trouble since itd -- Bob Self/staff

Saving Shands
On the brink of possible bankruptcy, the Jacksonville hospital appeals for taxpayer help, while it works on its plan for financial viability

  Financially bleeding hospital still full of life

By Sarah Skidmore
Times-Union staff writer

Shands Jacksonville leaders say a financial plan for the hospital will be ready within the next 90 days but hope the hospital does not financially bleed to death in the meantime.

"We're at the end -- there are no more options," said Otis Story, chief executive officer for Shands Jacksonville.

The hospital management has juggled its financial responsibilities since its creation in 1999 -- old debts, daily costs and necessary investments in the business. It has asked for a helping hand before and says it needs those hands now more than ever.

A pending change in federal funding for Medicaid may cost Shands $18.7 million this year. And the growing financial burden of caring for the majority of the city's indigent and uninsured -- which creates little or no revenue per patient -- challenges the hospital daily.

Just last week the hospital needed assistance to maintain services.

Gov. Jeb Bush approved an $11 million Medicaid payment advance for the hospital. The state is reviewing Shands' request for $5 million to renovate the emergency department. And a state senator has warned of an impending bankruptcy. The city is discussing its options for assistance.

But all its supporters are leery of putting another multi-million dollar Band-Aid on a financially hemorrhaging hospital.

They are eager to save the hospital but want proof there is a financial future for Shands that doesn't rely on regular bailouts from the city and state.

"We don't want to pour taxpayers' dollars down anhole," said Sen. Jim King, R-Jacksonville.

Deficit spending Shands Jacksonville's income has not kept pace with its expenses: Figures are in millions of dollars. Year 2000 2001 Income $355 $421 Expenses $408 $433 Deficit ($53) ($12) What can be done? Community leaders say they need to face a hard truth: There are no easy answers. In tomorrow's Times-Union The uninsured: In Duval County, an estimated 1 in 6 residents are uninsured. Shands Jacksonville sees a large portion of these patients.

But the Shands plan that illustrates this financial future is still under wraps.

Story is working with a team of outside consultants, experienced with similar problems, to find a solution. Story and Timothy Goldfarb, Shands HealthCare CEO, said all options are being considered.

"We know we can't keep operating like we have for years," Goldfarb said.

The hospital has not been in the black since itd and has years of problems to overcome.

Shands Jacksonville was created in the fall of 1999 when Shands HealthCare of Gainesville bought and merged two financially ailing hospitals -- University Medical Center and Methodist Hospital -- with the aspiration of keeping an academic medical center in Jacksonville's growing metropolitan area. The company jumped on the hospital-merger bandwagon at a time when consolidated services were thought to be a big money-saver.

These anticipated savings, together with help from the city and state, were supposed to transform the two struggling 8th Street hospitals into one healthy institution.

Eliminating duplicate services and positions saved money initially -- about $10 million in the first full operating year. But other unexpected costs offset these savings. These include a $3.5 million upgrade for Y2K, expensive contract labor during a nursing shortage, integrating technology with a hospital that didn't even have voice mail and $60 million in uncompensated care for the uninsured and underinsured.

All these costs combined with decreasing revenue made for an unfavorable first year.

The hospital lost $53 million for the fiscal year 2000. Their dismal performance caused them to default on several loans, according to state agency financial reports.

The situation was bleak a little more than one year into its existence. Once the 2000 figures were out, hospital management spent four days combing program budget lines.

"We had to invest and grow some things and cut others," said Shands spokesperson Pam Lawrence. "This was the most thoughtful process and review I have ever been a part of."

Savings from those cuts and further savings through continued consolidation equaled $20 million.

But needed equipment and other upgrades cost $29 million.

At the end of the hospital's second fiscal year, things were looking up. The bottom line improved by almost $41 million through combined efforts and the hospital lost only $12 million.

A $12 million loss is significant for most businesses, Story said, but was a major improvement for Shands.

The hospital wanted to be rid of the financial woes of its predecessors and was making strides towards being a stable Shands.

State and city support along with some federal matching money remained an important part of Shands' development. From 2000 to 2001 these contributions jumped from almost $40 million to $63 million. Some of these funds were for Shands' care of indigent patients and some were for emergency infusions.

With the assistance and the continued cost-trimming, the hospital thought it might break even in the 2002 fiscal year. So it launched a $300 million capital fund-raising program.

Shands Jacksonville found some of this money through savings by recently cutting 145 positions. The current request in the legislature for $5 million for emergency department improvements is also part of this plan.

This five-year plan would update the buildings and equipment necessary for efficient daily operation. It was supposed to be the plan to stabilize the budget in the black.

"We were on a path to doing that, although a difficult path," Goldfarb said.

But it couldn't shake the problems left behind by the former hospitals -- under-investment and debt.

It owes $232 million in long and short term debt all in high rate bonds -- the majority of that is from UMC and Methodist.

These financial ghosts plus the daily cost of operating a hospital, which handles the majority of the area's poor and uninsured, continue to build.

Now swelling changes are fracturing the fragile budget.

A federal change to Medicaid reimbursement may remove $18.7 million from the budget this year. And the number of uninsured and other non-paying patients are growing more quickly this year than in the past, hospital leaders said.

The hospital reports $129 million of its $417 million operation budget went to poor and indigent care last year. City and state contributions defray only a portion of these costs.

The hospital's actual cost of treating uninsured patients was $55 million, according to a Florida Hospital Association analysis.

The old and new pressures are causing Shands to lose its financial foothold more quickly and increase public awareness of its difficulties.

"When I call home, that [possible closure] is the panic," said Rhonda Medows, secretary of the state Agency for Health Care Administration and a former Jacksonville resident.

To keep managing its current, old and upcoming financial commitments Shands is asking for everyone's help.

Goldfarb said the hospital is primarily looking to the city to help get the hospital on its feet. The most commonly mentioned option is refinancing the hospital's bonds through the city's optimal bond rating. The city's rating is one of the best in the nation, Mayor John Delaney said, and with Shands' poor financial record, it needs the city for access to these rates.

The state and Shands HealthCare are supportive but waiting on the hospital's plan for financial viability before making any commitments.

The final decisions on the consultants' plan, which will be finished in about 90 days, are up to the management team, but the pressure is on for a quick turnaround. The hospital exhausted its options internally and felt outside consultants could provide greater perspective, said Lawrence, the Hospital spokeswoman.

All options are on the table, Goldfarb said. He has no plans for bankruptcy, layoffs or cutting back service but legal obligations may determine the course.

"Do we have enough time to adequately study and implement the plans? I don't know," Goldfarb said.

And until that sign of long-term viability arrives, hospital staff must maneuver through the financial mine field.

"We are asking them to go left one day and turn right the next," Story said. "We're scared -- we all are."

He commended his staff for their commitment and said they haven't blinked under the pressure.

"Wait and watch and give us your best wishes but this is it," Goldfarb said. "I'm not so bold as to say there is a solution there yet but everyone has shown their support."

Staff writer Sarah Skidmore can be reached at (904) 359-4268 or via e-mail at sskidmore.