Jordan Hospital faces medical bills

$57.5m expansion followed by drop-off in admissions forces CEO to cut to bone

In 2006, Jordan Hospital held the opening of a $40 million pavilion, part of a $57.5 million building project. (Tom Herde/Globe Staff)

PLYMOUTH - Nov. 6, 2006 was a day of celebration at Jordan Hospital as executives, local officials, and politicians attended the ribbon-cutting ceremony for a new $40 million pavilion, part of a $57.5 million renovation project.

The gleaming 91,000-square-foot expansion houses operating rooms, a radiation treatment facility for cancer patients, and sophisticated imaging equipment. A covered entranceway, with valet parking, resembles the drop-off area for a posh hotel.

"Completion of this project marks a significant milestone in Jordan Hospital's evolution from a traditional community hospital to a community medical center for the 21st century," said Alan D. Knight, the hospital's chief executive, during the proceedings.

Knight is gone - he retired a year later - but the bills for the expansion project remain, and Jordan's new chief executive, Peter Holden, is trying to figure out how to pay for it all.

The timing of the project was unfortu nate - not long after the ribbon-cutting, admissions dropped precipitously. So far this fiscal year, which ends next Tuesday, admissions are off about 9 percent from last year, and the hospital is on course to post a loss.

That has bond analysts concerned about its creditworthiness.

In June, Standard & Poor's, the bond rating agency, downgraded Jordan's bonds. They were already noninvestment grade, or "junk bonds," but now they're a grade lower, BB-. The agency also issued a "negative outlook," warning investors that things could get worse.

"With a BB+ rating, there are some possibilities," said Cynthia Keller Macdonald, a credit analyst with the New York agency. "You're almost investment grade, and you might return to investment grade soon. That really isn't the case any more with Jordan. We're saying they've got serious problems they need to address."

The problems come down to this: Jordan borrowed $49 million for its expansion. Combined with borrowing for previous projects, it owes $84 million. Paying off the debt raises expenses. But with the drop in admissions, revenue has returned to 2005 levels, according to the S&P report. Jordan lost $933,000 on its healthcare operations in its last fiscal year - including investment income, it made a small profit overall.

Unlike larger institutions, the 150-bed Jordan doesn't have a big financial cushion, with only about $21 million in cash and investments to offset an overall debt of $89 million.

"We went right to the line of using credit for the new building," said Wilfred M. Shaheen, chairman of Jordan Health Systems' board of directors. "We are extraordinarily leveraged." The system is the parent of the hospital, its physician group, a hospice and health center, and a real estate company.

Holden, 54, is a hospital veteran who previously ran Good Samaritan Medical Center in Brockton and Holy Family Hospital in Methuen, both part of the Caritas Christi Health Care chain. He said he was recruited to Jordan last year by Knight.

Holden keeps a lump of iron pyrite - fool's gold - on his desk, a gift from a nun when he worked at Good Samaritan Hospital in Cincinnati in the 1990s.

"It reminds me not to let my ego get in the way," he said. "The most dangerous force in healthcare is ego."

Since joining Jordan, Holden has instituted drastic cost-cutting measures. In March, he eliminated the equivalent of 45 full-time jobs, or about 3 percent of the staff, about half by attrition. He also slashed travel to conferences, bottled water, and free coffee.

As a result, he said, Jordan posted a $375,000 profit on its healthcare operations in July, and will be able to trim its expected annual loss for the current fiscal year to $1.3 million.

Holden is also fine-tuning medical services. On Oct. 1, a psychiatric ward for the elderly will open. It is expected to generate an annual profit of $550,000 in its first year.

He also brings a long-term interest in process improvement and standardization of care. The business school concepts are now becoming popular with many hospital executives; Holden has been using them for decades.

"This isn't a fad or a flavor-of-the-month," he said. "This is going to be a way of life at Jordan for as long as I have a say in it."

Holden is also building a new senior team. Longtime chief financial officer, Elliot L. Schwartz, left a few months ago, and last week, Joseph Iannoni was named as his replacement. Iannoni was most recently at Caritas Good Samaritan Medical Center in Brockton.

Holden also named Dr. James E. Fanale as vice president of operations. For five years (ending in 2003), Fanale served as chief medical officer for Blue Cross Blue Shield of Massachusetts, the state's largest health insurer.

Plymouth is among the state's fastest growing communities. Its population grew to 58,379 in January from 51,701 in 2000, an increase of about 13 percent, according to town statistics. Jordan expanded in part to prepare for the anticipated larger patient base. But some residents still don't consider Jordan their hospital, and travel about 40 miles to Boston's teaching hospitals for anything more than routine care.

The Plymouth hospital's "only real competition comes from the persistent willingness of residents throughout Eastern Massachusetts to seek medical care at the downtown Boston academic medical centers and from South Shore Hospital" in Weymouth, wrote Standard & Poor's in its recent report.

Another problem is that no one fully understands why hospital admissions dropped - Holden and other hospital officials struggle to explain it.

To attract more patients, Holden plans to prove that for most care, Jordan is as good as Boston's elite medical centers.

"There's absolutely no reason why 99 percent of medical procedures can't be most safely rendered in a community hospital setting," he said. "The facts will prove the clinical outcomes here are equal or better than anywhere else in Massachusetts."

But there are other lingering issues. Eight-year-old plans to build a medical office building on Jordan's 40-acre campus are still mired in complications. The project first ran into objections from neighbors, most of which have been resolved, but fallout from the subprime mortgage meltdown and the jittery economy have made it harder to finance the project. Shaheen said financing complications are "getting close to being resolved." The project at one point called for two buildings; now plans are for one, built by a group of Jordan doctors who became investors.

Jordan has also sought to boost referrals by staffing its own medical practice. Last year, it added five primary care doctors who are on salary. But new practices often need subsidies until they build a patient base, and the practice is expected to lose $3.3 million in the current fiscal year.

Regardless, some say Jordan is well-positioned for an eventual turnaround.

"The demographics may not be as good for them as they initially thought, but they're certainly not bad," said Steven J. Tringale, managing director at healthcare consultants Hinckley, Allen & Tringale LP in Boston. "The volume blip is significant, but it's entirely fixable. There's nothing in the fundamentals that says they shouldn't be able to succeed."

Jeffrey Krasner can be reached at krasner@globe.com.