Hartford Business Journal

www.HartfordBusiness.com • August 10, 2020 • Hartford Business Journal 7 By Matt Pilon mpilon@hartfordbusiness.com I n early April, as COVID-19 infections continued to spread across Connecticut and ap- proached their presumed peak, Connecticut Children's Medical Center CEO James Shmer- ling had a sinking feeling. The standalone nonprofit pediatric hospital he joined five years ago had, like its adult counterparts across the state, postponed various non-urgent surgeries — crucial revenue genera- tors — to prepare for an influx of patients infected with a new strain of coronavirus that medical science didn't (and today still doesn't) fully understand. But the wave of patients wasn't materializing like it was at some other hospitals. As of late July, Con- necticut Children's had admitted fewer than 30 confirmed COVID-19 patients, which is good for children and their families, but not for the formulas the federal government has used to dole out stimulus funding to hospitals during the pandemic. After four years overseeing mostly steady financial improvements at Connecticut Children's, Shmerling was facing a potential $60-million deficit — about 12% of revenue — for the fiscal year, and cash on hand was dwindling to a point where it threatened to breach bond cov- enants. He wondered if his hospital might be in real trouble. "I think there were probably three days in April where I started wonder- ing, 'where is this headed?' " Shmerling recounted in a recent interview. "We were looking at a tailspin in net rev- enue. There was so much uncertainty." His concerns have eased a bit since then, thanks to about $40 million in federal and state aid the hospital has received, cutting significantly into its projected deficit, though a loss is still expected this year. And that didn't prevent the hospital from recently eliminating 3% of its 2,800-person workforce; in March it enacted partial and full fur- loughs of more than one-third of its staff amid the capital crunch. Now, patient volumes are starting to slowly recover follow- ing the return of elective proce- dures in June. Connecticut Children's is one of the state's few remaining independent hospitals, which have faced a significant threat in recent months from a coronavirus pandemic that obliterated key revenue streams and caused other financial strain. Lacking the resources of a larger hospital system, independents have been forced to fend for themselves, leading some to question whether the pandemic will lead to a further consolidation wave. Two independent hospital CEOs who recently spoke with HBJ — Sh- merling and Middlesex Health CEO Vincent Capece Jr. — say they don't think that will be the case for them. Indeed, while both could book a loss this year, the pandemic has made them bend, not break, execu- tives say. 'Never say never' Capece said Middlesex Health has been healing nicely from its CO- VID-19 financial wounds and has no current plans to run into the arms of a larger health system. After estimating a $50-million def- icit for the year due to the pandemic, Middlesex has since received ap- proximately $32 million in stimulus aid, and has also been relieved to see surgical volumes fully rebound. "We think we could stay around break even for the year, or maybe have a small loss," Capece said. Middlesex has been a profitable enterprise, which could make it a desirable acquisition target for larger systems. Indeed, Capece said Hartford Health- Care and Yale New Haven Health have both asked about it in the past. "We've never closed the door or said that's something we'll never do," Capece said. But he's feeling more optimistic about Middlesex's independent future now compared to when the pandemic began. "Never say never, but I think we're as strong as any other independent or- ganization in the state," he said. Of course, that outlook could change if condi- tions worsen, he readily admits. He's concerned about a potential second wave of COVID-19, which could cause significant harm, particularly if the hospital has to cancel elective surgeries again, and if patients avoid in-person care like they did during the first wave. "I think every organization, even the big ones, have been hit hard by this," Capece said. "Could we survive another major downturn? I don't know." There are several other Connecticut standalone hospitals, including Grif- fin Hospital and Bristol Hospital, but neither made their chief executives available for interviews for this story. In mid-July, Bristol CEO Kurt Barwis told the Connecticut Mirror that his hospital was facing a $16-million deficit for the current year, and despite several hundred furloughs, could risk breach- ing bond covenants later in 2020. No time to waste Connecticut Children's Shmerling said he wants his hospital to remain independent. "From our board to our management team, there is absolutely no interest" in being absorbed by a larger system, he said. "We feel children are better served when there is an independent self- governing children's hospital." While stimulus money, a recently extended credit line and cost cuts have helped pull the hospital out of its COVID-19 crunch, Shmerling says he needs to be proactive to ensure the future fiscal health of his organization. Connecticut Chil- dren's, like many pediatric hospitals, is heavily reliant on Medicaid, which is notorious for not reimbursing the full cost of care provided, and Sh- Continued on page 8 >> CT independent hospital Medicaid payer mix As a pediatric hospital, Connecticut Children's counts on Medicaid for a much higher portion of its gross revenues than other hospitals, includ- ing other Connecticut independent hospitals shown here. That creates financial challenges, but CEO Jim Shmerling hopes a new joint venture will help solve some of them. Hospital Medicaid mix (FY18) CT Children's 52.30% CT average 21.30% Bristol 20.80% Day Kimball 19.80% Griffin 18.40% Stamford 15.80% Middlesex 14.90% Source: Office of Health Strategy Bruised, Not Broken These CT hospitals keep their independent spirit alive, despite pandemic HBJ PHOTO | STEVE LASCHEVER James Shmerling, CEO of Connecticut Children's Medical Center in Hartford, is bracing for the hospital's first year of red ink since he was hired in 2015.

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