Hartford Business Journal

16 HARTFORDBUSINESS.COM | JULY 24, 2023 Kurt Barwis, president and CEO of Bristol Health. PHOTO | CONTRIBUTED Fiscal Turnaround Amid debt covenant breach, consultants recommend AI, efficiencies to improve Bristol Health's financial position By Michelle Tuccitto Sullo msullo@hartfordbusiness.com B ristol 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 inef- ficiencies to using artificial intelli- gence 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 renova- tion 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 bond- holder'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 bond- holders. 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 consul- tants' 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 obvi- ously 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 finan- cial 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 equiv- alents. 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 indepen- dent 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 govern- ment insurance, either Medicare or Medicaid, which hospitals have long complained provide inadequate reimbursement rates. That's a much higher percentage of government-in- sured 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 experi- encing 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 BRISTOL HEALTH'S FINANCIAL SNAPSHOT FY 2018 FY 2019 FY 2020 FY 2021 FY 2022 Operating surplus or loss $6,400 -$10.8M -$3.4M -$13.9M -$16.5M Overall surplus or loss $1.9M -$31.4M -$23.6M -$8.8M -$20.3M Source: Office of Health Strategy

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