published Wednesday, July 2nd, 2014

Erlanger's turbulent year appears to be ending with multimillion-dollar comeback

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    Brad Madewell, a supply chain technician, stocks a Pyxis supply machine Tuesday at Erlanger hospital.
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FINANCIALS SO FAR

So far this fiscal year, Erlanger is $17.5 million in the black. At this point last year, the hospital had reported losses of $9.8 million.

• July: $1.5 million profit

• August: $1.5 million loss

• September: $700,000 loss

• October: $183,160 profit

• November: $2.4 million loss

• December: $1.4 million profit

• January: $2.3 million loss

• February: $2.4 million loss

• March: $1.9 million profit

• April: $20.1 million profit*

• May: $1.6 million profit

Source: Erlanger Health System

* Erlanger received $20 million in federal funding this month, its single largest lump-sum payment.

WITHIN 5 YEARS

Erlanger's final audited financials since 2009:

• 2009: $3.1 million gain

• 2010: $4.3 million gain

• 2011: $899,000 loss

• 2012: $16.7 million loss

• 2013: $14.3 million loss

Source: Erlanger Health System

A turbulent year for Erlanger Health System looks to be ending with a multimillion-dollar comeback.

Earlier this year, months of negative financials and reimbursement cuts led to an escalating sense of crisis for the public hospital.

In March, with the hospital $3.8 million in the red and having just 66 days of cash on hand, Erlanger executives decided to freeze employees' vacation time, calling it a life-support measure to meet financial covenants with bondholders.

Employee layoffs and cuts to other services also were "on the table," the hospital's CEO said.

But Erlanger's latest financial statements paint a very different picture.

A windfall of federal funds in April infused about $20 million into the hospital, and from an operations standpoint, Erlanger is now poised to end its fiscal year in the black for the first time since 2010.

That's good news for Chattanooga's fourth-largest employer, which every year generates an economic impact of about $1 billion in Hamilton County.

Vacation time has been unfrozen. Year-to-date this fiscal year, the bottom line shows $17.5 million profit -- a $27 million improvement from where it was at this time last year. And officials are reporting growth in Erlangers' commercial market share.

Though the final numbers must be audited before its end-of-year status is clear, it is safe to say that Erlanger will land nowhere near the $5 million deficit it had originally budgeted for.

"It's definitely been a turnaround year," said Chief Financial Officer Britt Tabor. "That's not to say when you turn around, you can rest."

Despite where Erlanger stands at the moment, leaders say they were not crying wolf when they presented a sobering state of affairs three months ago.

"If the stars had not have lined up in the way that they had, we would be sitting with a different picture today," said Erlanger board chairman Donnie Hutcherson. "We had already tripped our bond covenants, and it was not going to be a good end of the year if we did not make significant changes."

Erlanger began this fiscal year under extra pressure from Wall Street bondholders, which downgraded Erlanger's bond rating after the hospital failed to meet its bond covenants.

And while the hospital made significant and even painful changes -- replacing pension plans with 401(k)-like accounts, restructuring paid leave and outsourcing food services -- some are only now starting to show fruit.

Erlanger was tracking close to budget until December, when cuts to reimbursements and a series of snow days left officials scrambling to avoid breaking bond agreements for the third year.

Hutcherson said the management team has put in "untold hours" looking for ways to cut costs and access public money available to other hospitals but never before tapped for Erlanger.

"It's been a stressful year, but it's health care," CEO Kevin Spiegel said. "I love the challenge, and we are fighting for something that's worth it."

Officials said they're seeing traction with several cost-saving initiatives, some originally implemented well over a year ago.

Those include becoming more strategic with physician relationships and better managing staffing hours, along with the employee benefit changes.

Spiegel spearheaded an effort to tap the Public Hospital Supplemental Payment Pool, which grants millions for public hospitals in Tennessee but had never included Erlanger. He also advocated for the restoration of state "disproportionate share" money for care given to the uninsured.

Erlanger officials have projected they will perform at least $90 million in indigent care this year.

After Spiegel met with federal officials in Washington, D.C., in March, Erlanger was approved to receive money from both pools. But, while big for Erlanger, those funds aren't the key stabilizers for the hospital, Tabor said. And since they show nothing about how the hospital is performing operationally, they aren't what bondholders will examine when they meet with Erlanger officials this fall.

"Certainly [the funds] allowed us to get more of Erlanger's fair share for the level of uncompensated care we provide," said Tabor. "But this entire year we have been making significant changes to operations, and that's really the story we're excited to tell."

Tabor credited Erlanger's current financial status to Spiegel's "dynamic leadership," but also to employees implementing the changes, saying they're the ones who "carry this flag."

Hospital officials are finishing up the budget for the fiscal year that started Monday.

Spiegel said he doesn't anticipate the same level of employee-related changes this year. He said the hospital has to pivot its focus to issues like Affordable Care Act funding cuts and compliance, and restructuring its board to a 501(c)3 nonprofit so it can move away from its current government bidding system.

"We don't believe these pressures are gone," he said.

Contact staff writer Kate Harrison at kharrison@timesfreepress.com or 423-757-6673.

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