Path to financial stability for Erlanger remains unclear a year after private offer rejected

Staff Photo by Robin Rudd / Erlanger Medical Center, on East Third Street, is seen on June 24, 2021.
Staff Photo by Robin Rudd / Erlanger Medical Center, on East Third Street, is seen on June 24, 2021.

A PBS documentary that aired in May called attention to a long-brewing crisis in American health care brought to the forefront by the COVID-19 pandemic - the future of many safety-net hospitals, such as Chattanooga's Erlanger Health System, is in jeopardy.

The documentary featured several leading Erlanger physicians and former U.S. Sen. and Chattanooga Mayor Bob Corker, all calling out the need for a pathway to financial sustainability for Erlanger, the area's only public hospital and academic medical center, in the modern health care era.

Though some local officials acknowledge the gravity of Erlanger's situation, no elected official has taken action or spoken publicly about the issues highlighted in the documentary since it aired.

Erlanger provides essential and costly specialty services - such as the highest level of trauma, stroke and pediatric care - not offered by other hospitals in the region and serves as a training hub for future clinicians.

At the same time, Erlanger treats more uninsured patients and those on Medicaid - which pays significantly less than commercial insurance - than its competitors.

The health system is expected to provide a record $160 million worth of uncompensated care during the current fiscal year, according to Erlanger's budget.

"From everything I've seen, Erlanger does not get the funding it should be getting, given its mission, given its patients and given its complexity - whether it's local government, whether it's state government, whether it's federal government. There is something missing here," said Dr. Bruce Siegel, CEO of America's Essential Hospitals, who this month gave an educational talk about safety-net hospital finances to Erlanger's medical staff.

(READ MORE: Chattanooga's Erlanger featured on 'Frontline' investigation about COVID-19's impact on safety net hospitals)

Though public health systems in Tennessee get some supplemental funding from the state and federal government, it does not make up for the significant cost they bear, especially because those funding sources are stagnant and the cost of medical care continues to rise, he said.

Siegel said many of Erlanger's challenges are similar to other large public and nonprofit health systems that provide high levels of uncompensated care and Medicaid to vulnerable populations, but there are other factors that place Erlanger at an even greater disadvantage than many similar health systems across the nation.

Tennessee and Arizona put the least amount of funding toward public hospitals out of all the states, according to Siegel. Erlanger also serves a large region in Tennessee, Georgia, North Carolina and Alabama that is more unhealthy and experiences higher rates of chronic disease, poverty and health disparities than the nation as a whole.

While other public hospitals in Tennessee turn to local government for additional funds, Hamilton County's only financial contribution to Erlanger is roughly $1.5 million to provide inmate care. The city of Chattanooga contributes no funding to Erlanger.

By comparison, Metro Nashville Mayor John Cooper's most recent city and county budget included a $49 million subsidy for Nashville General Hospital, and the Shelby County Commission recently approved an additional $11.6 million in funds for Regional One Health Medical Center in Memphis to increase staffing.

Hamilton County Commission Chairwoman Sabrena Smedley, R-Ooltewah, and Commisoner Greg Martin, R-Hixson, said they had not seen the documentary, as did Commissioner Tim Boyd, R-Chattanooga, who offered the statement below through email:

"The shell game Erlanger plays with its financial statements year to year leaves one to conclude that what they report as losses and profits cannot be understood as telling the entire story. Millions in losses one year followed by millions in profits the next," Boyd said. "How does this happen if the organization is properly managed for sustainability?"

Speaking on behalf of Hamilton County's legislative delegation, Rep. Patsy Hazlewood, R-Signal Mountain, said in a statement that she is confident in Erlanger's board, which "has a tremendous amount of expertise."

Hazlewood also said that the largest portion of the state's budget goes to health care, followed closely by education.

"Payments to safety-net providers like Erlanger are based on uncompensated care volume and are proportionally allocated among all eligible hospitals in the state so everyone gets their respective share of the pool," the statement said. "Arguments can be made that the pool should be larger. But you must remember that the state has no money other than that which comes from the taxpayers' pockets. It is a continuous balancing act between the financial obligations the state has on behalf of its citizens and the resources available from the taxes on its citizens. "

Tennessee could put a dent in Erlanger's uncompensated care figure, as well as every other hospital in the state, if it expanded Medicaid under the Affordable Care Act.

Tennessee's Medicaid program covers about 1.5 million low-income children, pregnant women, families and disabled people. The expansion would add eligibility for about 226,000 uninsured, low-income adults under 65.

However, Tennessee remains one of 12 states to opt out of the extra federal dollars that would cover an expansion of Medicaid.

Former Gov. Bill Haslam attempted to expand Medicaid, but his proposal was rejected by the Republican-controlled General Assembly, with a majority ideologically opposed to expanding what some members refer to as "a broken system."

The Erlanger Board of Trustees - comprised of six members appointed by the county mayor with commission approval, four members appointed by the legislative delegation and the hospital's chief of staff - said in a joint statement the board "is aware of the documentary" and Siegel's talk.

"The challenges of being a public hospital in the modern health care era are well-known and well-documented. The long-term sustainability of Erlanger is always a top priority of the board, and we are fortunate to have good working relationships with our elected officials, with whom we communicate on an ongoing basis, along with many of our other stakeholders," the statement said.

"We serve tens of thousands of patients in four states, and we are continually assessing the best way to provide the high-quality care our patients expect and deserve. We regularly review operations and strategy, and like all health systems across the country, we convene teams of experts to help us move through a variety of issues."

Siegel explained several strategies similar hospitals have used to become more sustainable, including improving efficacy, focusing on more profitable service lines, taking on more financial risk, consolidating, changing governance and pursuing public policy changes.

Local leaders were united in saying "Erlanger is not for sale" when a private equity firm offered to buy the health system for $475 million in August 2020, and Erlanger management has already pulled many of the levers that Siegel mentioned.

From 2016 to 2018, Erlanger was characterized by rapid growth and expansion, building and acquiring new facilities as well as physician practices. The health system also focused heavily on promoting more lucrative services, including cardiac care, neurology and orthopedics.

When CEO Will Jackson took over in fall 2019, the health system shifted focus toward efficiency and controlling costs, which is how Erlanger began posting positive earnings again.

Though Erlanger's most recent financial reports have been strong, the recent success does not make up for the many years of thin margins and financial loss. Erlanger continues to struggle to reinvest in new infrastructure and associates. Many beds that could be occupied by patients that bring in revenue sit empty since the pandemic exacerbated staffing shortages.

Siegel pointed to examples of public hospitals transitioning to a private, not-for-profit model and retaining their safety-net status but noted that pathway presents many political obstacles and takes community buy-in.

Hamilton County Mayor Jim Coppinger said it's been a while since he saw the documentary, but that many of the points outlined were not a surprise to him.

"I don't think the model that we have right now is sustainable, and you know, obviously, we have to continue to look for ways to make it more stable and sustainable long term," he said in a telephone interview, acknowledging that although change is needed, it would be difficult.

"I always want to do that in a way to protect employees and protect pensions and those types of things, which that just makes it a little bit more difficult," Coppinger said. "But I think we can all agree - I can't imagine this region, let alone this county, without Erlanger hospital or without a safety net."

Contact Elizabeth Fite at or follow her on Twitter @ecfite.