Sparks Health System officials no longer desperate for financial savior

The days of Sparks Health System desperately searching for a financial savior are over, according to hospital CEO Ted Woodrell.

Deliberation, he says, has replaced the desperation.

Less than a year ago, Sparks Health System — with its more than 2,000 employees who took care of more than 12,000 patients a year — was on the financial ropes. Moody’s rating service said the hospitals cash on hand of $7.5 million as of Dec. 31 was “a weak 11 days cash on hand and 12% cash to debt.” Also, Moody’s said in its February 2009 report that $6.9 million in 2008 capital expenditures served to lower the hospital’s cash position. In the first six months of fiscal year 2009, the hospital lost $12.9 million and posted a negative operating cash flow of $4.3 million. Moody’s suggested bankruptcy was a likely option.

While there was no official announcement from the hospital, it became common knowledge in the Fort Smith area that Sparks officials were looking for financial relief, even if it meant selling the operation.

DEAL AND NO DEAL
On March 30, Sparks officials announced their intent to sell the hospital system to Alpharetta, Ga.-based Jackson Healthcare. Woodrell said then the Jackson deal is “a relationship that allows us to focus on delivering the best possible care for our patients and the community and positioning us to have the capital we need to continue our growth.”

Jackson Healthcare, founded in 2000, is in the business of helping hospitals find qualified staff, hospital management, and health information technology systems and equipment. The company, which does not own a hospital, employs 400 at its corporate headquarters and more than 600 nationwide.

But the May 15 deadline for a tentative agreement instead produced an announcement from the hospital saying the signing deadline was extended indefinitely. On June 1, Sparks announced it was withdrawing from the effort to sell the hospital to Jackson Healthcare.

There were mixed emotions among regional residents concerned about the hospital, with many pleased the hospital would remain locally governed, but still concerned about its financial future.

REDUCED PRESSURE TO DEAL
In a July 2 interview with The City Wire, Woodrell said the hospital began seeing positive cash flow in January and that continued through May. It will take “several years” before the hospital is financially strong, but Woodrell said the pressure is off the Sparks Board of Trustees to quickly find a financial relief valve. The board, however, is keeping options open.

“Our operations have improved so much that we don’t have to do a deal now. That’s really the great news. With the volumes that we have and the cash flow we have, we have options today that a year ago we didn’t have. That’s a very comforting thing,” Woodrell said. “But to not be looking at your options would mean you’re not doing your job. We continue as an organization to want to make sure that we meet our goals of serving this community. If that means a partner, as a best means of doing that, so be it. But we don’t have to today. That’s a huge change from where we were.”

Woodrell didn’t have much to say about the aborted Jackson deal, other than to note. “It  (terms of the deal) just changed from their perspective and from ours.”

QUALITY CHANGES
What has changed the financial situation in such a short time? Woodrell, normally even-toned with dry, matter-of-fact sentences, was effusive in his explanation that improvements in quality of care and expansion of services are key to the improved finances. He admitted that just a few years ago, the quality of care was “not where we wanted it to be. … But now I look at our quality and I can say that it is excellent.”

Continuing, Woodrell said: “We are a different hospital than we were a year ago. We have operationally improved unbelievably. … We have the numbers to prove our quality stands there with the best of them in the country.”

On May 19, the Arkansas Foundation of Medical Care awarded its Innovator Award to Sparks based on the hospital’s quality improvement efforts and its continued work to improve healthcare in the Fort Smith region. Quality improvements listed on the hospital’s Web site include heart attack care, heart failure treatment, pneumonia prevention and treatment and stroke care.

The hospital also in recent days has opened a new outpatient pulmonary rehab facility staffed by employees now doing cardiovascular rehab, and has expanded its inpatient rehab facility from 30 to 40 beds. The quality and expansion of services are resulting in “exceptional” patient volumes, Woodrell said.

Medical staff, department heads and Dr. Margaret Tremwel, the hospital’s chief quality officer, get much of the credit for recent quality conversions, Woodrell said. Tremwel was recently named chief medical officer in addition to her duties as chief quality officer.

“You look at our quality indicators today and they compare with the top facilities in the country,” Woodrell asserted. “Quality is the big driver. If you don’t have quality, you gotta wonder about why you are in health care. But we have quality and it is driving our operational successes.”

The operations also include about 2,300 (full-time equivalent) employees and 247 credentialed doctors, with 88 of those doctors directly employed by Sparks.

CAPITAL QUALITY
Quality and expanded services will need to continue to produce a positive cash flow if the hospital is to do more than just tread water. Woodrell said a continued path toward better financial health must include rebuilding working capital (a reserve fund).

“We’ve got to restore our operating capital. That’s our weakness right now. Our day-to-day operations are excellent. Our financials are continuing to show the improvement that we want, but we’ve got to get enough working capital reserved to give us the stability that we need,” Woodrell said.

He said the goal to have a minimum of 90 days working capital in reserve “will take us several years” with the limited cash flow now coming from operations.

Moody’s is likely to report on the hospital’s debt rating (bonds valued between $55 million and $60 million) before the end of 2009. That report will shed light on how much the hospital’s financial position has improved and, possibly, to what extent hospital officials are able to resist desperate measures to find an investor or new owner.

Woodrell is convinced the report will show improvements, but warns against expecting to see a “dramatically different” financial picture.

“I think we made the right decision,” Woodrell said of not selling to Jackson, “and we’ll just continue to monitor the situation, and if a good deal comes along … then it will be considered, but we don’t have to do anything.”