A South Side hospital said it is committed to remaining independent despite a recent downgrade of its bonds by Moody’s Investors Service and a resulting cash crunch.
Holy Cross Hospital had just $6.6 million, or about 19.8 days, of cash on hand as of June 30, the end of its most recent fiscal year. That financial statement triggered Moody’s to downgrade the hospital’s long-term-debt rating two notches, from Ba3 to B2, the 15th notch on the New York agency’s 21-rating scale.
“The rating downgrade reflects an alarmingly low liquidity level,” Moody’s said in its report this month.
The operating deficits for the past five years ranged from $8 million to $16 million in large part because of losses from doctor practices owned by the hospital, Moody’s report shows.
The problems have also fueled speculation that Holy Cross, like some of its rivals on the South Side, would be open to a potential buyout or merger. Mercy Hospital and Medical Center and Michael Reese Hospital are each looking into potential new ownership or partnership arrangements.
But Holy Cross’ new management team and turnaround consultant, The Rindler Group of South Carolina, last year pulled the plug on owning doctor practices, a once-popular 1990s business model that other hospitals have also exited because of its costs.
“The effect of unwinding that was key to the turnaround that began a year ago,” said Brian Lemon, who became Holy Cross’ chief executive in May. “It was a real drag on the financial structure.”
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Like most other hospitals, Holy Cross found that the expense of employing physicians and owning doctor practices and related real estate cost it millions of dollars.
Hospitals that take physicians off their payrolls typically find the doctors become more productive once they are working for themselves or other physicians rather than the hospital, analysts say.
Holy Cross reduced its owned clinic sites to two from 11 and the number of physicians it employs to seven from 25. The restructuring included selling practices back to some doctors.
“The physicians who remain employed are now under new efficiency contracts,” Moody’s said.
Now Holy Cross is back to more traditional methods of recruiting independent physicians and practices to join its medical staff.
It may be paying off, since the hospital in January made its first monthly profit in more than four years, Lemon said. “I don’t think we will break even this year but we will do better than break even in our next fiscal year [which begins July 1],” Lemon said.
Holy Cross, at 2701 W. 68th St. in Chicago’s Marquette Park neighborhood, also has the backing of its owners, the Sisters of St. Casimir, the Lithuanian order of nuns that founded the hospital in 1927.
“It is the intention of the sisters for the hospital to continue to serve its mission, and it’s our belief that we can do that while remaining independent,” Lemon said.