LACONIA — In filing for a Chapter 11 corporate bankruptcy Monday, LRGHealthcare President and CEO Kevin Donovan pointed to a December 9, 2009, action that firmly put the not-for-profit company in troubled financial waters.
Already owing more than $71 million, LRGH increased its debt to $143.5 million, in part to finance a nearly 100,000-square-foot hospital addition, including a main entrance featuring massive steel arches originating in Germany.
At the time, then-LRGH President and CEO Tom Clairmont said the project was needed to prepare the health care system to meet the demands of an aging population. Even though the economy was just coming out of the Great Recession and a health care reform movement was creating major uncertainties, Clairmont said the project was needed to meet the needs of the community.
“Putting our heads in the sand would not be fulfilling our fiduciary duty,” he said at a groundbreaking for the project. “People don’t lend that amount of money if they don’t believe you can pay it back.”
This week, the current CEO said in a filing with the U.S. Bankruptcy Court that LRGH couldn’t continue paying it back. It still owes $111 million.
“LRGHealthcare has experienced a tumultuous five to ten years, all beginning with decisions by prior management to make significant investments in inpatient services and facilities at a time when patient demographics and medical trends indicated more reliance on outpatient services and decreased hospital use,” Donovan said in the document.
“Soon thereafter, LRGHealthcare found itself caught in a downward spiral of increasing costs, decreasing reimbursement, shrinking service lines and volume ‘leakage’ to other communities.”
The expense of servicing its debt, much bigger than that of most similarly-sized hospitals, has been overwhelming for LRGH at a time when it is facing the same financial pressures that have forced 131 rural hospitals to close over the last 10 years.
Reached by telephone on Wednesday, Clairmont declined to comment. State Medicaid Director and Laconia City Councilor Henry Lipman, who was LRGH’s chief financial officer under Clairmont, also declined to comment.
The new construction at Lakes Region General Hospital came to fruition in 2012. A 6-story tower was built to link the hospital with a medical office building. The addition did not increase the hospital’s 137-bed licensed capacity, but it added 40 new single rooms, allowing double rooms at the hospital to be converted to singles.
The project includes a hospital entryway marked by a pair of rounded steel arches reaching to a massive steel beam. The arches, which buttress the addition and secure cables that support the roof, were made from steel that was rolled in Germany, bent in Texas and fabricated in Canada.
Other capital improvement projects at the time expanded the emergency department at Franklin and rebuilt and enlarged a satellite facility in Meredith.
Whenever the Lakes Region General Hospital construction project is mentioned in news stories, social media comments come in with people wondering if the hospital could have saved money with a simpler main entry.
Chip Broadhurst, who served on the LRGH Board of Directors from 2012 to 2015, said the architectural feature is intended to look like a giant sail, befitting the hospital’s location in the Lakes Region where boating is popular.
He said it’s human nature that this should become a lightning rod for criticism.
“When things go south, people seem to look for a symbol, and the sail was a symbol,” he said.
Broadhurst said that when the health care system greatly increased its debt load, LRGH leaders were undoubtedly trying to make needed improvements, but the debt load and growing problems with reimbursement for services put it in a financial vice.
In retrospect, it would have been better to fund major capital improvements through philanthropy instead of debt, he said.
Another problem cited in the bankruptcy filing dealt with technology.
“A primary driver of cost growth was the implementation of a massively expensive electronic medical record which ultimately consumed approximately nine percent of total organizational revenue annually (two to three times the industry average),” the filing said.
Broadhurst said that in many ways Clairmont was “a visionary,” but under his leadership, LRGH was slow to transition to electronic medical records at a time when early adopters benefited from government incentives. Eventually, the government imposed penalties for those who didn’t begin electronic medical record keeping.
When LRGH got its first system, it was less expensive than others but was so inadequate as to be potentially dangerous, Broadhurst said. It had to be abandoned and its costs written off before a second system was purchased at a higher cost and a greater implementation expense.
Broadhurst said it will never be known whether better decision-making on debt and medical records and a greater emphasis on philanthropy could have allowed LRGH to avoid the Chapter 11 filing.
“A business school or a health care administration school could well do a case study on what the board was thinking,” he said.
“JFK wrote a book, ‘Why England Slept,’ about Chamberlain’s visit with Hitler. One could write a book on why the LRGH Board slept.”