Lakes Region General HealthCare, the parent company of Lakes Region General Hospital, has filed for Chapter 11 bankruptcy protection. Concord Hospital has made a bid on the assets of the corporation. (The Laconia Daily Sun file photo)

LACONIA — Bruce Cheney, who chaired the Board of Directors at LRGHealthcare in the 1980s, remembers a pretty tight financial ship.

“The hospital was doing OK,” said Cheney, now a Laconia city councilor. “It wasn’t setting the world on fire, but it didn’t have significant debt. We did renovations and paid the bills and things were going fine.”

During Cheney’s tenure, Tom Clairmont was promoted to lead the not-for-profit organization as president and chief executive officer. Clairmont retired in 2014.

His tenure was marked by growth, largely funded through debt that ultimately became too large for the healthcare system to handle and led to a bankruptcy petition filed last week.

Clairmont has declined comment as has Henry Lipman, who reported to him as LRGH chief financial officer. Lipman is a Laconia city councilor and is the state Medicaid director.

System's growth

In a letter to the editor, Dr. Alan Awrich said the two men bear some responsibility for the debt but also deserve credit for building a robust healthcare system from meager beginnings during a time of major change in the medical industry.

“When I began my practice at LRGH and The Laconia Clinic in 1981, the nearest CT and mammogram machines were in Concord,” he said. “MRI did not exist. Helicopters were not available and transport of critically ill patients and newborns, especially in winter was problematic.

“Tom and Henry and others then embarked on creating a healthcare facility and medical staff to fulfill the needs of the people of our community. They recruited and developed services that included cardiology, neurology, rheumatology, pulmonology, critical care, infectious disease, oncology, mental health, elder care, vascular surgery, non-invasive laparoscopic surgery, bariatrics, spine and hand, clinical pharmacology and many others.”

Debt accumulation

Kevin Donovan, the current president and chief executive officer, cited a heavy debt load and low cash reserves as leading to the filing for Chapter 11 bankruptcy.  

He specifically cited a Dec. 9, 2009, action under Clairmont’s tenure. Already owing more than $71 million, LRGH increased its debt to $143.5 million, in part to finance a 100,000-square-foot Lakes Region General Hospital addition as well as improvements at Franklin Regional Hospital and a satellite facility in Meredith.

But even before this action, LRGH was amassing millions of dollars in debt during times of economic uncertainty.

In 2006, Clairmont announced that after several years of operating losses, which combined to top $20 million, the healthcare system had posted net operating earnings of $6 million and would borrow $40 million to purchase equipment, make capital improvements and refinance $15 million in outstanding debt.

In 2008, the year that marked the start of the Great Recession, LRGH borrowed another $30 million to purchase equipment, make capital improvements, acquire space at Hillside Medical Park in Gilford and to restructure other debt.

Form 990 documents required of tax exempt organizations show that Clairmont had a base salary of $515,000 and total compensation of $574,000 in 2013, which appears to be in line with salaries paid to leaders of like-sized healthcare systems. His total compensation was $945,000 in 2014, the year of his retirement.

Donovan's total compensation was $452,407, in the Form 990 submitted in 2018, the most recent available. 

Merger sought

For the last 10 years or so, LRGH has been squeezed by the difficulty of servicing its debt in a time of lagging reimbursement for medical services rendered. For the last two years, the company has been looking to partner with another healthcare entity in a way that could solve financial problems.

Concord Hospital has now bid $30 million for LRGH's assets through bankruptcy proceedings. 

Former LRGH Board Member David Pearlman, who participated in the effort to find a partner company, said the bid is a positive step.

“It is always advantageous to arrive at the courthouse with a partner in tow and theoretically it shows a willingness to solve a problem and you're armed with logical and community positive solutions,” he said.

“That’s the right move. You see healthcare coalitions around New Hampshire and in the center of the state you see Lakes and Concord sitting there as independents.

“Honestly, the ultimate answer for the region is for this to come together. It ensures the near- and far-term health care for the region.

“When you put these two organizations together, it is a melding of two very compatible and regionally focused organizations that could only mean good things for the folks here.”

Concord’s $30 million bid will be the beginning point of an auction for LRGH’s assets, which is less than a third of the value of LRGH's real estate holdings alone.

Uncertainty remains

Pearlman said it’s not a slam dunk that Concord Hospital will end up with the winning bid at auction.

“I think it's highly likely that Concord ultimately will acquire LRGH and all the good things that go with that, but there is an outside chance that some other organization, whether an equity fund or an existing consolidator of hospitals or potentially a regional party could look at this and step in on a more attractive financial basis,” he said.

Meanwhile, Cheney said there is a lesson to be learned in the bankruptcy.

He noted that LRGH’s debt-financed expansion included an intricate architectural feature in front of the main hospital entrance that looks like a giant steel sail and has become – for some – a symbol of extravagance.

“Whether you are a municipality, a hospital or a large corporation, sometimes grandiose gestures can become more expensive than just the cost of them,” he said. “A conservative approach, especially for a necessary function like a hospital, is best.”

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