LACONIA — More than a year ago, LRGHealthcare President and CEO Kevin Donovan said the debt-ridden organization had identified a potential partner that could solve its problems and allow growth.
That deal never came to fruition, and the organization's money issues only accelerated. The fallout from the coronavirus pandemic led to a furlough of 600 people early this month and could have caused LRGH to close if not for an infusion of state and federal cash.
Now, Donovan is talking about a merger again.
“Many people have assumed that the COVID-19 pandemic has stalled partnership discussions or that we’ve overestimated our chances,” he said. “That is not the case. While I cannot provide specific timing, I am optimistic we are getting close.”
Again, he’s not naming any names, but Concord Hospital leads the speculation. It and LRGH remain independent at a time when many healthcare organizations are merging to realize cost reductions from economies of scale. The two health care institutions already collaborate on cardiac and maternity services, and they are only about 30 miles apart.
Mark J. Bonica, assistant professor of health management and policy at the University of New Hampshire, said when two institutions like these join forces it is known as a horizontal merger. The combined organization would enjoy improved market presence, greater efficiency and could share higher-level expensive providers.
LRGH is a not-for-profit charitable trust. Concord Hospital is a non-profit organization.
Hanging over any potential merger is LRGH’s large debt. The cost of servicing this debt is a drag on an institution facing revenue issues, like many hospitals, as it struggles to provide uncompensated care for the uninsured or underinsured.
“Clearly, our extreme debt-load has been the issue stopping us from finding a partner,” Donovan said. “Our mortgage debt alone is over $110 million today, which is twice the amount of debt an organization our size should have.
“The Board of Trustees and management team have been looking for the right partner for some time now and no one is reluctant to do what is in the best interest of the community served by LRGHealthcare, which we believe is finding a partner.”
Last April LRGH reported $13.3 million in losses on operations through Sept. 30, 2018, and $164.8 million in total liabilities, including $109.7 million in long term debt.
One technique for discharging debt is through a reorganization under the federal Bankruptcy Code.
“Individuals have mentioned bankruptcy as a potential tool to address our long-term financial issues, and it is certainly something that our Board of Trustees and management team have looked at,” Donovan said. “Obviously, we need to explore every opportunity available.”
Donovan said the debt represents “an amalgamation of 50 years worth of projects.”
In 2009, the U.S. Department of Housing and Urban Development approved a financing package that allowed LRGH to embark on nearly $65 million in projects, including building, equipping and furnishing a 97,000-square-foot addition to the hospital and enlargement of the emergency department at Franklin Regional Hospital, which is owned by LRGH.
The money also allowed for the replacement of the Belknap Family Health Center in Meredith with a larger facility.
All told, LRGH borrowed about $140 million through bonds guaranteed by HUD, with nearly $72 million of the package going to refinance existing debt.
While LRGH was accumulating debt, it and regional hospitals across the country were facing mounting financial stress. Payment methods often do not allow hospitals to collect fully for services rendered.
Chip Broadhurst, a former member of the LRGH board, said the entire healthcare industry is feeling the strain.
“What the Lakes system is enduring is characteristic of challenges facing rural health care across the country, also suburban and urban as well,” he said.
Many patients who go to rural hospitals are older and poorer, relying on Medicare and Medicaid, which reimburse at lower rates than commercial insurers.
More than 100 rural hospitals have closed since 2010 and another 430 were at risk of closing, according to a 2019 University of Washington study.
A $5.25 million zero-interest loan from the state of New Hampshire and $4 million from the federal government, together with the furlough, kept LRGH from closing and allowed it to be “OK financially for a few months,” Donovan said.
The furlough came after LRGH ended elective procedures to clear capacity for an expected surge in coronavirus patients. This greatly reduced the organization's revenue.
David Pearlman, a former member of the LRGH board and current chairman of the Taylor Community board, said the healthcare system is a key component of the Lakes Region.
It is the area’s largest employer and its presence attracts people who otherwise might have second thoughts about moving here.
“LRGH is a critical piece of our local community and it plays an important role for everyone living in the region, both full- or part-time,” Pearlman said.
“The economy and the landscape in the community hospital business has become very difficult across the country and LRGH is symbolic of what is going on more broadly in the industry. As a result of that, many hospitals are pairing up and merging and trying to find a financial path that not only serves their balance sheet but the populations they serve.”
The state Attorney General’s Charitable Trusts Unit is monitoring LRGH’s financial situation, said Kate Giaquinto, a spokeswoman for that office.
“However, we cannot comment on any plans the organization may have and there have been no public filings made,” she said.