CHICAGO - Detroit Medical Center officials said Friday that they have no immediate plan to use bankruptcy protection to solve the financial problems that have caused more than $300 million in losses over the past five years, but said they are considering options for reorganizing, selling some assets, or closing facilities.
Hospital officials have told everyone from the Detroit City Council to Health and Human Services Secretary Tommy Thompson that they will have to close two inner-city hospitals if they cannot find some relief from managing the highest Medicaid patient load in the city.
"We're just evaluating all our options," said Nickolas Vitale, the senior vice president and chief financial officer for the hospital system. "Bankruptcy is not something that we're actively looking at." Vitale was responding to reports that the medical center may hire bankruptcy attorneys.
A more immediate option, he said, is closing the two inner city hospitals that serve the largest indigent patient load -- Detroit Receiving Hospital and Hutzel Women's Hospital. Those hospitals have lost about $30 million each year for the past several years, said Ginny Seyferth, a spokesperson for the medical center.
Moody's Investors Service downgraded the Medical Center in April to Ba1 from Baa3 with a negative outlook, said Kay Sifferman, an analyst with the agency. That follows a host of downgrades and rating outlook changes over the past several years.
"They are definitely the safety-net hospital," Sifferman said. The hospital's Medicaid patient load, about 25% of its base, is about three times the median of 8.2% for hospitals that Moody's rated in 2001, Sifferman said.
Fitch Ratings removed the medical center from rating watch positive and assigned a stable outlook in April. The agency also affirmed its BB-plus rating on the $569 million of outstanding debt. Standard & Poor's revised its outlook from negative to stable and affirmed its BBB-minus rating on the credit.
Standard & Poor's analyst Susan Hill said the agency is awaiting this year's audit report, due out within a couple weeks. "We want to have firm number before we take any action," she said.
As of Dec. 31, 2000, the hospital had $574 million worth of outstanding revenue bonds that were sold between 1988 and 1998, Sifferman said.
While Moody's rates a host of other hospitals that carry a 25% or more Medicaid patient load, other factors such as low debt levels or state reimbursement are factors in the rating, Sifferman said.
"What's different in Detroit is that there is no public hospital, and the DMC has a disproportionate share of that business," Vitale said.
The medical center's nearby competitor, Henry Ford Health Systems, has a Medicaid load of about 5%, he said.
In addition to talking to elected officials at every level, the hospital formed task forces to consider the worst-case financial scenario and come up with options for the short and long term, Seyferth said.
"We have to have systemic change. We can't keep coming back every year for a new check," she said. As part of that review, the Medical Center has consulted with specialists in bankruptcy and reorganization and have sought help from the state to look at forming a public health authority in the region, she said.
In addition, the medical center has been lobbying for federally qualified health clinics for which the system would be reimbursed at cost, Sifferman said. The number of clinics in the market is "woefully" low, she said. The clinics would relieve the pressure on emergency rooms that take patients who may be better served in a clinic, she said.
Changing the system in the state's current economic climate, as well as with a newly elected governor, could take some time, said Stuart Lockman, an attorney with Honigman, Miller, Schwartz and Cohn, who has worked as an attorney for the medical center over 25 years. As of Friday, he said, bankruptcy protection was not an option being considered.
"On the other hand, they've got to do something about their losses," he said. "What to do with the Medical Center ... is of critical importance to the community."
