New York's Nyack Hospital in February made the unusual announcement that its financial statements from 1999 and 2000 contained material misstatements and errors.
Since then, the hospital has implemented a number of changes to its financial operations, as it struggles to recover from major losses and misreported balance sheets. In addition to streamlining operations, the hospital named Ernst & Young LLP its auditor after KPMG resigned earlier this year, declaring that its financial statements on behalf of the hospital could no longer be reliable.
In addition to those changes, the hospital also plans to launch further initiatives, including seeking partnerships with other health care providers to help defray its costs.
So far, Nyack appears to be turning things around, as evidenced by rising debt coverage ratios and the expectation that the hospital will finish 2002 with a slight profit following major losses in recent years.
The 375-bed hospital on Tuesday held a conference call with bondholders in an effort to shore up investor confidence. Nyack currently has roughly $24 million in outstanding bonds issued through the New York State Dormitory Authority and $4.2 million in bonds issued through the Rockland County Industrial Development Agency.
Since being hired in May 2001, chief financial officer Stephen Majetich has overseen a major overhaul of the hospital's revenue cycle, and has worked to make its operations, such as billing and purchasing practices, more efficient. Majetich is part of a new management team that was brought in last year and charged with stabilizing the hospital's slumping returns, which were further hampered by a costly six-month nursing strike that ended in May 2000.
"We're purchasing smarter, we're charging smarter, we're watching what's going on in the regulatory environment, and we're staying on top of things," Majetich said yesterday. "And at no point are we jeopardizing the quality of the products we're buying or the quality of patient care."
Majetich has also been focused on keeping the hospital from defaulting on its obligations. So far, all of its debt service payments have been made on time. However, the hospital, by allowing its debt service coverage ratios to dip below acceptable levels, has been in technical default for the past two years, opening the door for the dorm authority to potentially call the bonds. "At this time they don't anticipate the need to do that," Majetich said. "As long as we keep making our principal and interest payments, that's not going to happen."
A spokeswoman for the dorm authority echoed Majetich's comments, saying the issuer currently has no plans to call the bonds early.
Majetich's view is bolstered by a trend showing the hospital returning its debt coverage ratios to the 1.25 times required in bond covenants. The hospital finished 2001 with a coverage ratio of 0.18 times, but reached 1.38 times during the first five months of this fiscal year.
The market has been patient as the hospital restructures its operations, with at least one investor expressing confidence that the new management team, which in addition to Majetich includes chief executive officer David Freed, can achieve positive results. "We've gotten comfortable with the new management," Scott Albrecht, a vice president and senior portfolio manager with Federated Investment Counseling in Pittsburgh, said earlier this year after the hospital disclosed the reporting errors. "They are being aggressive as far as making sure the books are straight."
Fitch Ratings analyst Craig Kornett also sang the praises of Nyack's new management team. "They've done a great job considering the circumstances, and it looks like they're going to pull through," he said.
Kornett added that current hospital administrators have made great improvements in Nyack's disclosure practices. "What we've seen is a complete revamping of their financial reporting process," he said. "It is night and day from prior management to what we've received today. It's very accurate, timely, and thorough."
Nyack is unique in the New York health care market in that it is a stand-alone hospital, not strongly tied to other health care providers. The hospital has a loose affiliation with New York Presbyterian Hospital for clinical services, but does not have any governmental affiliations. Majetich said the hospital is currently exploring the possibility of forming ties with local academic centers in New York City and Westchester County.
The hospital, located 25 miles north of New York City, recorded losses of $3.6 million in fiscal 2001, following restated losses of $37 million the previous year. According to Majetich, the hospital is expected to finish fiscal 2002 with a modest profit of roughly $585,000. Its current budget is $120 million.
Nyack Hospital is rated B-plus by Fitch Ratings and Ba3 by Moody's Investors Service.
Michael McDonald contributed to this story
