Blue Cross $12M grant to aid CMC

Oct 02, 2008 (The Times-Tribune - McClatchy-Tribune Information Services via COMTEX) -- MCO | Quote | Chart | News | PowerRating -- Just two years after Community Medical Center hemorrhaged $9.6 million, the leaders of Scranton's largest hospital say it's financially stable, and they're touting a two-year, $25 million capital campaign.

CMC executives announced they reached an agreement in principle Wednesday for Blue Cross of Northeastern Pennsylvania to give $12 million toward the biggest planned upgrade -- a new $18 million intensive care unit.

The nonprofit hospital's cash savings and budget revenue will fund the ICU's remaining $6 million cost.

CMC applied for the Blue Cross grant in June -- three months after the facility and Moses Taylor Hospital called off a proposed merger amid the state attorney general's concerns that the deal might hurt competition.

In December 2006, Blue Cross officials pledged $50 million of the insurer's controversial reserves -- totaling $437 million as of June 30 -- to facilitate the merger. The funds, however, were contingent on the deal closing.

But even after the merger failed, Blue Cross vowed to help local hospitals anyway, despite critics' calls for the insurer to use its surplus only to offset rising rates.

Denise Cesare, president and CEO of the nonprofit Wilkes-Barre-based insurer, said she favors long-term solutions to trim insurance costs, such as making the area's health care delivery system more efficient.

Using $12 million to subsidize rates for nearly 600,000 subscribers would have a minimal effect compared with offsetting the community's critical shortage of ICU beds, Ms. Cesare said.

"When we make investments like this, it also allows us to raise the quality of the health care professionals the region attracts, and that has a long-lasting pay off," she added.

As for CMC's new ICU, the project will be the hospital's biggest upgrade since it completed a $5.5 million emergency department overhaul in February 2005.

CMC handles more than 1,200 trauma cases a year. Executives plan to deal with them better by adding another 15,300 square feet to the 8,700-square-foot unit, and growing cardio-thoracic beds from 17 to 28.

John Nilsson, CMC's interim president and CEO, expects to break ground on the ICU before January and finish construction by the end of 2009. He also hopes the $25 million capital campaign will lower the average age of the hospital's infrastructure from nearly 17 years to 10 years.

CMC intensified that effort last year by spending $5.4 million on capital improvements, including new cardiac catheterization labs and operating room nursing stations. The 2008-09 improvement list features new digital mammography equipment, vascular labs and a computerized medication error-reduction system.

Meanwhile, the capital campaign and the Blue Cross donation are among a string of good news for CMC this year. The hospital received glowing ratings from state agencies on surgical care and infection rates, multiple awards for care, and agreed to a new union contract with registered nurses.

Plus, on Wednesday, the Pennsylvania Trauma Systems Foundation extended CMC's Level II trauma department accreditation for three years and gave the hospital a great report card, Mr. Nilsson said.

This week, the facility's staff is celebrating 20 years of trauma center accreditation.

At the same time, the capital campaign is the latest evidence CMC has improved its finances in a big way. Mr. Nilsson and chief financial officer Thomas Kelly -- turnaround specialists with the hospital management firm QHR LLC, of Brentwood, Tenn. -- are quick to deflect credit to the hospital's staff.

"The quality of our care and our outstanding staff are the leading indicators for CMC's financial success," Mr. Nilsson said.

But since they came aboard in 2006, their revenue-generating moves -- including closing CMC's Mount Pocono physician offices and renegotiating contracts with third-party payers -- have reaped major benefits. The hospital is now stable enough that its board is looking for a replacement executive team.

In 2007, CMC's companywide earnings totaled $4.28 million. And the hospital earned $7 million, a 4.5 percent operating margin, on its $170 million budget, according to preliminary companywide results for fiscal 2008.

Executives are projecting a 4 percent operating margin for this fiscal year. And such earnings are invested in paying for capital upgrades and reducing CMC's roughly $57 million of long-term debt.

None of which is to say the 299-bed facility, which employs 1,453, is out of financial hot water. CMC was socked hard in recent years by physician departures, a competitive marketplace, low commercial and government health insurance reimbursements, and increases in uncompensated care.

The hospital lost roughly $21.7 million between 2001 and 2006, including $9.6 million for fiscal year 2006.

While Moody's analysts think CMC's debt total could be lower and its liquidity stronger, the facility keeps just 99 days, or $13.5 million, of cash on hand.

Now, CMC executives hope their $25 million in planned capital improvements will keep cash flow heading in the right direction.

Contact the writer: daxelrod@timesshamrock.com

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