Why Community General Hospital may need to merge with Upstate Medical University

The Syracuse Post-Standard reported a merger with Upstate Medical University may be just what the doctor ordered for Community General Hospital, given its weak financial health, health experts said.

Over the last four years, the 306-bed nonprofit hospital on Onondaga Hill has lost more than $7 million and seen patient volume drop nearly 15 percent.

The hospital’s cash flow was so low at the end of last year it was in danger of defaulting on its bonds, according to a report by Moody’s Investors Service.

Community officials say the hospital is doing better and has operated profitably for the first four months of the year. But credit rating agencies that keep a close eye on its finances remain pessimistic.

Standard & Poor’s Rating Services on Thursday reaffirmed its BB- rating on the hospital’s bonds, which means it considers them below investment grade or risky. It also issued a “negative outlook,” which means it may lower the rating again over the next 18 to 24 months.

Community and Upstate are talking about merging. Last week Upstate got the go-ahead from the SUNY board of trustees to explore an acquisition of Community. Upstate is a Syracuse academic medical center that operates a medical school and three other colleges and the 409-bed Upstate University Hospital.

Community broke off merger talks with Crouse Hospital in May.

Hospital officials say it’s too early in the process to explain how such an acquisition would work.

But Tom Dennison, a Syracuse University professor and health care expert, speculated that in such a deal Upstate might get Community’s assets in exchange for assuming or paying off its liabilities, agreeing to invest in upgrades at Community and maintaining its nonprofit mission.

Upstate and Community are on different trajectories. Upstate’s hospital is full, its market share is growing rapidly and it wants more beds so it can expand enrollment in its schools and provide more clinical training sites for students. It finished 2009 with a surplus of more than $38 million.

Community, which lost $2.03 million last year, is the smallest of Syracuse’s four acute care hospitals. It has been struggling to fill its beds, especially on its maternity ward, where patient volume plummeted more than 30 percent over the last three years.

In a report issued in December, Moody’s called Community’s balance sheet, the summary of its financial condition, “anemic.” The report said the hospital’s cash available to make payments on its bonds was in danger of dropping to a level that could trigger a default, possibly prompting bondholders to demand the hospital immediately pay off its outstanding debt.

That never happened, said Tom Quinn, Community’s president and CEO. He said the hospital’s financial performance has improved this year.

For the first four months of this year, Community made an operating profit of $765,000, better than expected, according to Standard & Poor’s.

The hospital is trying to bounce back from several setbacks. It lost money when the state forced it in 2007 to close a 50-bed nursing home on the hospital’s sixth floor. Its maternity unit volume plummeted after two obstetricians left the hospital. Read more here.