Even as it formalized an affiliation with cash-strapped New Milford Hospital, Danbury Hospital led the state in financial performance in the fiscal year ending September 2009.
Danbury Hospital”™s 8 percent operating margin bested runner up Saint Mary”™s Hospital in Waterbury, which had a 6.2 percent margin of revenue over expenses. Both institutions easily topped the state average of 2.6 percent, as calculated by the Connecticut Office of Health Care Access (OHCA).
Danbury Hospital is among the five largest employers in Fairfield County with about 4,000 workers. Earlier this year, the company promoted Dr. John Murphy to CEO to replace the retired Frank Kelly, with Murphy the first doctor in the institution”™s history to hold the post.
The hospital did not make Murphy available for an interview, referring questions to chairman John Martocci, who previously was CEO of Newtown Savings Bank. Characterizing the combination as a merger, Martocci said Danbury Hospital has previously considered a deal with New Milford Hospital, and that the deal made sense given the financial and operational implications of federal health reform.
“The resources available for New Milford from Danbury ”“ it”™s a much bigger organization, as a result we will be able to put in much more (capital) than they could on their own,” Martocci said. “Even now we still don”™t know the full impact of (health reform), ”¦ but for sure reimbursement is going to be less ”“ and it”™s going to be significantly less.”
The companies expect the affiliation to cut $9 million from their costs in the first three years, even as Danbury Hospital readies a $40 million capital campaign to add a wing for a new emergency room, for which Martocci indicated the hospital hopes to break ground next year.
2008 was a red year
Like many institutions, Danbury Hospital was coming off a fiscal 2008 year in which it operated in the red. It had been the only blemish on the hospital”™s books the past five years, a period in which it has led the state with an average 6.8 percent operating margin.
That, of course, does not count the blemish allegedly inflicted by William Roe, who joined Danbury Hospital in 2009 as chief financial officer, only to be indicted last month on suspicion of attempting to fraudulently cash in on a hospital benefit designed to make up for any loss he might take on the sale of a home.
Martocci said the departure of the hospital”™s CFO, while in his words was “not helpful,” it did not significantly impact the New Milford Hospital deal as it neared completion.
Hospital mergers are up nationally, with Norwalk-based Irvin Lewin Associates tracking 69 in the first half, up from 52 a year earlier. While the economy of a year ago may have soured some appetite for mergers in the sector, the editor of Irvin Lewin”™s Health Care M&A Report says health reform is the more likely explanation as deal-making has swelled.
Medicare income stabilizes cash flow
“With a new regulatory landscape coming into sharper focus, providers who rely on Medicare are better able to determine what their cash flow will be going forward,” said Sanford Steever, editor of the newsletter, in a written statement. “This will in turn help them decide whether to pack up their business and sell or to expand through acquisitions ”¦ in hopes of capturing their fair share of the 32 million previously uninsured patients.”
Danbury Hospital and New Milford Hospital will continue to operate on a titular independent basis, but will share a single board with the goal of maximizing operational and financial performance. The hospitals will be wholly owned subsidiaries under direct control of a new Danbury-based entity called Western Connecticut Healthcare, whose CEO is Murphy and whose board will be dominated by Danbury Health Systems directors.
While the hospitals say they will maintain separate licenses and medical staffs, in its OHCA application New Milford Hospital indicated it sought the deal for several reasons, including:
Ӣ ensuring access to capital as it maintains its aging facilities;
Ӣ funding purchases of new information technology systems as federal health reform takes hold;
Ӣ getting access to better medical technologies, including robotic surgical devices and genome therapies offered at Danbury Hospital;
Ӣ cross-coverage of physicians; and
Ӣ improving its ability to recruit workers.
New Milford has struggled
If Danbury Hospital has enjoyed stellar operating margins, New Milford Hospital has struggled with a negative 5.5 percent margin last year, and a negative 1.5 percent margin over the past five years on average. That puts it in the bottom four of 30 acute-care hospitals statewide tracked by OHCA. New Milford Hospital saw its net assets plunge from nearly $44 million in fiscal 2008 to under $24 million last year.
The 85-bed institution was previously a member of the New York-Presbyterian Healthcare System Inc., a federation of two-dozen hospitals and additional clinics, including Stamford Hospital.
