NBH navigates through restructuring effort

Friday September 3, 2010

NORTH ADAMS -- Northern Berkshire Healthcare has reached a major breakthrough with its bond holders and is poised to restructure its debt in a way that will ensure the survival of the region's community hospital into the future, Richard Palmisano, the organization's president and CEO, said Thursday.

"It's all about moving forward," Palmisano said during a lengthy interview at the Transcript about North Adams Regional Hospital. "We need to ‘right-size' everything. It's hard. It's challenging. It's time-consuming. But I'm confident we will come out of all of this in a stabilized form and provide the good quality health care this community needs."

According to Palmisano, Northern Berkshire Health is approaching the third step of a four-pronged plan that could eventually lead to an affiliation with Berkshire Health Systems or another large health-care organization. He said the nonprofit is seeking a "consentual or pre-packaged reorganization" with its bond holders that will eventually result in a Chapter 11 filing for debt restructuring -- possibly within a year.

While that technically will be a bankruptcy filing, Palmisano said he wants to avoid that word because of its negative connotations -- at the end of the day, he said, Northern Berkshire Health will emerge a much better organized and well-run corporation, much as General Motors emerged after its reorganization.

"We're not using the "b" word because we are not bankrupt," he said. "We're able to pay our bills. We're able to provide care. This process actually maximizes our ability to continue our day-to-day operation."

The filing won't happen for at least seven to 12 months, and maybe longer, as NBH continues to negotiate with its bond holders, he said. Six months ago, he said, they were not willing to discuss a consentual reorganization, but they have had a change of heart -- due partly to the economic realities of the continued deep recession and partly to steps NBH has taken on its own to improve its operations and reduce its debt -- which today stands at $53.7 million.

"In recent days, the representative for our bond-holders has expressed understanding of the situation and a willingness to work with us," Palmisano said. "They asked us to hire a consulting firm to determine what our debt load should be and to make sure we're maximizing operational efficiencies."

He said NBH agreed to hire Navigant, a large national consulting firm, which is already on site at the hospital, to assist in putting together the reorganization plan.

"We're feeling pretty good about what Navigant is saying so far -- that our debt load is too large, that they don't see any glaring omissions in the way we're operating the hospital. They've also said in all the years they've been in business, they've never received such timely and complete information," Palmisano said.

Step one in the plan to reorganize was to sell "the Sweets" -- the Sweetwood retirement community and Sweet Brook nursing home in Williamstown -- which NBH accomplished last month, substantially reducing, although not eliminating that debt, he said.

Step two is to become designated a Critical Access Hospital by the federal government, which the hospital estimates will increase its Medicare reimbursements by about $2 million per year. As part of that process, which the hospital has already begun, NARH has to prove that it has maximized its operating efficiencies -- a step Navigant is assisting with.

Palmisano said the settlement of the registered nurses' contract was an important part of that process. If a strike had occured, he said, the company could have been forced into huge expenses to staff the hospital, and that could have led to the organization being forced into a quicker Chapter 11 filing -- possibly one that was not consentual.

Step three in the plan will be to complete the Chapter 11 filing, and step four will be to seek affiliation with another health care organization.

Hospitals throughout the country are seeking partners, Palmisano noted, because of a number of factors -- chiefly the continuing recession, but also because of the changes in Medicare and Medicaid payments over the past 10 years -- and new changes to come. Palmisano estimated new rules being implemented by the federal government could lead to a loss in reimbursements of up to $15 million over 10 years.

While an affiliation with Berkshire Health Systems or any other entity is likely a year or more away, preliminary discussions have already taken place, he acknowledged.

"I think there is recognition from everybody that there could be great value in having a single health-support system for the entire county," he said.

Bruce Grinnell, president of NBH's board of trustees, said he sees the restructuring plan as a positive move and one that will ensure the hospital will survive.

"The whole process for the board has been a bit agonizing -- it's produced a great deal of anxiety -- but I think if you polled the board you would find that we see our mission as providing quality health care for the residents of Northern Berkshire at a reasonable cost," Grinnell said in a telephone interview. "In order to do that, we cannot continue to labor under the extraordinary debt that Northern Berkshire Health currently has.

"We've sold the Sweets, we've settled with the nurses. Now we really need to get down to the brass tacks and get our financial house in order," he said. "The board has the utmost confidence in what we're doing. Nobody likes to be in the position we find ourselves in, but once we're there, the important thing is to have a plan and implement that plan. That's what we're doing."


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