The same day that Moody’s Investors Services downgraded WhidbeyHealth’s bond ratings to below investor grade due to “severe liquidity problems,” two hospital commissioners and the chief financial officer asked the Island County Board of Commissioners to co-sign a loan.
The county commissioners turned them down during the Wednesday work session, citing financial policy, but expressed grave concerns about the hospital’s future.
But on Thursday, hospital Chief Financial Officer James Childers, who was appointed as interim CEO just for this week, said he expects the hospital will be approved for a loan from a health care financing company. He was awaiting a term sheet Friday.
Also, a contract with management services company HealthTechS3 and interim CEO Michael Layfield were approved this week, which means the hospital will have an experienced leader with a team of experts to support him.
Hospital officials described a dire situation to the county commissioners. Hospital Commissioner James Golder said they were “desperate.”
“We have run out of money. We have gone to the banks. We have been turned down,” he said. “Our credit rating today was dropped to a B3. We have barely enough money to make one more payroll. Once that payroll is done, we’re out. If we close our doors, we’re looking at 700 people without jobs.”
Childers explained to the commissioners that the public hospital district needs a bridge loan to make payroll until it receives property tax levy money, which starts rolling in mid-May. Two local banks turned down the hospital’s request for a loan, but one of them indicated that it might be approved if the county is a co-signer.
Golder said he reached out to local lawmakers but didn’t hear back from them. Local lawmakers, however, said that’s not the case, though they didn’t have any solutions.
State Sen. Ron Muzzall, R-Oak Harbor, said neither he nor his staff have heard from any hospital officials. He explained that it would be best if a united board had contacted him, but that didn’t happen.
Rep. Dave Paul, D-Oak Harbor, said he spoke with Golder, but it was too late to get anything in the budget this session. He said he has been in contact with the governor’s office, and the governor’s staff is working with the Health Care Authority to see if there’s a way to help the hospital.
Rep. Greg Gilday, R-Camano, said his staff spoke with the hospital commissioner this week. Gilday said he has asked for written information about the issue.
After the meeting Wednesday, Island County Commissioner Janet St. Clair hosted a conference call with staff from the offices of U.S. Sen. Maria Cantwell, U.S. Sen. Patty Murray and U.S. Rep. Rick Larsen about the hospital.
“At a minimum, we must protect critical care access as (WhidbeyHealth) works through this financial crisis,” she wrote in an email to local lawmakers.
Wednesday, Hospital Commissioner Nancy Fey criticized the newspapers for reports on the hospital’s problems and gave the commissioners bogus information.
“We have a letter ready to go to the paper but they have told us that it won’t get printed,” she said. “The only way we can get it printed is if we buy an ad.”
She was wrong.
The newspaper never charges people to run letters to the editor or “Sound Off” opinion pieces. Neither Fey nor anyone at the hospital had contacted the newspaper about a letter until Thursday. The letter is on page 4 of this edition.
RJ Benner, publisher of the South Whidbey Record and the Whidbey News-Times, said he was disheartened to hear about Fey’s false accusation.
“We at the Whidbey News Group hold ourselves to a standard of fairness that is unwavering,” he said, “and we are steadfast in our commitment to keep our journalism unbiased and representative of our community. The commissioner’s statement is nothing more than a desire to seek absolution rather than resolution, and indicative of the behaviors that have contributed to the untenable situation we find our public hospital in today.”
Fey also gave an example of an “inaccuracy” in a story about Mike Layfield, who will start as interim CEO next week. The story explained that he had been a CEO of a hospital that went bankrupt, but Fey said he was only hired for a few months to take the hospital through bankruptcy.
She was wrong.
As the story stated, Layfield was CEO of Lauderdale Community Hospital in Tennessee from 2016 to 2019, and it went through a bankruptcy at the end of his employment there.
There is more to the story, however, as Layfield explained in statement. He wrote that the hospital was financially sound until it and nine others were purchased by the firm Empower. The company drained Lauderdale’s finances to support the other hospitals, he wrote. Lauderdale then experienced serious operational problems. During his last four to five months as CEO, Layfield worked to have a receiver appointed, took control of $5 million of the hospital’s money from Empower and guided the hospital through bankruptcy while keeping the doors open. It is the only one of the hospitals purchased by Empower that is still open.
The South Whidbey Record reached out to the hospital and Layfield prior to publishing the story and received a statement that said the hospital supported him and HealthTechS3, but it did not address any of the specifics.
Moody’s Investors Service, which rates bonds based on risk, downgraded WhidbeyHealth’s bonds to non-investment grade — also known as junk bond status, according to the Wall Street Journal — and placed the ratings under review.
The hospital district’s unlimited tax general obligation bonds, affecting $44.9 million, were downgraded from Baa3 to Ba2. That’s the second highest rating of “speculative grade” and means the bonds are judged to have substantial credit risk.
Moody’s downgraded the hospital’s limited tax general obligation bonds, which affects $12.3 million, from Ba2 to B3. That means the bonds are considered speculative and subject to high credit risk.
Similarly, Moody’s downgraded Russia’s credit rating to B3 this week.
Moody’s reports that the hospital’s challenges arose in the past several months, despite the levy increase being approved by voters. The company concluded that unless the hospital secures a $17 million loan, it is unlikely to be able to make payroll March 18 through mid-May, when levy revenues come in, or repay an outstanding $6.8 million line of credit related to “bond anticipated notes” with Heritage Bank, due June 1, 2022.
“Unless the hospital secures this additional liquidity, Moody’s believes the district is at immediate risk of becoming insolvent and filing for Chapter 11 bankruptcy,” according to the statement.
Moody’s cites recent problems at the hospital as contributing to the downgrades. The statement points to the firing of CEO Ron Telles; the medical staff’s vote of no confidence in the CEO, COO and hospital attorney; impaired financial reporting; delayed audits; and material weaknesses identified by the auditor.
Despite the problems, hospital leaders said they were optimistic about the hospital’s future once they get past this “hump.” Besides hiring HealthTechS3, the hospital has already made significant cost reductions, including a new contract with a group purchasing organization that will save the hospital more than $1 million a year.
In an interview, Childers said the hospital hasn’t updated its charges to insurance companies in years, which contributed to its financial problems; a 3% increase has already been instituted and more is possible in order to bring the hospital to market rates.
Childers said the terminations of the hospital CEO and four other executives will save the hospital significant money in the future. He was hired at the beginning of the year to straighten out the hospital’s finances and saw that the hospital had eight members of its executive team while a rural hospital its size should only have four.
“We need to invest in the staff and not leadership,” he said.