Mired in deep financial woes, executives at Bay Area Hospital in Coos Bay are courting a private equity-owned health company to “assume operations” of the facility.
The 172-bed public, nonprofit hospital — the largest on Oregon’s coast — said this week it has signed a non-binding letter of intent to negotiate a deal with Quorum Health, which owns McKenzie-Willamette Medical Center in Springfield.
Kimberly Winker, a spokesperson for Bay Area Hospital, said the Coos Bay facility “is working toward an agreement where Quorum would enter into a lease transaction and assume operations of the hospital.” Hospital officials declined to say more about the financial terms of the deal, saying the arrangement has yet to be finalized.
Winker said Bay Area Hospital would keep its name. She said Quorum has so far agreed to maintain essential services for at least 10 years and keep employees in good standing with their existing pay, titles and seniority. Quorum would also ensure local representation on the hospital’s governing board and uphold existing charity care policies, Winker added.
“Quorum has also agreed to capital commitments and is expected to contribute sales and property taxes, which stand to benefit the community,” Winker said. “They are experienced in supporting rural health care … and can provide support in a timeline consistent with our financial needs.”
The two parties hope to complete the deal by the middle of 2025, pending further negotiations and approval from the state’s regulatory body that reviews business deals in health care.
The talks come as local hospitals across the country are struggling with rising costs, staff shortages and lower payments from insurance companies. The combination has made it harder for hospitals to stay financially viable on their own and helped drive a new wave of health care industry consolidation.
Bay Area Hospital is an independent hospital district that is officially a local government entity. While it can levy property taxes with voters’ approval, the hospital hasn’t done so since 1989. According to its website, “Bay Area Hospital District is the only health district in Oregon that currently does not receive any county property tax funds.”
With more than 1,000 staffers, Bay Area Hospital is also the largest employer in Oregon’s south coast, with most of its employees represented by unions.
Bay Area Hospital leaders said the deal is aimed to stabilize the hospital’s finance and maintain health services in Coos Bay. The coastal hospital has been cash-strapped for years and was in such bad financial shape last year that independent auditors raised “substantial doubt about the Hospital’s ability to continue as a going concern for a reasonable period of time.”
The hospital’s chief financial officer told The Lund Report last year that the hospital technically defaulted on a $47 million bank loan and would have to close down if the bank called in the loan because it didn’t have the cash to pay off the debt.
While Bay Area Hospital has made some strides in improving its financial situation over the last two years — reducing losses by $54 million during the period and increasing revenues by more than 27.6% to break even following COVID-19 setbacks — industry challenges remain too large for local efforts alone, hospital officials said.
The hospital said it used to have a “healthy commercial insurance payer mix” but now nearly 87% of its patients are on Medicaid or Medicare, whose payments often don’t cover expenses. Hospital leaders said that while costs to provide care and pay employees’ wages have climbed over the last 15 years, reimbursements have not kept up.
“We’ve worked hard to turn things around and position Bay Area Hospital for a strong future, and we believe partnering with Quorum Health is the right next step,” Brian Moore, president and CEO of Bay Area Hospital, said in a statement.
Bay Area Hospital leaders said its arrangement with Quorum Health could provide resources that the hospital can’t access on its own. They said the partnership would help the hospital grow its services, keep doctors and nurses on staff and invest in updated technology and facilities.
Quorum Health Corporation, a hospital system owned by private equity firms, has 12 hospitals across nine states. It started as a publicly traded company overseeing 38 hospitals in 2016. By 2020, after closing three and selling 11 of them, it had slimmed down to 22 hospitals across 13 states before entering Chapter 11 bankruptcy. At the time of that filing, the private equity firm KKR was the largest holder of the company’s debt and owned approximately 9% of its public shares.
Following the bankruptcy, private equity firms Davidson Kempner Capital Management and Goldentree Asset Management gained control of the company. Goldentree now owns the majority stake in Quorum Health.
Since emerging from bankruptcy, Quorum Health has continued to face financial challenges and has closed or sold off hospitals in recent years. Last year, it closed a rural hospital in eastern North Carolina that left a county with a population of 22,000 without a hospital. Patients have to drive more than 20 miles to reach the nearest hospital.
As of August 2024, Quorum Health operated only 10 hospitals — down from 22 at the time of its 2020 bankruptcy filing. But the health system recently acquired two Steward Health Care hospitals in Texas through a bankruptcy court-approved sale.
- Kristine de Leon covers consumer health, retail, small business at The Oregonian/OregonLive. Reach her at kdeleon@oregonian.com.
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