contingency plan - hce-socal.org plan . dchs fights to continue ... given risk of these deals, a ......

CLAIRE CRAWLEY, ALBERT FUNES, VIVIAN

LEI, ALEKSANDRA VAN LOGGERENBERG

CONTINGENCY PLAN

DCHS fights to continue charitable mission despite its critical situation

•  Daughters of Charity Health System (DCHS) is a charitable, religious organiza;on with the mission of serving the sick and the poor of California

•  Our services are cri;cal to the communi;es we serve

CA OAG St. Francis Medical Center Health Impact Report; Appendix H

Seton Medical Center (SMC), Seton Medical Center Coastside (SMCC), O’Connor Hospital (OCH), Saint Louise Regional Hospital (SLRH), Saint Vincent Medical Center (SVMC), Saint Francis Medical Center (SFMC)

Situa&on Op&ons Plan of Ac&on Implementa&on Change Management Conclusion

Catholic Health Associa;on of the United States, 2014

Recent Prime deal failure leaves DCHS in dire financial condition

•  We are not financially viable aTer failure of Prime deal

•  We face imminent bankruptcy if no ac;on is taken •  Increasing salary costs, declining reimbursements due to payer-‐mix, declining pa;ent volume, increasing levels of charitable care

College Bowl Case Study 2015


Na;onal Nurses United, 2014

$93 M 2014 bond debt due

7.0 days DCOH

DCHS faces bankruptcy in July due to insurmountable financial obligations

March July June May April

BANKRUPTCY

$74 M provider fees

7.5 days DCOH

TODAY

$10 M provider fees

6.1 days DCOH

<1 days DCOH

DCHS Unaudited Financial Report and U;liza;on Sta;s;cs For the Six Months Ended December 31, 2014; Appendix E; Appendix A; College Bowl Case Study 2015


$759 M debts and obliga&ons

+

How can we meet our total outstanding debts and

obliga;ons to achieve viability?


Four objectives are critical to identify the best course of action for DCHS

Base Case: Maintain

Protect Pensions

Honor CBAs

Repay Obliga;ons

Maintain Mission Short-‐term

No

Op;on C: Bankruptcy

Op;on A: Sell

Op;on B: Change

Short-‐term

Short-‐term

Yes

Yes

Yes

Short-‐term

Short-‐term

Short-‐term

Short-‐term

No

No

No

No

Yes

We will combine op&ons A & B, selling and changing, to avoid bankruptcy and achieve viability

CA OAG St. Francis Medical Center Health Impact Report


Nego;ate remaining system sale

Close SMC

Sell SMCC

DCHS bankruptcy can be avoided by immediate downsizing and system sale

$93 million debt due

7.0 days

September August July June May April

BANKRUPTCY

7.5 days

TODAY

6.1 days 1.8 days 3.2 days 0.9 days

u

Sell individually


SYSTEM VIABILITY

DCOH

Appendix B

DCHS maintains financial viability through the plan of action

0

100

200

300

400

500

600

700

800

900

1000

Outstanding obliga;ons Mee;ng obliga;ons

$857 M $924 M

Dollars in m

illions

Debt Totals Revenue Totals

Outstanding obliga;ons ($759)

2014 bond ($93) Admin cost ($5)

Provider fees ($84) SMCC sale ($5) SMC closure ($72)

System sale ($763)


CA OAG St. Francis Medical Center Health Impact Report

SMC closure and SMCC sale offer DCHS immediate financial support

•  Closure of Seton Medical Center (SMC) •  Why SMC? •  Property es;mated at $110 M •  Liquida;on of assets and land sale: $72 M

•  A 35% markdown of es;mated value

•  Closing: 90 days (April-‐June), 30 days liquida;on (July)

• Sale of Seton Medical Center Coastside (SMCC) •  Why SMCC? •  Buyer: Brius Healthcare •  Price: $5 M, fair market evalua;on •  Nego;a;ons & Closing: 60 days (April-‐May)


LoopNet Property Records; DCHS Summary of Preliminary Proposals 2014; CA OAG Seton Medical Center and Seton Me;cal Center Coastside Health Impact Statement

New Prime deal ensures long-term sustainability of charitable services

•  Sale of remaining four health facili;es (SVMC, SFMC, OCH, SLRH) •  Buyer: Prime Healthcare

•  Reduced liability •  SEIU worker mobiliza;on •  CNA union support

•  Nego;a;ons & AG approval: April – June •  Closing: up to 90 days •  Price: $763 M

•  $843 M minus $80 M (Prime valua;on of SMC + SMCC) •  Reduces need for $150 M in capital investments


“Working Members of SEIU-‐UHW Urge Kamala Harris to Approve Sale of Daughters of Charity Hospitals to Prime Healthcare;” DCHS Summary of Preliminary Proposals; Na;onal Nurses United; Appendix F

DCHS sale and system downsize impact stakeholders

Prime deal Sell SMCC Close SMC

Physicians

Employees

Unions

Services

Community Needs

Low impact Moderate impact Severe impact


CA OAG Seton Medical Center and Seton Me;cal Center Coastside Health Impact Statement; New Jersey Hospital Associa;on: Hospital Closure Guidelines, Best Prac;ces from the Field

Given risk of these deals, a salvage plan continues the DCHS mission

•  Sale of individual health facili;es •  In the event that system sale is not in closing by end of June •  This allows for con;nua;on of mission •  Poten;al buyers

•  Santa Clara County, Dignity Health, Kaiser Permanente •  Total debt obliga;ons will not be met à bankruptcy

Nego;ate remaining system sale

September August July June May April

BANKRUPTCY

u

Sell individually


DCHS Summary of Preliminary Proposals

Supporting our employees remains a top priority throughout transitions

•  Employee engagement •  Transparency throughout transi;on •  Guidance to all levels of hospital management •  Engagement to secure employees’ future

•  Change management •  System-‐wide implementa;on •  Team-‐driven approach •  Clear communica;on with decision leaders

•  System is most valuable with our workforce


Huron Consul;ng Group; New Jersey Hospital Associa;on: Hospital Closure Guidelines, Best Prac;ces from the Field

Plan of action serves as the prime solution to maintain DCHS mission

Situa&on Op&ons Timeline Plan of Ac&on Implementa&on Conclusion

DCHS Annual Report 2012

THANK YOU FOR YOUR TIME QUESTIONS?

APPENDIX

Appendix A – Base Case Financial Analysis

Base Case or Maintaining Days Cash on Hand in thousands

FY14 1Q15 2Q15 3Q15 FY15 1Q16

June 2014 September 2014

December 2014 March 2015 April 2015 May 2015 June 2015 July 2015 August

2015 September

2015 Total Unrestricted Cash and Marketable Securities $113,454.00 $75,600.00 $50,761.00 $34,010.00 $34,010.00 $34,010.00 $32,446.60 $28,769.32 $28,769.32 $21,414.76

Operating expense 1,410,650.00 351,666.00 785,119.00 1,177,679.00 1,570,238.00

$2,088,416.54

Daily operating expense $3,864.79 $3,907.40 $4,361.77 $4,298.09 $4,302.02 $23,204.63

Days Cash on Hand* 30.8 20.7 12.4 7.9 7.0 6.1 7.5 1.2 1.1 0.9

Notes Daily Operating Expense and Unrestricted Cash and Marketable Securities were projected for 3rd and 4th quarter of FY'15 from trends per unaudited statements for 1st and 2nd quarter FY'15

Appendix B – Plan of Action Financial Analysis

Effect of proposed sale of Seton Medical Center Coastside and Seton Medical Center on Days Cash on Hand in thousands

FY14 1Q15 2Q15 3Q15 FY16 1Q16

June 2014 September 2014

December 2014 March April May June July August September

Total Unrestricted Cash and Marketable Securities $113,454 $75,600 $50,761 $34,010 $34,010 $34,010 $32,447 $41,903 $77,903 $21,415

Operating expense $1,410,650 $351,666 $785,119 $1,177,679 $1,570,238 $2,088,417 Daily operating expense $3,865 $3,907 $4,362 $4,298 $4,302 $23,205

Days Cash on Hand* 30.8 20.7 12.4 7.9 7.0 6.1 7.5 1.8 3.2 0.9

Notes / assumptions Daily Operating Expense and Unrestricted Cash and Marketable Securities were projected for 3rd and 4th quarter of FY'15 from trends per unaudited statements for 1st and 2nd quarter FY'15 July '16 Receive $22M from sale of Seton PP&E August '16 Receive $36M balance of from sale of Seton PP&E

Appendix C – Leverage and Liquidity Measures

Leverage and Liquidity Measures in thousands FY13 FY14 1Q15 2Q15 3Q15 FY15 1Q16

June 2013 June 2014 September

2014 December

2014 March 2015 June 2015 July 2015 August 2015 September 2015

Unrestricted Cash & Investments $188,116 $113,452 $75,600 $50,761 $34,010 $22,447 $38,653 $57,859 $14,815 Long-Term Debt $437,377 $289,900 $287,700 $286,300 $284,517 $282,745 $282,158 $281,573 $280,988 Total Debt $758,106 $758,106 $866,622 $944,298 $1,054,201 $1,176,895 $1,188,869 $1,202,236 $1,217,160 Capitalization $1,057,516 $809,800 $861,930 $945,574 $1,021,890 $1,104,365 $1,068,496 $1,029,733 $987,841 Days Cash on Hand (with provider fee expense) 51 30.8 20.7 12.4 7.91 5.3 1.67 2.49 0.64 Unrestricted Cash to Debt 43.01% 38.34% 26.28% 17.73% 11.95% 7.94% 13.70% 20.55% 5.27%

Debt-to-Capitalization 95.49% 93.61% 100.54% 99.87% >100.00% >100.00% >100.00% >100.00% >100.00% Notes Long-Term Debt, Total Debt, and Capitation will continue to grow at the same rate of increase over the past quarter

Appendix D – DCHS Statement of Operations

Daughters of Charity Health System Statement of Operations FY13 1Q14 1H14 3Q14 FY14 1Q15 2Q15 3Q15 FY15 1Q16

June 2013

September 2013

December 2013

March 2014

June 2014

September

2014

December

2014

March 2015

June 2015

July 2015

August

2015

September

2015 Total Unrestricted Revenues and Other Support $1,342,520 $325,357 $774,481 $1,084,765 $1,395,049 $309,329 $749,888 $1,198,832 $1,499,776 $95,950 $179,661 $324,567 Total Expenses -$1,433,238 -$353,480 -$717,356 -$1,064,003 -$1,410,650 -$351,666 -$785,119 -$1,177,679 -$1,570,238 -$141,507 -$307,901 -$349,861 Operating Loss -$90,718 -28,123.00 $57,125 $20,762 -$15,601 -$42,337 -$35,231 $21,154 -$70,462 -$45,557 -$128,240 -$25,294 Operating Income with Margin with Contributions -6.76% - - - -1.12% - - - -4.70% - - -7.79% Notes Projected percentage change in 1Q16 proportionate to percentage change in 1Q15 Sell SMC decreases revenues system by $23099.5 and expenses by $10636.5 per month in July and August Closing SMCC decreases system revenues by $1602.5 and expenses by $1787.16 in July and August

Appendix E – 2014 Short-term Financing Bridge Loan

DCHS Projected Monthly Sources and Uses of Funds: System Overview, October 2014

Appendix F – Potential DCHS System Buyers

Alecto Healthcare Services

Blue Wolf Capital Partners

Hospital Corpora;on of America

Prime Healthcare

Prospect Medical Holdings

Strategic Global Management

-‐  For profit -‐  $185 M -‐  Low capital available

-‐  Doesn’t meet four objec;ves

-‐  New interest

-‐  For profit/Equity Firm

-‐  $803 Million -‐  SEIU-‐UHW support

-‐  No hospital experience

-‐  No tax exemp;on

-‐  No pension commitment

-‐  No capital up-‐front

-‐  For profit -‐  Largest for profit hospital operator

-‐  New interest -‐  History of consolida;on

-‐  For profit, Non-‐profit founda;on

-‐  $843 M -‐  CNA support

-‐  For profit -‐  $678 M -‐  No financial commitment


-‐  For profit -‐  $698 M -‐  Lacks financial commitment


Appendix G – Potential Individual Hospital Buyers St. Francis Medical Center

St. Vincent Medical Center

O’Connor Hospital & St. Louise Medical Center

-‐ Dignity Health: $200 M -‐ Prime: $250 M

-‐ Kaiser Permanente: price unknown -‐ Prime: $50 M

-‐ Santa Clara County: $160 M -‐ Prime: $140 M

DCHS Summary of Preliminary Proposals; County of Santa Clara

Appendix H – 2013 Inpatient and Outpatient Volume

Daughters of Charity 2013 Annual Report

Sta&s&cs for Fiscal Year 2013 Number

Number of associates (approx.) 7,645

Inpa;ent

Number of pa;ents discharged 50,168

Number of births 9,298

Number of inpa;ent surgical cases 10,628

Outpa;ent

Number of outpa;ent surgical cases 14,064

Number of emergency/urgent care visits 172,857

Number of other ancillary service encounters 733,768

Total 998,428

References •  hrp://oag.ca.gov/sites/all/files/agweb/pdfs/chari;es/non-‐profit-‐hospital-‐docs/O%27Connor%20Hospital/II.%20Fair%20Market%20Value/D.%20%C3%9F%20999.5%28d%29%282%29%28D%29/Analysis%20of%20Proposals/2014.03.27%20-‐%20DCHS%20-‐%20Summary%20of%20Preliminary%20Proposals_vFINAL%20%28Updated%29.pdf

•  hrps://oag.ca.gov/sites/all/files/agweb/pdfs/chari;es/pdf/seton-‐medical-‐center-‐ag-‐report.pdf

•  hrp://www.primehealthcare.com/Press-‐Center/News/2015/Working-‐Members-‐of-‐SEIU-‐UHW-‐Urge-‐Kamala-‐Harris-‐t.aspx

•  hrp://dochs.org/2013/04/dchs-‐annual-‐report-‐2012/ •  hrp://www.na;onalnursesunited.org/press/entry/cna-‐statement-‐on-‐sale-‐of-‐daughters-‐of-‐charity-‐hospitals/

•  hrp://www.bizjournals.com/sanfrancisco/blog/2015/03/daughters-‐of-‐charity-‐ceo-‐chapter-‐11-‐issai.html?page=all

•  hrp://www.bizjournals.com/sanjose/news/2015/03/13/daughters-‐of-‐charity-‐prime-‐seton-‐scenarios.html?page=all

•  hrp://www.bizjournals.com/sanjose/news/2015/03/11/prime-‐healthcare-‐daughters-‐charity-‐kamala-‐harris.html?page=all

•  hrp://www.bizjournals.com/sanfrancisco/blog/2015/02/daughters-‐charity-‐blue-‐wolf-‐prime-‐sell-‐hospitals.html?page=all

•  hrp://dochs.org/ •  hrp://medfounda;on.dochs.org/2014/01/daughters-‐of-‐charity-‐health-‐system-‐seeks-‐buyer/

•  hrp://oag.ca.gov/sites/all/files/agweb/pdfs/chari;es/pdf/minutes_redacted.pdf

•  hrp://www.hmbreview.com/news/regula;ons-‐would-‐prevent-‐sudden-‐seton-‐closure/ar;cle_197b7b0e-‐dee5-‐11e4-‐a941-‐0face83efd8c.html

•  hrp://dochs.org/wp-‐content/uploads/2011/10/2013-‐AnnlRep_LR.pdf •  hrp://www.huronconsul;nggroup.com/Insights/Perspec;ve/Business-‐Advisory/~/media/457C64FDF64749D990F7BE098EF50718.ashx

•  hrp://www.njha.com/media/51114/hospital_closure_guidelines.pdf

•  hrp://www.na;onalnursesunited.org/press/entry/nurses-‐urge-‐state-‐officials-‐to-‐save-‐daughters-‐of-‐charity/

•  hrp://www.loopnet.com/Property-‐Record/1900-‐Sullivan-‐Avenue-‐Daly-‐City-‐CA-‐94015/Q5z1Fjr9A/Tax/?SRID=5617629102&jli=y

•  hrp://dchsprime.com/wp-‐content/uploads/2014/12/County-‐of-‐Santa-‐Clara.pdf

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