By working with state officials to purchase a nearby hospital in financial trouble, South Nassau Communities Hospital is protecting its market share, says its CFO.
For Oceanside, NY-based South Nassau Communities Hospital, being located in a heavily populated area on Long Island makes expanding its physical presence a challenge.
Mark Bogen |
"We are substantially landlocked here," says Mark Bogen, South Nassau's senior vice president and chief financial officer. "We really sit in a dense residential community, and while there are certain properties that are contiguous to us that would appeal to us, we've agreed not to pursue those in order to be good neighbors."
Expanding its Footprint
The opportunity to grow was one of the big attractions for South Nassau when nearby Long Beach Medical Center, which was severely damaged two years ago by Hurricane Sandy, became available for purchase.
"The Commissioner of Health told Long Beach Medical Center in July 2013 that it would not be allowed to reopen unless it partnered with another organization because it was a failing hospital that was providing low-quality care," Bogen says, noting that rather than affiliating with LBMC, South Nassau decided to purchase the organization outright.
"We worked with the governor's office, the Department of Health, and the commissioner of health, and in August 2013, we signed a memorandum of understanding" to purchase LBMC, Bogen says. In mid-October 2014, South Nassau closed on the transaction, paying approximately $11.8 million for the 5.5-acre property and the existing buildings and equipment.
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South Nassau also invested about $6 million so that LBMC could get into and through the bankruptcy process, Bogen adds. "Long Beach had all these accumulating liabilities before they closed and no money coming in, and the situation was getting very drastic. We actually put in money to the tune of $1.5 million so that they could get into bankruptcy, and we're also providing about $4.5 million to get them through the process."
Protecting Market Share
By purchasing LBMC, which is located on one of the outer barrier islands off the south coast of Long Island, South Nassau is protecting its market share, Bogen says.
"The barrier island has always been a significant market for us. Until Long Beach Medical Center closed, we were probably getting about 20% of the total inpatient admissions from those zip codes, which represented about 10% of our total inpatient volume. Also, about 10% of our total emergency room treat and release volume was coming from those zip codes, so we've always been focused on Long Beach. Once the storm hit and Long Beach Medical Center was closed, we controlled about 50% of that market," he says.
"It would be very detrimental to our future if someone else had planted a flag there, even if not as an inpatient situation. If another healthcare organization put in a significant ambulatory presence there and diverted volume to their hospital or health system that would have a significantly negative impact on the financial situation at South Nassau."
Accessing FEMA dollars
The acquisition also puts South Nassau in line to collect roughly $170 million from the Federal Emergency Management Agency.
"The real pot of gold at the end of the rainbow was working out something that would ultimately have us standing in the shoes of Long Beach with regard to the FEMA claim," Bogen says. "The FEMA claim is only given to that organization that owns and controls the real estate that was damaged. Without buying the real estate, we would not have been entitled to the FEMA claim."
The FEMA funds are especially appealing because the federal agency has become more flexible in recent years and no longer requires the money be used to rebuild exactly what was damaged, Bogen says.
"You still have to use the money in the same vein that the original organization was involved in. For us, if we wanted to build condos, we couldn't do that. Since we are a healthcare organization and Long Beach was a healthcare organization, as long as we work in lockstep with our elected officials, we can build something that serves the needs of the community. We'll also be able to develop projects on our own campus. … This is a wonderful opportunity to not only revitalize healthcare in Long Beach, but also to do projects on our Oceanside campus."
After analyzing the healthcare needs of the Long Beach community, Bogen says it's unlikely that the medical center will be rebuilt. Instead, South Nassau will continue to operate the urgent care center it opened there in July 2014, and will establish an emergency department, as well as rebuild a strong network of primary care and specialty physicians.
"Medicare has allowed freestanding, off-campus, hospital-based emergency departments. That is something we have committed to the Department of Health, to the politicians, and to the community to build. We are in the process of trying to move that along with at least 90% of it being paid with FEMA dollars," Bogen says.
"Around that, we are looking to build a robust ambulatory practice with a surgical center and a medical office complex. Many physicians left the barrier island after the storm and have not returned. We are going to try to recruit a cadre of specialists so we can offer services like dialysis, outpatient imaging, referred lab. That is all developing as we speak."
Bogen says the influx of federal dollars is giving South Nassau the chance to rethink and redesign its care delivery network in a way that most providers never get.
"It's a tremendous opportunity. The problem that many not-for-profit hospitals have is that they have so much of their assets invested in their brick and mortar campuses. Here is an opportunity for us to sort of monetize the equity that was built in Long Beach Medical Center. Now, we can use that capital in a very thoughtful way to serve the barrier island community, but also, using the flexibility of the FEMA program, be able to make investments to serve the 900,000 people who live in our existing key communities."