Analysts comment on Phoebe Putney's rough financial year

Atlanta professor says Palmyra facility not worth purchase price

ALBANY — An IRS Form 990 typically provides a window into a nonprofit hospital’s financial health and inner workings.

Phoebe Putney Memorial Hospital’s recently approved 990 for fiscal 2013 shows a whopping $58 million loss. Much of that red ink comes from a write-off related to the 2011 acquisition of the hospital’s only Albany competitor.

That purchase of Palmyra Medical Center triggered fierce opposition from the Federal Trade Commission, thrusting Phoebe Putney into the national spotlight.

The long-running legal battle included a U.S. Supreme Court defeat for Phoebe, though that did not end the case. And coinciding with recent legal maneuvers were news reports that the southwest Georgia region — where Phoebe is the major player — is the second-highest-priced market nationally in the federal insurance exchange, behind ski resort areas in Colorado.

Phoebe Putney’s bottom-line loss for 2013 is historically very high for a Georgia hospital, especially for one that had been solidly profitable. It’s the highest loss ever for Phoebe.

“Historically, this hospital has made a lot of money,” said Brian Vansant, an Auburn University accounting professor who has studied the accounting and financial practices of nonprofit hospitals.

Tax-exempt nonprofit organizations must file some version of Form 990 with the IRS each year, giving information on their finances and other activities.

Phoebe Putney’s board approved the 990 earlier this month for its fiscal year ended last July. The hospital earned $16.5 million the previous year.

The write-off of $43.9 million for “goodwill impairment” pertains to an asset that was overvalued, said Patricia Ketsche, an associate professor at Georgia State University’s Institute of Health Administration.

That would be the Palmyra facility.

It implies that “you’re saying it’s not worth what we paid for it,’’ added Vansant.

The FTC reached a tentative antitrust settlement with Phoebe Putney in 2013, but the federal agency is still considering whether to sign off on it, and recently has expressed second thoughts.

The stated purchase price of Palmyra was $195 million. “I would suspect [the purchase] was worth it from a competitive standpoint, and they [Phoebe] wrote it off,’’ said Ketsche.

After subtracting the write-off, she said, Phoebe’s real loss for the year was about $14 million.

Despite that figure, Phoebe is not necessarily in financial trouble, Ketsche added. Its financial health depends on its results over the long run, she said. And she said Phoebe provided a sizable amount of community benefits in fiscal 2013 — 13 percent of expenses.

Phoebe Putney said in a statement Monday that its accounts receivable rose in fiscal 2013 because payments by health insurers and patients lagged. “High-deductible health plans have put financial pressures on families and led to slow or non-payment,’’ the statement said. “ In addition, our patient base is among the poorest in the United States, and there have been patients charged who cannot or have not paid their bills. “

Vansant told GHN that Phoebe’s 990 was difficult to understand in some areas, which he said is fairly typical with such forms from hospitals. He cited as an example Phoebe’s disclosure, without additional explanation, that it has financial accounts in the Cayman Islands, Bermuda and the British Virgin Islands.

Phoebe in its statement explained that it has “investment accounts handled by external investment managers. Of the funds invested there are such accounts in the Caymans, Bermuda and the Virgin Islands.”

Vansant, meanwhile, said he was not surprised by the overall loss.

Facing higher scrutiny, a nonprofit hospital often doesn’t show aggressively positive results, Vansant said. “They tend to report news to help their case.”

Phoebe incurred outside legal fees of $3.2 million during the fiscal year.

“If you’re battling the FTC, I can’t imagine how much money you’d spend,” Vansant said.

An FTC spokesman said Monday that no decision has been made on the settlement agreement with Phoebe.

The agency first challenged the merger of Phoebe Putney with Palmyra three years ago. It argued that allowing the merged entity to operate the only two hospitals in Albany would be anti-competitive and harm health care consumers in the city and the southwest Georgia region.

Last August, after the legal battle had raged for roughly two years, the FTC and Phoebe Putney announced they were willing to settle, and that the deal would allow Phoebe to keep control of the former Palmyra, now called Phoebe North.

But this year, in a March 31 letter, the FTC asked the Georgia Department of Community Health about a possible breakup of the two hospitals and whether it would require approval under the state’s certificate-of-need (CON) laws.

The letter said the federal agency gave preliminary agreement to the settlement because it believed Georgia’s CON laws — which limit the number of health care facilities in the state — would prevent the decoupling of the merged Albany hospitals even if the FTC won the suit. But a potential buyer for the former Palmyra had since come forward, the FTC letter said.

Andy Miller is editor/CEO of Georgia Health News. He can be reached at georgiahealthnews.com.