After years of hemorrhaging money, leaders of Bay Area Hospital in Coos Bay have turned to a private equity-backed company in hopes of turning around its rickety financial predicament.
The board overseeing the publicly owned, 172-bed hospital last week entered into a non-binding agreement with a subsidiary of Quorum Health Corp., a Tennessee-based company that owns or operates medical facilities across the country, including McKenzie-Willamette Medical Center in Springfield. The agreement means both sides will begin negotiations on a bigger deal for Quorum Health to take over management of the hospital.
Eight health systems and companies had expressed interest in the hospital’s request for proposals.
The potential deal comes amid what lawmakers and others have called a worrying trend of economic headwinds driving smaller providers into the arms of deep-pocketed companies that may prioritize return on investment over patients. Despite some apprehension at its board meeting, hospital leaders hailed its agreement with Quorum Health as a big step to overcoming the unique financial pressures on the largest hospital on the Oregon coast.
Quorum Health, according to the hospital, has agreed to maintain core services for at least 10 years, not lay off or cut pay for employees in good standing, maintain local representation on the hospital’s governing board and preserve its current policies on charity care for needy patients.
Kim Winker, spokesperson for Bay Area Hospital, told The Lund Report in an email that the agreement is confidential and both sides are restricted in what they can say.
Under the outlines of the deal, she said, Quorum Health would operate the hospital under a 30-year lease while agreeing to expand the facility. During the first 10 years of the lease, Quorum Health would make capital investments between $75-$100 million, she wrote. The deal would allow for two renewals, each for 10 years, bringing the total length of the lease to 50 years.
Amid a tough time for hospitals, Coos Bay hospital's troubles stood out
Oregon hospitals have reported losses in years following the pandemic brought on by increased employee costs and Medicaid and Medicare reimbursements that don’t cover costs.
In December 2022, an outside auditor for the hospital cited“substantial doubt about its ability to continue as a going concern.” The hospital has racked up losses from rising post-pandemic costs and mistakes with its insurance billing system.
In April 2023 a hospital executive told The Lund Report the facility hoped to break even within 18 to 24 months. However, it spent more that year than it took in, marking a 7% loss. In the first half of 2024 it marked a 5.2% loss.
The hospital was even forced to default on a $47 million loan from Bank of the West.
Bay Area Hospital is the only Oregon hospital owned by a local government hospital district. While it can ask voters to approve property taxes, it has not done so for nearly 40 years. As a government institution it is prohibited from investing in the stock market, as other hospital chains have done to boost their reserves.
Meanwhile, more than half of Bay Area Hospital’s patients are covered by the lower-paying Medicare or Medicaid programs, with about a third covered by commercial insurance, according to its most-recent financial statement. Nearly 87% of the hospital’s patients are now covered by Medicare or Medicaid, according to a Facebook post from the hospital last month.
The hospital reported operating losses of approximately $32.8 million and $60.5 million in fiscal years 2023 and 2022, respectively.
The situation prompted the hospital’s executives and its board to begin looking earlier this year to potentially partner with another health system.
Minutes from the board’s October meeting show that members of the public showed up to raise concerns about the hospital’s plan to partner with an outside company, expressing fear that the deal could mean less access.
Quorum has troubled past
Troy Cribbins, chair of the Bay Area Hospital District Board, said during a meeting last week that that efforts to stabilize have not panned out.
“As we go to our board meetings, we’re always starting to say, ‘You’ve got to be kidding me,’” he said.
He described how the hospital continues to “hemorrhage money,” with hefty bills for staffing agencies and pay increases for its unionized workforce with reimbursements remaining flat. The hospital lost $2.2 million last month, he said.
While he said the board had heard “negatives” around mergers or acquisitions, he said that it made sense for the hospital to move forward with its deal with Quorum Health considering its financial outlook and the outstanding bank loan.
Rex Burgdorfer, a partner with consulting firm Juniper Advisory hired by the district, said during the meeting that Quorum Health is focusing on operating a “distributed network of rural hospitals.”
“That’s what we want,” he said. “We’re a rural hospital, isolated geographically.”
Quorum Health currently owns 12 hospitals in midsized and rural markets in nine states. The company recently purchased two hospitals in west Texas and acquired two owned by the recently collapsed Steward Health Care, according to a nonprofit private equity monitor.
Previously, Quorum Health was a publicly traded company with 22 hospitals in 13 states before it underwent bankruptcy proceedings in 2022. The company emerged from bankruptcy under the ownership of private equity firms Davidson Kempner Capital Management and Goldentree Asset Management.
Last year, Quorum Health closed a hospital in rural eastern North Carolina, citing financial losses. It was later reported that Quorum Health did not file required compliance reports for five years.
During the meeting last week, the hospital board approved the agreement with Quorum Health in a 5-1 vote. Board member Carma Erickson-Hurt voted against it saying she wanted the process to be paused.
The final transaction between Bay Area Hospital and Quorum Health is expected to be completed by the middle of 2025, according to hospital management. The final deal is subject to a review by the state Health Care Market Oversight program, which reviews large health care transactions in Oregon to make sure they do not increase costs or adversely affect care.