At the end of 1994, the West Volusia Hospital Authority leased West Volusia Memorial Hospital to Memorial Health Systems (hence, ‘‘Ormond’’’). The Authority retains full title in the facility and licenses on behalf of the taxpayers of West Volusia.
Since they took over,
Ormond’s losses at West Volusia have been as follows:
| year | operating loss | less tax subs | adjusted loss |
|---|---|---|---|
| 1995 | 3,207,897 | 4,974,771 | ** |
| 1996 | 4,957,033 | 4,549,855 | 407,178 |
| 1997 | 7,004,396 | 3,073,525 | 3,930,871 |
| 1998 | 5,758,188 | 2,029,353 | 3,728,829 |
Loss from operations has, in the four years of Ormond’s control, exceeded $20,000,000. Of the publicly proclaimed $40,000,000 bond issue, half has been irrevocably lost through operations and results in no facility or other capital improvements.
Ormond’s east-side operations, largely supported by cardology, open-heart surgery, and oncology, are now facing serious competition. Halifax has opened new, state-of-the-art facilities, and are taking much of Ormond’s potential business. Ormond is losing most of their higher-profit business in the east. They won’t be able to support the losses in West Volusia and Flagler once the borrowed money runs out.
We know that Ormond issued the $40,000,000 as revenue bonds to be paid from operating proceeds. Neither the facility nor the taxpayer’s ‘‘full faith and credit’’ were pledged, nor could they be.
Ormond’s continuing operation depends on their continuing to borrow to cover losses. The current head of Ormond left his prior post and there remains some question about the debt situation which he exited. It is difficult to borrow one’s way to prosperity.
Because the debt is purely revenue bonds, the bank (or lender) will be solely at risk for the unpaid balance if the bonds go into default. The lender will be solely responsible for the loss, and will have no recourse to the Authority or the taxpayers.
Ormond’s books are not open to the public or to the Authority. Thus, we can not determine with certainty the debt service ratio coverage. The Authority’s accountant feels that Ormond is very close to, if not actually out of compliance with the coverage ratios. The figures offered to the public are scary: 96% of the available cash from operations goes for debt service, and part of that is capitalized interest - money borrowed to make payments.
The lender knows or should know this, having performed due diligence in accepting the bonds and in monitoring performance.
The concern for the Authority is that, when the borrowed money runs out in a couple of years, Ormond will find itself suddenly unable to operate the hospital. The bank’s unpleasant surprise will be limited to a $40,000,000 loss: the Authority will face the problem of a run-down, under-funded facility with demoralized staff. In short order, and without adequate preparation, the Authority will suddenly be back in the hospital business.
The Authority should be prepared.
This report is based on figures provided to the Board by Memorial Health Systems. The 1998 figures are still subject to small adjustments for Medicare/Medicaid.
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