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August 7, 2017

ECHN CEO says capital investments key to profitability

HBJ PHOTO | Steve Laschever ECHN CEO Michael Collins in his Manchester office in 2017.
HBJ PHOTO | Steve Laschever Collins said he wants to unfreeze ECHN’s contributions to employee 401(k) accounts next fiscal year.

The newly minted CEO of Eastern Connecticut Health Network (ECHN), which posted a steep loss last year, expects to turn that around rather quickly.

“We're going to be profitable this year by our own measures,” said Michael F. Collins, a Boston native who spent much of the past decade working at Massachusetts' Steward Health.

While it was concluding its $105 million ECHN acquisition last October, California for-profit hospital operator Prospect Medical Holdings Inc. named Collins interim CEO, taking over for Peter Karl, who resigned.

Collins had been overseeing ECHN's integration with Prospect at the time. Last month, he was given the permanent CEO title, a job description that includes overseeing Manchester Memorial and Rockville General hospitals, which lost a combined $23 million last fiscal year.

In an interview in his Manchester office, Collins said he's already putting Prospect's five-year, $75 million capital project commitment to work. At the conclusion of ECHN's 2017 fiscal year on Sept. 30, Collins said his team will have invested about $10 million in the hospital system, with another $4 million committed near-term.

Renovations include a $1 million upgrade to Woodlake at Tolland, a nursing home and rehab facility ECHN is selling for $10 million, with plans to lease it back and continue to operate it.

“We are not a real estate company,” Collins said when asked about the deal. “If we can get capital for an asset, so be it.”

The largest capital investment so far will be unveiled in November, when ECHN opens a geriatric psychiatry unit at Manchester Memorial and moves its adult psychiatry unit to Rockville General in Vernon. Containing up to 21 beds and costing $1 million, the geriatric unit will take over space that's been occupied by a 24-bed adult psych unit. Renovations at Rockville will cost $4.2 million, according to ECHN.

As a result of the expansion and reshuffling, Collins expects to double the average number of inpatients at Rockville General, raising much needed revenues.

Part of the strategy is to modernize ECHN to meet the realities of today's healthcare environment, in which technological advancements have led to shorter hospital stays for childbirths and various surgeries.

“You just don't need these big-bedded hospitals anymore,” Collins said. “What you do need, regardless of affluence, is psychiatry and substance abuse [services].”

Mental illness and substance abuse come with a hard-to-shake stigma, but demand for those services, especially in light of the state's and nation's opioid epidemic, is growing, Collins said. He said he's received some pushback from Vernon residents about moving a psych unit to town, where he himself resides. But he said the geriatric psych unit must be located in Manchester because that location gets higher reimbursement rates from Medicare.

And Rockville has room for the displaced unit. Simply put, it's a financial decision.

“My motive is that we have a full hospital,” Collins said. “Do you want to drive by and see one car in the parking lot or do you want to see 40 cars in the parking lot?”

Asked about Collins, Prospect said in a statement that its leaders believe he is the man for the CEO job.

“Under his leadership, we have made great progress in investing in our facilities, services, equipment and staff in order to best serve the healthcare needs of the Manchester and Vernon communities,” Prospect said. “Working together, we are committed to maintaining ECHN's mission and long tradition of providing high-quality, compassionate care.”

Fiscal squeeze

With the exceptions of its 2015 and 2016 fiscal years, ECHN posted positive operating margins throughout much of the past decade, including during the Great Recession.

But from 2008 to 2016, rising expenses outpaced growth in net patient revenues by nearly two fold, according to financials published by the Office of Health Care Access.

As a result, a small operating loss in 2015 grew to a nearly $34 million loss in 2016, as expenses hit a high-water mark and patient revenue dipped to a four-year low.

The deal with Prospect lifts a weight off ECHN, freeing it from mounting debt and pension liabilities and infusing the system with capital. (Prospect also acquired Waterbury Hospital, which shares some management and compliance functions with ECHN, though they remain separate entities.)

When Collins predicts ECHN will be profitable this fiscal year, he is referring to earnings before taxes, depreciation and amortization (EBITDA), which is somewhat similar to operating income.

ECHN is also recruiting primary care and emergency physicians and recently launched an ad campaign on television and in print and digital platforms to promote the system.

“I think we have to work on reviving the institution,” Collins said.

He said his suburban hospitals are well positioned, despite larger hospitals just miles away in Hartford, because they can compete on cost and quality.

“There's nothing in the data that shows the outcomes are any better in academic medical centers vs. community hospitals,” he said.

Besides the financial health of the ECHN system, Collins said he also has his approximately 3,000 employees in mind, many of whom were hit with wage and retirement contribution freezes in recent years as ECHN grappled with rising expenses.

ECHN recently distributed $1 million in raises to more than 1,000 non-union employees who had gone without pay hikes for approximately three years, a tumultuous period that included the scuttling of an acquisition of ECHN by Tenet Healthcare — another large for-profit operator.

Collins said he hopes to build on the pay hikes by unfreezing retirement contributions next fiscal year, which will depend on hitting certain financial milestones.

As he works to build up ECHN, recruiting more skilled workers will be important, he said.

“They're in demand,” he said.

Labor union AFT Connecticut is currently negotiating new contracts for about 700 unionized nurses, technicians and other workers at ECHN, said AFT Connecticut Executive Vice President John Brady, who is also a registered nurse.

“Raising the standards for these vital caregivers is critical in order to attract and retain the high-quality workforce that the region's patients need and deserve,” he said, adding that part of their negotiations include establishing pay parity between workers at both hospitals.

“While all our members at [Manchester] look forward to long-promised wage increases and restored contributions to their retirement security, the registered nurses at [Rockville] deserve the same,” he said.

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