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August 5, 2024

Following Covenant Health deal collapse, independent Day Kimball Healthcare still in search of merger partner

CONTRIBUTED PHOTO Kyle Kramer since 2020 has been the CEO of independent Day Kimball Healthcare.
By Harriet Jones, Hartford Business Journal Contributor

“It’s affectionately referred to as the hospital on the hill,” Kyle Kramer said.

Since 2020, Kramer has been the CEO of Day Kimball Healthcare, the organization that owns and runs Day Kimball Hospital, which is perched on a hill overlooking the old mill town of Putnam, in Connecticut’s rural northeast corner.

“You drive around this region and you talk to community members — there are many who were born at this hospital, received care at this hospital, or have had family members cared for at this hospital,” Kramer said. “There is a very strong affinity towards the organization on a community-wide basis.”

It’s also one of Connecticut’s few remaining independent hospitals — something Kramer has spent a lot of time in his post trying to change, seeking strategic partnerships with a larger group.

“Our view is still very much that, long-term, we’re going to need a partner,” he said. “There are things that we can do on our own. But when you look at our size, and you look at the financial performance of an organization this size, we can stay steady-state. What we don’t have is the ability to invest in the next level of technology, or the next level of service.”

Even before Kramer’s tenure, Day Kimball explored an affiliation with California-based Prospect Medical Holdings — the financially troubled hospital chain that owns and is now trying to sell Manchester Memorial, Waterbury and Rockville General hospitals — but a deal never materialized.

Kramer’s own first swing at a deal came as he negotiated a sale to Massachusetts-based Covenant Health, a Catholic system that currently owns facilities in every New England state except Connecticut.

The proposal was controversial with some members of the community because of concerns that Catholic Covenant would remove some reproductive, gender-affirming and end-of-life services at Day Kimball.

But in March 2023, after months of negotiation, Covenant abruptly pulled out of the deal, something Kramer says caused “shock, anxiety and distress.”

He attributes the end of the deal not to the local opposition, but to Covenant’s internal financial struggles.

“Everything seems like it’s going to be a perfect union,” he remembered. “But when the organization that you’re assimilating into lost $92 million in operations and lost another $45 million in the market, the board says, ‘maybe we need to fix ourselves before we bring somebody else into the family.’”

The end of that deal may have hurt, but Kramer says it has led to better things at Day Kimball.

“With our board and executive leadership team, we circled the wagons,” he said. “We had a plan.”

Rural hospital designation

That has involved a number of initiatives — some aimed simply at righting the financial ship, like moving outstanding defined pension liabilities to a new entity.

Other moves involved narrowing Day Kimball’s focus on care that makes sense within this rural, aging community.

“When you’re 104 beds, you’re not going to be doing complex cardiac surgery, you’re not going to do complex craniotomies or things like that,” Kramer said. “But you do have a responsibility to be a very strong provider of community health.”

The hospital has also been looking anywhere it can for financial support. Over the last two years, it has secured $17 million in appropriated funds from the state of Connecticut, and attracted several federal grants that have been used to replace imaging equipment and make upgrades to informatics and telehealth platforms.

Even still, the hospital system has faced financial headwinds. In fiscal year 2023, Day Kimball Healthcare reported a $13 million operating loss on $145.5 million in total revenue vs. a $1.9 million loss on $145.6 million in revenue a year earlier, according to its audited financial statements.

CONTRIBUTED PHOTO
Day Kimball Hospital in Putnam.

Kramer says the large swing can be attributed to several factors, including accounting for the final settlement and transition of the pension plan, and high labor costs. Also, the hospital had previously held off on needed capital improvements in anticipation of the Covenant deal – after its collapse, the hospital had no choice but to make the investments on its own.

Another key change that Kramer has lobbied for at the federal level is about to become a reality. Despite sitting in a town of just 7,000 people in Connecticut’s Quiet Corner, at the moment, Day Kimball is officially classified as an urban facility, because it is just 26 miles from Worcester, Mass.

That will change on Oct. 1, when the hospital is reclassified as a rural entity.

“We may have the opportunity to gain grant funding that we historically wouldn’t have had the ability to access, or programs that are related to rural health organizations that we’ve not been able to capitalize upon,” Kramer said.

Other benefits include the ability to recruit staff who may need special visa considerations, and crucially, an improved reimbursement rate for government healthcare services.

“Is it going to be something that puts us in a position where now everything is perfect and wonderful? No, but it definitely helps,” Kramer said. “Sixty-five to 70 percent of our population is covered by federal or state health plans, Medicare or Medicaid. That doesn’t leave a lot of commercial insurance to offset some of those challenges, which makes every single decision, every single effort that we make even more important for this community.”

Favorable impact

Kramer says the hospital’s focus now is on key challenges in the local population, including pulmonary and respiratory health, cardiac care, digestive diseases, cancer and orthopedics.

He’s also committed to keeping the hospital’s birthing center, the only one in the northeast of the state, and a key area of controversy after Hartford HealthCare closed the birthing unit at Windham Hospital. There have also been efforts to close rural birthing centers at Sharon and Johnson Memorial hospitals, owned respectively by Nuvance and Trinity Health Of New England.

“I think there’s just certain things you’ve got to maintain locally,” Kramer said. “And it’s important for us to do that.”

Day Kimball Healthcare is relocating and consolidating its cardiology team into offices across the street from the hospital, and has recruited the former chief of cardiology at St. Francis Hospital, Richard Soucier, to that team. Day Kimball also retooled its orthopedic surgical program, and expanded a collaboration with the Connecticut GI group in digestive health.

But the hospital also shed some services. Last December, Day Kimball Healthcare sold its homecare division to a specialist provider based in Cheshire. Kramer says that removed non-clinical homecare responsibilities — such as bathing, dressing and meal preparation — but not in-home medical care, which they still provide.

Kramer is also facing workforce issues. He says many of his staff spend a working lifetime at the hospital, which provides a lot of continuity, but also some concerns.

“When you have a lot of individuals who are exceedingly long tenured, at some point they will make the decision to retire,” he said. “We’re a small market, so recruiting new people into this market is a bit more challenging.”

To that end, Day Kimball has been building out partnerships with local high schools to highlight a range of potential healthcare careers.

Kramer says all of these changes are beginning to yield a favorable impact on the hospital’s financial performance, but the challenges of operating in a small market with a significant Medicaid population and rising labor costs remain.

'Right partner'

The message Kramer is sending is that Day Kimball is busy solving its own problems. But he still believes the best end game is a sale or strategic partnership.

And that’s largely because it’s now very expensive to be an independent hospital. The hospital gets some breaks on the cost of buying clinical supplies through a community partnership with Yale New Haven, but Kramer says the inequities go beyond that.

For instance, routine procedures like an MRI that might be reimbursed at one rate for a big system like Yale or Hartford HealthCare will be reimbursed at a much lower rate for Day Kimball.

“An organization that is our size, that’s independent, doesn’t have the negotiating leverage with an Anthem, an Aetna, a Blue Cross that a large multi-hospital system has,” he says.

He also sees big expenses ahead, particularly around technology and IT needs.

“We are on an electronic health record now, but we need to upgrade that system,” he said. “It’s the type of investment that if we were to make, would consume our capital budget for probably the next 10 years.”

Recent research suggests these issues are widespread among rural hospitals nationally. A study of data from 2010 to 2018 showed that financial distress among rural hospitals has increased.

“In many areas, the population is declining and their case mix is deteriorating, and they have a lot of requirements to invest in capital,” said study author Michael Chernew, a professor of healthcare policy at Harvard. “And if they don’t — or even sometimes if they do — patients have a tendency to want to sometimes go to bigger centers further away.”

Chernew says the impulse to look for a merger deal with a large group is understandable.

“It’s not as if there’s some magic solution to this problem,” he said.

Kramer won’t say exactly which systems he’s in talks with, but his vision is clearer these days in the wake of the Covenant failure.

“You learn a lot,” he said. “In these types of relationships, as in life, you want to make sure that you’re identifying the right partner.”

One thing he is focused on is preserving a good range of functions at the Putnam site.

“This needs to be a hospital, not an ambulatory setting,” he said. “What we know we don’t want is a situation where the population is put in a position where anything that is specialized gets sent to a mothership.”

“We’re actively involved in conversations with larger systems, regardless of whether there’s a relationship potential, because we feel that there is always something that we can learn,” he added. “But what we’re also making sure that we’re doing is telling our story. We’re a small community hospital, but we have a lot of good things happening here. We’re making a real difference for this population.”

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