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What’s going to happen to Shasta Regional?

hospital-blue-sign

“The finances of this are incredibly intricate and intertwined … There’s no way to analyze it from far away and figure out what’s going on.” – Dr. David Johnson, Shasta Regional Medical Center board president, as quoted in the Record Searchlight.

That sounded like a challenge. Could I gather enough information from public sources to reasonably predict the future of Shasta Regional?

The Searchlight helpfully provided a copy of parent company Hospital Partners of America’s (HPA) bankruptcy declaration, made under penalty of perjury. Other public records readily available include the annual and quarterly reports for Medical Properties Trust (MPT), Shasta Regional’s landlord, and financial reports available from the California Office of Statewide Health Planning and Development for Shasta Regional itself.

From these documents I would deduce that MPT is still a viable public organization, although it is dependent for its rents from only eight hospital operating companies (one of which just declared bankruptcy). HPA is bankrupt, but if its properties are worth substantially more than book value, HPA could recover. The picture for Shasta Regional is indeed unclear.

Three local factors cloud Shasta Regional’s prospects:

Uneven Profitability
According to data at the California Office of Statewide Health Planning and Development, Shasta Regional lost $13.7 million in 2005, made $118,000 in 2006, lost $6.3 million in 2007, and made $3.2 million in the first two quarters of 2008.

Lack of liquidity
W. Christopher Shea, vice president and secretary for SRMC Management, in his bankruptcy declaration describes “… the dire liquidity situation at the Shasta Regional Medical Center,” which caused HPA to “amend the bylaws of Shasta Management to appoint an ‘independent director’ approved by MPT Development in its sole discretion and to require that the filing of a bankruptcy case for Shasta Operating or any other ‘extraordinary’ action require the consent of the newly appointed independent director.”

Obligations
Included in the bankruptcy declaration were indications that Shasta Regional owes HPA $17.3 million and MPT $60 million in accelerated lease payments.

Looking outward

External factors may shape Shasta’s future as well. If commercial real estate is declining in value (which was a primary cause of Lehman Brothers’ failure, according to their former chief financial officer) selling to a buyer who can operate profitably becomes less likely. Adverse changes in cost and availability of capital are also possible.

Should we believe HPA assurances that Shasta Regional will continue to operate without disruption, despite HPA’s bankruptcy? It’s possible. As long as quarterly results are positive and there is a chance that HPA can sell one of its other hospitals to emerge from bankruptcy, there is hope. In the end, perhaps Dr. Johnson is right that there are too many unknowns for an outsider to make an informed determination.

Jim Gore has a bachelor’s degree from Cal Poly San Luis Obispo in Computer Science and a Master’s in Business Administration from California State University, Fullerton. Recently retired from Shasta College, a new hobby is scanning financial news stories for items of local interest. Disclaimer: The author owns real estate that would likely be affected by the closure of Shasta Regional.

JimG

has been writing computer programs since 1970, and is still debugging them. The first modem he used was as big as a washing machine but not nearly as useful.

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