Doylestown Health seeks buyer for Pine Run amid 'extraordinary and unprecedented' financial losses

Doylestown Health is considering offers from companies interested in purchasing its nonprofit Pine Run Retirement Community and a sale is expected to be finalized later this year.

Jim Brexler, CEO of the health system, said Thursday he met with residents and staff and management at the Ferry Road complex about the pending sale, which is in the preliminary stages. No potential buyer has been identified yet, Brexler added.

The Pine Run Community is comprised of 517 units and beds and provides a continuum of senior services with independent living, memory care and skilled nursing care at Pine Run Residential Care, and assisted living and specialized memory care units at Pine Run Lakeview.

The long-term care complex has been consistently recognized regionally and nationally and its skilled nursing home has been named among the best in the country for 2020-2021 by U.S. News & World Report.

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Where is Doylestown Health in the process of selling the Pine Run?

Financial advisors for the health system and hospital management are vetting a handful of finalists who submitted initial non-binding Indications of Interest, Brexler said. A sale requires multiple hospital and health system board approvals and is unlikely to be finalized until at least September.

Skilled nursing facilities owners are required to notify the Pennsylvania Department of Health of any change in ownership at least 30 days before a change takes place, according to the Pennsylvania Department of Health, which licenses nursing homes.

The state health agency does not release information related to specific applications until after a Change in Ownership is complete, according to a state health department spokeswoman.

Will Doylestown Health continue providing medical care and services at Pine Run?

There are no specific commitments from potential buyers at this time, but it is Doylestown Health’s expectation to retain an affiliation with the Pine Run.

“It’s our intention to be affiliated to continue the medical service and critical programs there,” Brexler added.

Why is Doylestown Health looking to sell Pine Run?

The health system is experiencing “extraordinary and unprecedented” financial hardships as a result of the COVID-19 pandemic and continuing high inflation, Brexler said.

Doylestown Health, which operates Doylestown Hospital and other clinics and urgent care facilities as well as Pine Run, reported an operating loss of $24.34 million for the 12-month period ending Sept. 30.

In December, Doylestown Health told Becker’s Hospital Review that it has been in discussions with lenders to potentially change agreement terms. The group is also working with ECG, a national healthcare consulting firm to develop a financial strategy.

Moody’s Investors Service rating has downgraded Doylestown Health’s revenue bond rating twice in the last year. Most recently the rating dropped from B3 to Ba3 in late December, according to Becker's Hospital Review.

Also in December, S&P Global Ratings downgraded the health system’s credit score from "BB" to "CCC" amid concern it will not meet several debt obligations and covenants, including a required number of days of cash on hand, according to a Dec. 27 Becker’s Hospital Review.

S&P's downgrade also reflects a "steep decline in operating performance" amid a high cash burn rate and elevated labor costs, according to Becker’s.

Last June Moody’s downgraded the health system’s bond rating to Ba3 from Ba1, according to Becker’s Hospital Review. The downgrade reflected the hospital’s “significant and recent decline in operating performance and unrestricted cash reserves through fiscal 2022,” according to the article.

Moody's assigns its B3 rating for “obligations considered speculative and subject to high credit risk.” Entities that receive this rating may be experiencing financial instability or hold inadequate cash reserves relative to their business needs, debt or other financial obligations.

A Ba3 is the bond rating that indicates a higher level of concern that deteriorating economic conditions or company-specific development could hinder a bond issuer’s ability to meet its obligation.

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What is behind Doylestown Health’s financial problems?

The pandemic has eaten away at 40% of unrestricted funds, which the health system has used to cover almost $70 million in pandemic-related losses, Brexler said. Money the hospital received through various federal pandemic relief bills has only covered about 30% of the losses, he added.

Doylestown Health system does not have a large endowment or other funds it can draw from. Pre-pandemic the health system operated on a slim profit margin, and reinvested it into services, Brexler said.

In addition to the pandemic-related losses the health system has experienced a significant increase in costs, which insurers including Medicare have not covered.

Current contracts with commercial insurers were negotiated in 2019 pre-pandemic, and any revenue increase associated were marginal, meanwhile hyperinflation have increased operation costs almost 27%, Brexler added.

This article originally appeared on Bucks County Courier Times: Doylestown Health to pursue Pine Run sale amid massive financial losses