What can we learn from the failed negotiations with Dignity Health to take over Ashland Community Hospital?
First, know the finances of any merger partner, and be real about why Dignity withdrew.
On Oct. 3, Moody's Investors Service officially downgraded Dignity's credit rating that investors and lenders rely on when deciding where to put their money with the least risk.
Among the factors Moody's cited for the downgrade (which anyone can read online) were "a third year of poor performance measures" and "the organization's 18 percent increase in debt since fiscal year end." Dignity's "operating loss in FY 2012 measured $95.6 million." Operating cash flow was "relatively weak."
Moody's said Dignity's credit rating could be downgraded further in the event of "ongoing persistence of poor operating performance; the issuance of additional debt beyond what can be accommodated by cash flow and liquidity growth; (and) material decline in unrestricted cash."
This credit rating is particularly important to Dignity, the fifth-largest hospital chain in the country, because its "Horizon 2020" strategic plan calls for tripling in size over the next eight years and going national, instead of operating just in California, Nevada and Arizona.
Dignity and ACH both say that their financial discussions before the chain withdrew were confidential. We can only guess that Dignity decided that its overall strategic plan would be jeopardized by taking on even more operating losses and more debt.
The second lesson for our community is to look carefully at the fine print of any agreement, not just the promises.
ACH CEO Mark Marchetti said in an email dated Sept. 18 that a Dignity takeover would ensure "continued employment of approximately 400 people." Marchetti and spokespeople for the ACH board said services would be maintained for at least five years, there would still be local control, and patient rights would not be affected since Dignity was supposedly no longer a Catholic chain.
At the Oct. 16 Ashland City Council meeting, board chairman Doug Gentry asked us to imagine the hospital five years from now, "just like it is now — but better."
Once an official summary was posted on the city's website, however, we all could see that none of those commitments were actually locked in.
Dignity had the absolute right to cut services — even in the first five years — to "respond or adapt to ACH's financial condition or performance," the summary revealed.
The chain was supposed to offer jobs to "substantially all" employees — but there was no written commitment for how long. A month? A year?
Employees' pay rates and benefits could be cut at Dignity's discretion, with no employee input and no assurance that the money saved would be used for ACH rather than the chain's expansion plans in other states.
"Dignity Health's policies for capital projects and strategic initiatives" would determine ACH funding.
Dignity had the right, with 60 days' notice, to "sell, transfer, lease, exchange, consolidate, option, convey, close or otherwise dispose of all or substantially all of the assets of ACH; or transfer control, responsibility or governance over ACH from Dignity Health or its affiliates."
As the Mail Tribune reported on Oct. 16, community residents went to the Ashland City Council meeting that night to ask the council to require that these major problems with the agreement be addressed before negotiations with Dignity were completed. Unfortunately, the community representatives were not given a chance to speak.
Experiences like that lead to the third lesson that should guide the new search for alternatives. This time, employees and the community must be informed and involved in a much more meaningful way.
Those who wanted improvements in the Dignity deal and those who supported it as is share the same goals and the same questions. Are there creative solutions that have not been considered? Are there management decisions that have contributed to the deficits? Is there a merger partner that would be more committed to ACH employees and our community's values?
The Mail Tribune's editorial on Nov. 1, "Stopping the bleeding," argued that "Ashland residents must come to terms with the idea of a hospital that is less than it was but still functioning."
Even if that turns out to be true, shouldn't decisions about restructuring be made by our community and not by a distant chain whose priority is its own financial growth?
And shouldn't any commitments from a merger partner be spelled out in writing so employees and patients are protected by more than lofty promises?
Matt Witt is a writer and photographer who lives in Talent.