Vidant's Plans need Infusion of Capital | Eastern North Carolina Now

    Recent media reports of declining revenue, lagging patient volume and reduced operating surplus have not slowed Vidant Health from plunging ahead with plans for numerous acquisitions, mergers and/or joint ventures, but to accomplish these goals Vidant needs an infusion of capital.

    Continued warnings by all three major bond ratings agencies (Moody's, Fitch and Standard & Poor) predict a negative financial outlook for non-profit hospitals in 2015, including Vidant. This is primarily due to reduced Medicare/Medicaid reimbursements, ongoing Medicare penalties, rising costs and decreasing patient volumes. Overbuilding, overextension, mergers and over marketing also contribute to this gloomy outlook.

    On March 4, 2015 an initial offer for $286,770,000 (subject to change) in Health Care Facilities Revenue Bonds was issued by the North Carolina Medical Care Commission (Commission). If successful, the Commission will lend the proceeds to Vidant Health and Vidant Medical Center. Detailed financial information disclosed in these documents provides an unusual opportunity for transparency.

    Moody's recent downgrade of Vidant Health's economic picture from Stable to Negative may have been predicated on information and materials that were not included in the Official Statement, but were furnished to Moody's Investors Service and Standard & Poor's Rating Services.

    Series 2015 Bond proceeds will be used to:

       1. Pay a portion of constructing and equipping various health care facilities, including a new Cancer Center

       2. Pay a portion of the interest accruing on Bonds through 4/1/2018

       3. Refund all outstanding Series 2008D Health Care Bonds - currently $119,715,000

       4. Pay the usual sale and issuance bond expenses incurred

    The main bond objective is construction of a new cancer center as promised by an earlier hospital administration. This project was planned in conjunction with the building of the heart center which opened in 2009: like two peas in a pod - matching structures side by side. Of course, these plans were made before Obamacare was passed. The cost estimate for construction and equipment is $170 million excluding financing costs of about $21 million.

    The success of the new cancer center is counting on an aggressive fundraising campaign by the Vidant Health Foundation to reach a goal of $40 million toward the construction costs. If not met, the balance will need to be generated through the operations of the Health System.

    Vidant plans to fund two new outpatient clinic facilities, conduct numerous repairs and provide equipment for certain facilities with an additional $39 million of the Series 2015 Bonds.

    Five year Capital Expenditures

    Vidant projected that capital expenditures for the next five years will be $892 million (2015-2019). We'll see how accurate this projection turns out to be.

    An overview of joint ventures and new acquisitions

    In 2014 with an initial investment of $500,000 each, Vidant formed a joint venture for a shared services partnership with WakeMed Health & Hospitals and Wake Forest Baptist Health.

    During 2014 Vidant acquired operation of several practices and buildings previously operated by Brody School of Medicine/ECU. The integration of these practices, although integral and critical to Vidant Medical Center, is estimated to lose approximately $3 million annually.

    In 2014 Vidant Health formed Coastal Plains Network, LLC., a clinically-integrated network throughout Vidant's 29-county service area. This network allows Vidant to collaborate with local physicians in Medicare Shared Service Programs and Accountable Care Organizations.

    Vidant Medical Group (Vidant physicians) formed a subsidiary - Vidant Medical Group Affiliates - who will perform billing functions for non-Vidant employed providers who will not participate in the Coastal Plains Network, LLC.

    In a 2015 Vidant proposed a joint venture with Onslow County Hospital Authority and CarolinaEast Health System. Vidant is expected to pay $30 million to Onslow and make a $9 million contribution to fund the initial working capital for the joint venture. Vidant proposes to have a 60 percent membership interest in the joint venture and be the managing partner. Onslow and Carolina East would each have a 20 percent interest.

    Publicly available documents confirm that the deal has yet to be completed and that Vidant Health cannot assure that it will be. Also, as always, the terms are subject to change.

    Last month Belhaven's Mayor Adam O'Neal traveled to Jacksonville in Onslow County and issued a warning: "If you're going to work with Vidant, you need to be careful"