‘We’ve got to get it right’: Thomas Health CEO recounts events leading to bankruptcy and what it will take to move forward – Charleston Gazette-Mail

When Dan Lauffer ascended in 1998 to CEO at Saint Francis Hospital, his first post as chief executive, he assumed he had his job figured out.

It would consist mostly of days examining profit-and-loss sheets, keeping staffers happy and otherwise maintaining the status quo for an industry that developed exponentially during the 20th century. Being nimble under pressure didnt seem to be a prerequisite.

But at age 61 and deep into a run as CEO with Thomas Health that began as a physician assistant and continued to a stint as director of surgery service, Lauffer laughs at his earlier naivet. Lauffers duties have drastically evolved along with the ever-changing logistics of running a hospital.

Thats never been more evident than in 2020, when Thomas Health filed and emerged from Chapter 11 bankruptcy in a roughly seven-month span. A $60.1 million bond sale will help whittle $145 million in debt and provide cash to cover hospital operations. That includes facilities at the main Thomas Memorial Hospital in South Charleston as well as sister properties Saint Francis Hospital and THS Physician Partners.

The challenge of reorganization was compounded by the coronavirus pandemic. Gov. Jim Justices April order to suspend elective surgeries prompted Thomas Health to furlough 584 of its 1,663 employees. Thomas continued to pay for their benefits. All but 80 have returned to work. Fifty new employees have been hired to fill gaps.

Still, the COVID-19 crisis is only one obstacle Lauffer said Thomas Health faces. He sat down with the Charleston Gazette-Mail to discuss the decision to enter into Chapter 11, Thomas Healths future and other challenges facing not only his organization but West Virginia and the nation.

CGM: Is seven months a normal turnaround from announcing bankruptcy to emerging from it? Was there an underlying factor that allowed that to happen during such a tight time frame?

Dan Lauffer: I think all of the prework and some of the things we did leading up to the filing in January allowed us the ability to move forward and the Chapter 11 process to take place.

We were sort of looking at a 10-year period from 2007 to 2017. You had to think about what happened over those 10 years. You had the housing crisis of 2008. In 2010, the Affordable Care Act came out and it changed the way providers and hospitals were reimbursed significantly. You throw in on top of that West Virginias own economic issues related to a declining population, the demise of the coal industry, lack of a diverse economy ... We were looking at patterns, business trends that revenues were going down, expenses were going up. Theres no way to go back in time and recapture lost revenue of that magnitude without thinking through our options.

CGM: What were those options?

Lauffer: Affiliate, get out or get a restructuring done of our balance sheet. And we made that decision probably as early as we possibly could. Why? Because we recognized the time factor involved: what it would take to get there and the money youd have to have available to allow you to have optionality, being able to take a look at the various things that could be offered in this process. Many, many hospitals, many companies wait until they cant make payroll and then they want to talk about a bankruptcy plan. You cant plan a bankruptcy with no money. ... Thats clearly where our board and our medical staff and our leadership did not want to be. We felt strongly that the trends we were seeing were not just short-term things. So it just became evident that we had to do something to cover the long-term debt on the balance sheet.

CGM: How difficult was it to accomplish with the resources available inside your own buildings?

Lauffer: Thats one of the things that were proud of, that we went through this, but that we didnt allow it to affect services, didnt allow it to shut things down. Admittedly, prior to this, we had to take a hard look at consolidating services and ways we could do things more economically. Wed actually brought in a consultant in 2017 who worked here through 2018 making recommendations about how we could better align ourselves with services we provide and maximize our revenue while reducing our expenses. So we made some headway there from an operational perspective, but it clearly wasnt enough.

Lauffer: Because even while were trying to make up for that loss of revenues, we continuously see through the Affordable Care Act reductions in reimbursements. Weve seen an incredible shift of payers in West Virginia. What I mean by that: As these coal companies and coal miners lost their jobs, they had commercially insured health insurance. When they lost that, they went to Medicaid. Gov. [Earl Ray] Tomblin increased Medicaid expansion in 2014 and it exceeded anyones projections as to how many people would actually be added to the Medicaid rolls.

So if you take a look at West Virginia and see some of the statistics I think people need to hear, there are more than 500,000 people covered by Medicaid in the state. Another 400,000 are covered by Medicare. And Im not picking on PEIA [the state Public Employees Insurance Agency] public employees are an integral part of services that West Virginians need, government is obviously a necessary thing but PEIA has another 230,000 enrolled in it. Well, do the math. Add it up. Theres about 1.2 million people in a state of 1.7 million being covered by government programs. Let me tell you about government programs: It doesnt cover the cost of us providing the service to them. Seventy-five to 80% of our business [is] services that we receive payment [for] that doesnt cover the cost of providing the care.

What we have to understand is this: When you cant provide the care to cover the cost, you have patients who are not seeking care because they cant afford care. So that care goes unchecked. And this is all pre-pandemic, but now were in the middle of a pandemic and its even worse. Theres a 38% increase in the number of cardiac deaths and strokes nationwide and its because people are avoiding the emergency room and avoiding seeing their doctor because they dont want to get COVID. They think coming to the hospital theyre going to get exposed. Whats happening here is we have an insatiable desire for health care.

We have a population whose health habits and statistically as Gov. Justice has said during the pandemic were probably the most vulnerable population in the country because were aged; we have multiple conditions like high blood pressure, diabetes, cardiac disease; we smoke too much, we drink too much, we eat too much. And these services are continuously accessed, but the sicker we become the more conditions we live with and the longer we live the more it costs to take care of everybody. Its just the nature of the beast.

CGM: And the funding hasnt kept up.

Lauffer: No. If anything the funding has become expanded to say we have to pay for more drugs, more technology, weve got to pay for more supplies. So suddenly the cost for providing that care is outstripping our ability to generate revenue to pay our employees, cover our supply costs, pay for our buildings and all the rest of that stuff. So theres a lot of that occurring thats affecting it. The system itself is changing and has to change. [Y]oure going to see a lot more telemedicine, telehealth and thats going to change what we do. But, clearly, the business model that was here pre-pandemic, pre-Chapter 11 is that 75 to 80% of our costs are not covered by three programs that cover 80% of [West Virginias] population. What Im about to say is we cant do Chapter 11 twice.

CGM: Which means youve got to get it right this time?

Lauffer: Weve got to get it right. But weve got to have some changes. Status quo isnt going to do it. This state needs a severe business plan. It needs a business plan for the next 10 years to figure out how were going to diversify this economy and begin to grow businesses, attract people to the state, keep people here who are valuable in terms of labor pool so we can generate a better economy. If we stay the way we are if we dont change things youre going to see other hospitals and other entities continue to have issues like us that we had to file Chapter 11.

CGM: Could there be a blessing to come out of your situation? That you didnt want to explore Chapter 11, but you embraced it because it was what you had to do? Maybe serve as an example to other organizations and perhaps the state as a whole to be willing to evolve and change with the times even if at first reluctantly?

Lauffer: Thats it. Its a brave, painful spot to hold because Id much rather have someone else do it for me (laughs). This was not easy.

There are a lot of things weve had to overcome on top of West Virginias drug addiction issue. Here we are in the middle of an economic downturn, in the middle of an epidemic and then have a pandemic thrown on top of that. Its just like how much more can we take? I will tell you that affected things because there was an offer being considered in January by the bondholders, but then the pandemic hit.

The people who had that offer on the table withdrew it because the market was tanking. So we had to go back and ask people to reconsider and other offers were made. So there was a lot of up, down and agony in this process. There were some days we didnt know if we thought wed get out of it. Because the only option you have if you cant get through a reorganization is you have to sell to somebody. And there are obvious issues related to that. Would they reduce services, lay off people? Our issue was we wanted to save our jobs, we wanted to save our community hospital.

CGM: Whats the biggest difference from an operational or procedural standpoint now?

Lauffer: We have to be very careful about capital equipment and capital purchases. We have to maintain our facilities, but we have to be certain of a ROI on capital. We have to be much tighter on supply costs, on managing our supplies. We have to be much tighter on labor.

Ill tell you another one: We have to collect up-front collections as much as we hate to do that because we know there are people hurting out there. Its hard to do when people are losing their jobs but theyre saying, My gallbladder is killing me, Ive got to get it out because the doctor says Im going to get an infection. Were going to do the case. Were not going to let somebody suffer. But when you say, You owe this and they say they cant pay it, we say, Lets get you on a payment plan and work through this. People dont anticipate this kind of stuff, they dont plan for it.

And lets face it, some of the insurances that our own folks have, youve got people with $6,000, $8,000, $10,000 deductibles. Most people dont have $8,000 in their bank account just waiting for an illness. Thats really what the problem is health care has gotten to the point that its not insurance anymore, its catastrophic insurance. The country is struggling with this. What do we do with health care? Its a problem before we went into Chapter 11 and its a problem now.

Im gonna pick on PEIA a little bit. They pay us less than Medicaid less than Medicaid. How can the state continue to ask us to provide services and not [interrupt] services and [close] hospitals if PEIA is not paying its physicians or hospitals at least at a rate they can break even? Name me another business thats paid at 80% below cost and can still survive. I cant think of any.

CGM: What kind of hit did not having elective procedures have on your bottom line?

Lauffer: It was huge. Huge. There was lost revenue there, probably $10 million a month or more. Because of the loss of elective surgeries, we had to furlough 500 employees away from the hospital. Were hopeful it would be a temporary period and we paid their benefits while theyre away. Most were off up to three months. We want to treat our employees right to get through this.

And when you think about it, some surgeries are not really truly elective. You have a colonoscopy and you find a polyp and the polyp is cancerous. Youre not going to die today, youre not going to die tomorrow, but who wants to sit around with cancer and it needs to be removed? So youve got to get them in here. There are certain eye surgeries youve got to have to maintain sight.

Yes, it might seem elective because were not doing it on an emergency basis, but disease progresses. It can progress to something more than your life. A limb or an organ could be in danger. It became an issue where you saw a backlog of folks needing to have surgery.

CGM: How do you deal with having to furlough that many people?

Lauffer: I think we communicate as much as we can. I think were as genuine as we can be with people. This has been hard, very hard. You dont want to hurt peoples livelihood, you dont want to hurt peoples family life, but we dont have a choice. Its the nature of the beast.

And this is going to go on. Weve got the school year now to contend with and were concerned. Weve got this issue: We bring the staff back. What happens if Kanawha County goes to red? Now, Ive got a nursing staff with children at home. If they cant send the kids to school, where are they going to send them? Some may call in saying, I cant come in, Ive got to take care of my kids. I lose a staff member. How do we take care of that? Those are all the things were having to deal with in this process. So is everybody else. Were not alone.

But you get it. Life is not what it was and its never going to be. And were going to have to adjust to it.

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'We've got to get it right': Thomas Health CEO recounts events leading to bankruptcy and what it will take to move forward - Charleston Gazette-Mail