Lockout cost L+M $14.3 million, according to Fitch Ratings
New London — Last year’s strike and lockout of 800 nurses and technicians cost Lawrence + Memorial Hospital $14.3 million, including lost revenues from about 200 patients who went elsewhere, according to a leading bond rating organization.
Fitch Ratings said that the hospital had a negative operating margin of 4.7 percent expenses over revenues for the nine months ending June 30. Without the impact of the lockout and strike, the results would have been “break even,” Fitch said. The four-day strike last November was followed by a three-week lockout when the hospital hired replacement workers. A new labor agreement signed in January prohibits additional strikes through expiration of the contract on June 30, 2016.
In its report issued Thursday, Fitch downgraded L+M’s bond rating from A+ to A for a $50.7 million bond offering, and revised its ratings outlook to “stable” from “negative.”
Dmitry Feofilaktov, analyst at Fitch, said Monday that the impact of the strike and lockout was one of the factors that led to the downgrade.
“There were volume drops and other profit pressures,” he said. He said that while other hospitals are experiencing similar declines in patient volumes, L+M’s was “more intensified.”
The Fitch report said that despite the weaker cash flow and capital expenditures, L+M’s other financial indicators are strong. Among the positive signs are a 4.6 percent positive operating margin for The Westerly Hospital, acquired by the hospital’s parent company in 2013, putting it significantly ahead of projections.
L+M’s overall debt burden is comparatively low, Fitch noted, and it remains dominant in its market, proving about 68 percent of the care to patients in its primary service area.
Fitch said L+M has sufficient financial cushion to weather the temporary losses and that it expects the hospital will return to a positive operating margin over the next two years.
Mike O’Farrell, spokesman for L+M, said the downgrade was expected and that the decline in patient volumes at L+M is on par with other hospitals.
He emphasized that the “stable” rating outlook given by Fitch is a positive sign “given the labor situation and the industry in general.”
The strike and lockout, he said, “was a one-time event,” while the acquisition of The Westerly Hospital is a long-term positive factor that is contributing to financial health of the hospital’s parent corporation on an ongoing basis.
He added that the hospital is working on implementing recommendations made by the Berkeley Research Group after a two-month analysis of operations this spring. The consultants were asked to find areas most in need of improvement and suggest actions related to staffing, supply and nonlabor costs, revenue cycles, business office processes, patient length of stay and management of affiliated physician practices, among other areas. L+M and its affiliates employ about 3,500 people.
Actions recommended by the consultants will be taken over the next 18 months, O’Farrell said.
Matt O’Connor, spokesman for AFT Connecticut, said the union is seeking to clarify the Fitch rating information. AFT represents the two unions that represent the 800 nurses and technicians, as well as a third union that represents 800 health care workers.
“The release of the latest Fitch Ratings has raised a number of questions that we’re seeking to answer.” he said. “Once we’ve established which entity they’re actually rating, we’ll all have a clearer picture of what this means for the hospital as well as its professional caregivers, their patients and the community.”
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