Lawrence General's 'bold move' to buy 2 Steward hospitals, and what's next

Abha Agrawal, MD, an internal medicine physician, joined Lawrence General Hospital as CEO in January. Four months later, Steward Health Care went bankrupt and left two nearby hospitals at risk of closure.

 

Dr. Agrawal had a tough decision to make: acquire the financially struggling hospitals or leave the community without appropriate access to care. Steward put its hospitals up for auction in August and Lawrence General was ready to purchase Holy Family Hospital locations in Methuen and Haverhill, Mass.

"We really felt along with the board of trustees that if any of those [hospitals] closed, it would have a devastating impact on our community as well as our hospital," said Dr. Agrawal at the Becker's CEO+CFO Roundtable on Nov. 11 in Chicago. "They see about the same number of ER visits combined as we have. So the closure would've had a devastating impact. We made a bold move to consider acquiring those two hospitals."

It was a bold move because Lawrence General didn't have a strong enough balance sheet to acquire the hospitals without additional support from Massachusetts. The safety net hospital, which has a payer mix of around 70% government payers, reported a $31 million loss last year, with about 10% negative margin.

"Task number one for me is to stabilize Lawrence General Health's finances because you cannot do anything unless you do that. I'm happy to report we were able to have a lift of $25 million just in nine months of [my] being there," said Dr. Agrawal.

The executive team focused on cost reduction, especially for labor costs, and growing volume. Dr. Agrawal also zeroed in on innovating with the 340B program, which will continue after integrating the two new hospitals, and contract renegotiations.

"You can do everything, but if you're not being paid fairly for the same amount of work that the hospital next door does, you simply cannot make the arithmetic work," said Dr. Agrawal.

Lawrence General signed the paperwork for the acquisitions on Aug. 29 and took over the hospitals within 30 days time.The acquisition doubled Lawrence General's size, staff pool and revenue. But it also pulled back the veil on the tough financial realities for the newly acquired hospitals.

"Steward's performance for Holy Family Hospital for the last two to three years makes Lawrence General's last year performance look rosy," said Dr. Agrawal. "Now our job is to make the finances work for the combined entity, understanding that there is going to be a pathway to profitability. Our most immediate thing is to stabilize clinical operations and make sure to maintain access to care, which is the reason we did the [acquisition] to start with."

The silver lining is Lawrence General is now the dominant provider group in the region, and can create a system of scale and stability. The organization can now forge partnerships and collaborate with others to continue growing.

"I'm very excited about that from a financial perspective as well," said Dr. Agrawal. "Lawrence General has a tremendous focus and a track record of both quality and equity…We hope to bring the same focus on quality and equity to the new system now. Lastly, this integration provides us unique opportunities from a financial profit as well as stabilization perspective because we can reduce duplication in clinical service lines."

The hospitals can also share technology and expertise within the shared service model.

"In spite of all the bad financial news, I'm super excited about the possibilities," said Dr. Agrawal.

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