Windemere Suffers Losses

By JULIA WELLS
Gazette Senior Writer

Operating losses at the Windemere Nursing Home and Rehabilitation Center spiraled to $567,000 last year, triggering poor marks from auditors and raising hard new questions about whether the Island's only nursing home can ever escape the destitute financial condition that has plagued it since day one.

The Windemere operating loss is nearly double the projected loss for the year, and reportable conditions in the nursing home audit will now trigger an automatic default on the Martha's Vineyard Hospital's mortgage with Compass Bank.

The hospital also lost $376,000 last year, bringing the combined loss for the two institutions to $946,550

The losses will be offset by fund-raising monies and endowment income, nearly all of it from the hospital side.

"Windemere certainly is a concern for us, and this certainly raises a question about how long the consolidated organization can continue to absorb this kind of loss - the short answer is not very long," said hospital chief executive officer Kevin Burchill.

Hospital leaders released the draft results of the annual audit for both the hospital and Windemere this week. The hospital fiscal year ended on March 31. The Windemere fiscal year ended on Dec. 31. The corporate name of the nursing home is WNR Inc.

The two institutions have been financially combined since December, when the hospital paid to retire a $2.5 million bond for the nursing home.

Despite the year-end operating loss, lower cash reserves, lower working capital and higher bad debt, hospital leaders remain sanguine about the financial outlook for the hospital. Mr. Burchill noted that the reportable conditions for the nursing home do not appear in the audit for the combined institution.

"The health of the hospital is right where we want it to be," said Mr. Burchill. "We held our own on volume and we've managed our expenses. I wish we could dwell on the hospital story because that is a good story - that's a home run for 12 months," he added.

Mr. Burchill said hospital trustees have called a special board meeting for this month to discuss the ongoing problems at Windemere. The hospital board ordinarily does not meet in June.

"This was a major topic of discussion at the [hospital] board meeting last Saturday," said hospital board chairman Fred B. Morgan Jr.

"Expenses are too high,'' Mr. Burchill said. Among other things, he said the hospital board has demanded an action plan from Windemere managers.

WNR board chairman John MacKenty said work is already under way on the action plan, which he said will likely be patterned from a review of the nursing home by an independent consultant last year.

The report from SBV Associates found that under a best-case scenario Windemere could possibly break even or lose about $100,000 a year, but only with a series of strict cost-cutting measures and diligent case-mix management.

Hospital and WNR leaders said sloppy management practices, including poor internal cash controls, unbooked legal fees and bad debt were just a few of the problems that they discovered after the exit late last year of Haelen Health Systems Inc., the Haverhill company that managed the nursing home for two years following a Chapter 7 bankruptcy.

The projected operating loss for Windemere was about $300,000 when the books were closed in December.

The hospital and Haelen are now engaged in civil litigation against each other in Suffolk County Superior Court.

Windemere management is is now under the aegis of the hospital; a single administrator was hired by the hospital late last year to run the nursing home.

"What the hospital did is it bought some time for Windemere to put its house in order - and it's clearly not in order - but we didn't know how bad it really was," said Mr. MacKenty.

Hospital chief financial officer Tim Walsh said a new accounting system is in place at the nursing home.

"We're not happy with what we found there for books and records, but we already have that accounting system put back together and we are going to make hay with this," Mr. Walsh said.

But even with tighter controls on spending, first quarter financial statements for Windemere show a troubling picture of continued operating losses. The nursing home lost just over $100,000 in the first three months of the year, putting it on track to lose about $400,000 by the end of the year. Mr. Burchill said the goal is to pare the loss back to the $100,000 best-case scenario sketched by SBV Associates in its report.

The dismal financial report for Windemere contrasts sharply with an upbeat fund-raising appeal letter that went out to some 8,500 Island residents last week.

"Morale at Windemere is at an all-time high. . . . Our goal for 2001 is to try for a break-even budget," Mr. MacKenty wrote in the letter.

The financial disarray at Windemere can be tracked back to 1994, when the nursing home was first built using an $8 million bond. Windemere was in default on the bond almost as soon as the doors opened, and 18 months later the institution declared Chapter 7 bankruptcy.

The Windemere bankruptcy led to a Chapter 11 bankruptcy for the hospital, and a turnaround team led by an emergency board of trustees rescued the hospital. Later a new board of trustees refinanced the $8 million bond, and Massachusetts Financial Services (MFS) agreed to reduce the bond to $2.5 million after certain payments and concessions from the hospital. But Windemere could not carry the debt on a $2.5 million bond, and the nursing home quickly went into default on the new bond as well. Closure was a real possibility.

Late last year the hospital, which was still losing money but had boosted its own cash reserves, in part because of a windfall settlement from Medicare, decided to buy back the Windemere bond, paying $1.5 million for the $2.5 million bond. At the same time the hospital decided to take out a $2.5 million mortgage to consolidate hospital debt and replenish the cash reserves used to rescue Windemere. The lender is Compass Bank, a New Bedford bank with offices on the Vineyard. The collateral is the entire hospital campus.

Auditors have raised questions about the ability of Windemere "to continue as a going concern;" this is known as a reportable condition. The condition will now trigger an automatic default on the mortgage, and Mr. Burchill said hospital leaders will meet shortly with bank officials to discuss the situation. He said at this juncture foreclosure is unlikely.

Year-end financial reports for the hospital and Windemere come just weeks after voters in five of the six Vineyard towns agreed to funnel $500,000 in public tax dollars into the hospital (voters in Aquinnah will act on the request this month). The money is intended to help defray operating losses in the emergency room.

Mr. Burchill said the new money comes at an auspicious time.

"The community is now standing with us to help us move forward," he said, adding: "The money for the ER is going to go to the ER, and a stronger ER means a stronger hospital. This could not have come at a better time - it was absolutely the right medicine for us."

The $500,000 is structured as an inter-municipal agreement that will go out to bid on a yearly basis. Mr. Burchill said next year Windemere could be the bidder. "This may be a good opportunity for some sort of subsidy [for Windemere]," he said.