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Community Healthcare plans projects in Hobart, East Chicago and Munster

Community Hospital is shown Munster Ind. Wednesday October 10 2012.   | Stephanie Dowell~Sun-Times Medi

Community Hospital is shown in Munster, Ind. Wednesday October 10, 2012. | Stephanie Dowell~Sun-Times Media

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Updated: November 15, 2012 6:21AM



The corporate parent of Munster-based Community Healthcare System announced it is seeking up to $225 million in bonds from the Indiana Finance Authority to refinance its long-term debt at lower interest rates and renovate and expand its three hospitals.

Community is seeking the tax-exempt bond issue at an Oct. 16 hearing in Indianapolis to refinance bonds previously issued in 2004, 2006 and 2008. Community Healthcare Chief Operating Officer John Gorski estimated the not-for-profit system would save more than $6 million over the 30-year life of the bonds.

Health care experts say that $6 million is money that can go toward medical services, instead of debt repayment.

The request is subject to the Finance Authority’s approval and a review by credit rating agency Standard & Poor’s, said Gorski, who pointed out that most of the refinanced bonds were issued at variable rates and will be refinanced at fixed rates.

“You get variable rate bonds because the interest rates are so low, but then they change,” he said. “In 2007 and 2008 many municipalities and hospitals bought variable rate bonds and took a killing. But interest rates are really low now, the lowest they’ve been in years. And in the long run fixed rate bonds are more stable moving forward with less volatility.”

While the request is for $225 million, Gorski said the actual amount will be under $200 million.

Gorski said Community Healthcare would also use some $75 million from bond proceeds to finance construction and renovation projects at St. Catherine Hospital in East Chicago, St. Mary Medical Center in Hobart and Community’s largest facility in Munster. The system will also supplement funding of the construction projects with money from operations.

Looking ahead

The projects include:

A $3 million renovation of a St. Catherine Hospital wing to consolidate behavioral health services from all three hospitals there.

Renovation of the surgery departments at the Community Hospital of Munster and remodeling patient rooms, perhaps converting some semi-private rooms to private rooms and potentially adding new beds, a $30 million to $35 million effort for the hospital, which is licensed for 427 beds.

Building a two-story patient tower at St. Mary Medical Center that would add 20 intensive care and 26 telemetry beds in a project slated to cost $35 million to $40 million, while updating the surgical suites there. The new tower would have the capacity to expand to six floors and 76 beds.

The projects at St. Catherine and Community hospitals are slated to begin in the next few months, while plans for the new tower at St. Mary Medical Center have not yet been finalized and no starting date has been set.

“This is part of our long-term strategic plan, but the demand is here now and we have the financing. This isn’t a case of ‘Build it and they will come.’ It’s more like: ‘We have them come and wait, and then we build it.’ We make sure there is a need before we build it.”

Growth on the horizon

Gorski said competition from the newly opened Porter Regional Health in Valparaiso has not dampened demand for services at St. Mary Medical Center.

“Demand has been growing there and with the addition of (Community Healthcare’s) Valparaiso Diagnostic Center we’re seeing increasing inpatient referrals from Porter County to St. Mary’s,” he said. “We’re not worried about competition. If we continue to provide quality services we’ll do just fine.”

Gorski denied rumors of potential merger or affiliation talks with other health systems, including Indianapolis-based IU Health.

“We haven’t been approached or met with IU Health,” he said. “We have been approached in the past by other systems, and we’ve decided not to do any affiliation at this point in time. But we’re always willing to talk to interested parties.”

In February 2013 Community Healthcare will open a $17 million, 55,000-square-foot outpatient clinic in Valparaiso with Memorial Hospital of South Bend. The Valparaiso Health Center of St. Mary Medical Center will serve Porter County residents and feed St. Mary’s.

Bond refinancing trends

Pierre Bogacz, managing director of Tampa, Fla.-based HFA Partners, said many hospitals have been slow to take advantage of historically low interest rates. Bagacz said year-to-date hospital bond issues through July 31, 2012 rose by 30 percent over 2011, from 215 bond issues worth $13.4 billion to 251 issues worth $17.4 billion in 2012.

He said the projected $30 billion hospital bond issue volume for 2012 figure lags behind other market sectors and is half of the $60 billion health care bond volume for 2008.

Bogacz said hospitals may be too preoccupied by more pressing issues to undertake refinancing. Hospitals face long-term challenges from health care reform initiatives, state Medicare and Medicaid reimbursement cuts, and market uncertainty.

“We know many hospitals have non-essential projects on hold because of the uncertainty they feel about the direction of health care,” he said. “If you put those on hold, you don’t have to borrow. But with the record low interest rates, you’d think you’d seen more refinancing.”

He said the $6 million in interest savings from refinancing allows Community Healthcare to reinvest that money to renovate facilities or purchase new equipment.

“It gives them more cash on hand and ultimately goes to improve patient care,” he said.

Ed Abel, health care services director for Indianapolis-based consulting and accounting firm Blue & Co., said hospitals are refinancing their bond debt for the same reasons many Hoosiers are refinancing their home mortgages.

“Interest rates are at historic lows and will likely never be lower,” Abel said. “But unlike home refinancing, tax-exempt debt (bonds) can only be refinanced once.”

Abel said with health care reform under the Affordable Care Act there is even greater impetus on hospitals to reduce the costs of providing care.

“That $6 million won’t directly affect patient care, but the money they save on interest can be applied to doctors, nurses, supplies and new building projects.”



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