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Tuesday, December 18, 2018
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Health & Hospitals

EXCLUSIVE: Independent but Incomplete Analysis of Memorial Health’s Financial Management Released by Chatham County

Category: Health & Hospitals

By Lou Phelps, Savannah Business Journal

March 8, 2018 – Memorial Health, Inc., the umbrella corporation that owned Memorial Health University Medical Center, Inc.- Memorial Hospital - and a host of sub corps and real estate, was sold last month to HCA Healthcare, Inc.

But more than 19 months ago, after a deal to sell the hospital to Novant, Inc. of North Carolina fell through, the Chatham County Commissioners approved bringing in an independent financial firm to review the financial management practices of the hospital, in part because of what had been learned behind closed doors through the Novant negotiation process.  At the time, Maggie Gill was still CEO of the hospital system.  

The buildings and land – all the hard assets of Memorial Health, Inc. – were owned by the public, the taxpayers of Chatham County, and were the responsibility of the Chatham County Hospital Authority, as the appointed agents of the Chatham County Commissioners.

That study was just obtained today by the Savannah Business Journal, dated Feb. 22, 2018, and entitled “Financial and Operational Analysis of Memorial Health, Inc.”

Arnett Carbis Toothman LLP, considered a top hospital system analytics firm, was contracted back on July 5, 2016 by Chatham County after the sale to Novant ended in May 2016, when that corporation’s CEO withdraw from negotiations. At the time, he blamed the unreasonable requests, and questions, being asked by the Hospital Authority.

At least a majority of the members of the Memorial Health, Inc. Board of Directors appeared to be in full support of selling to Novant.  In that deal, Chatham County would have retained ownership of the hard assets, giving Novant a long-term lease.   

Why it took so long to receive the consulting firm's report, and whether it would have changed the decision by the Chatham County Hospital Authority and the County Commissioners to allow the sale of Memorial to HCA to go through, is not yet known.

Arnett Carbis Toothman conducted interviews, on-site visits, data analysis, and research related to this report from October 2016 through January 2017, yet their report was not released for another 12 months ... just a week or so after the HCA Healthcare, Inc. sale closed. 

The original timeline for the project was estimated to be 16 weeks or approximately 4 months from the start date which was originally scheduled in September 2016.  But, in a cover letter on the report, the company writes:  “Substantial work was delayed several weeks from the original start date to allow clarification with Memorial Health’s management team and legal counsel regarding the flow of information to Consultant. Additionally, Hurricane Mathew contributed to an additional delay of 2 weeks. Because of the timing of the start of this project, most of the information we reviewed included financial and utilization data through June 30, 2016. We did receive information for the quarter ended September 30, 2016 and some limited publicly available information through December 31, 2016. Further delays resulted when it was determined that additional information and analysis was needed related to Novant Health, Inc. We were requested by the County and CCHA to perform additional analysis before completing our report. We then requested an onsite meeting to perform a thorough review of board minutes from 2011, 2012 and 2013, to perform a more detailed review of all correspondence between Novant and Memorial Health System, to obtain a copy of and review a letter from Novant dated June 3, 2011 and to obtain and review all supporting documentation of payments to Novant for 2013, 2014 and 2015. We subsequently obtained a schedule of payments to Novant for the period requested but were not permitted to come onsite for the additional review and analysis since the Due Diligence related to the pending HCA acquisition of Memorial Health had consumed all available time and resources of the Memorial finance department. After months of waiting, we were instructed to complete our report without the additional information and analysis.”

Their evaluation and analysis was of Memorial Health, Inc. and its subsidiaries, with the information they eventually received. “Had we performed additional procedures, other items could have come to our attention and those items could be significant to the evaluation of your contractual relationship with the System,” the firm added. 

The cover letter also states that they intend to meet with County officials to discuss the results of our financial and operational assessment, “and to provide the System additional information related to potential improvements we have identified.”

The assumption is that the hospital system could have been run profitably was a different management team, or there would not have been interest by multiple companies to acquire the hospital system.


Financial covenants related to Annual Debt Service Coverage and Days Cash on Hand were calculated for all quarters from March 2015 through June 2016. Starting in 2017 the threshold for meeting the Debt Service Coverage ratio increased due to the additional debt service requirements of $11 million for principal payments that were deferred until 2017, according to the report, adding to the need to find a financial partner or sell the hospital.


The report found no discrepancies in the financial statements prepared by Memorial Health, Inc. for the past three to four years.


One recommendation in the report was to change the oversight of the physicians’ contracts, to move them from the Provident Health Services, Inc. structure to under Memorial Health, Inc.  Those contracts have historically been losing money, and negatively impacting the hospital.  HCA’s negotiations with contracted physicians, most of whom had independent practices that they sold to Memorial over the past 10 years, is not public information.


Over two years ago, Memorial Health, Inc. had to spend more than $10 million in payments to the Federal govt. and attorneys due to alleged over-compensation of physicians who had contracts at Memorial, versus the physician employees. 

Just this month, Memorial has been hit with another $1.3 million bill by the Federal govt. believed to be due to the findings of the Federal oversight process that Memorial had to agree to – three years of oversight of its billing and administrative practices – in order to have settled the larger case.

The report is organized into five sections: Operational Assessment; Reimbursement Analysis; Shared Service Contract; Revenue and Refunding Bonds Analysis; and a Review of Financial Statement Information that was released to the Board, the public and filed with the IRS.  

Here is the full report:




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