The rise and fall of BRMC
Published on November 17th, 1999
Dear Editor:
In 1981, I returned from training to practice ophthalmology with my mother, Margaret Horsley. The hospital was on the verge of bankruptcy. Fortunately, Wolfgang von Maack, the newly appointed CEO, was rapidly turning things around. The hospital, which before his arrival was losing millions, was now making millions, and during his seven year tenure, the debt was totally paid off and the mortgage burned. In addition, the institution was completely redecorated, re-equipped and updated with numerous additions and improvements, a noteworthy addition being the new maternity ward.
With tremendous improvements in the physical plant, and $5 million plus annual profit, the campus was so attractive that a for-profit hospital chain made an offer of $162 million for the campus. This offer did not include the church or academy. This offer was not entertained since the hospital was considered a birthright of the New England Adventist Church. Indeed, 100 years earlier the hospital site had been personally selected by the Adventist prophetess Ellen G. White. During President Von Maack's tenure, he had not only to manage the hospital but had to put up with the interference of the Adventist Health Systems North, who while contributing nothing to the hospital, were extracting nearly a million dollars a year in management fees.
Worst than their interference was their involvement in questionable financial ventures. He communicated these concerns to Elders Steinert, Follet, and Amundson, who were the responsible church leaders. But rather than siding with him, or hiring a consultant to sort things out, they supported the Adventist Health Systems North. This unfortunate decision may have been colored by Adventist Health Systems North's lavish hospitality which included such things as all expense paid visits to such places as Hawaii and Bermuda.
Ultimately, they decided to squeeze President von Maack out. This, despite his literally miraculous performance, which left $12 million in liquid assets, $12 million of real estate assets and a modest low interest bond debt of $6 million. The liquid assets were earning a much better interest rate than that which was being paid for the bond debt. In addition, before he left, he had nearly completed a new professional building.
When it was learned that the church leaders were trying to get rid of President von Maack, the entire medical staff approached them requesting that he be retained. They expressed grave doubts for the future of the institution should he leave. Similar support was voiced by local business leaders and by all non-clergy members of the Board of Trustees (6 of 11 positions were Seventh Day Adventist clergy). I personally spoke with Elders Follet and Amundson and made clear not only my deep concern but that this concern was widely shared. I also made sure Elders Amundson and Follet understood that even at the eleventh hour, President von Maack would stay on the conditions of a modest salary increase and no more church interference, (the salary would still have been one-third of the CEOs of surrounding hospitals, but the same as that of the Administrator of the much smaller Fuller Adventist Hos-pital in Taunton). In a letter to Elder Amundson, I stated that for want of a much deserved small salary increase, the church would lose millions.
The church leaders chose Frank Perez to be the new administrator. They paid him a much higher salary than Wolfgang von Maack had requested and in addition threw in many perks. The church leaders and Adventist Health Systems North were delighted with Mr. Perez in that he supported them by providing millions of dollars from hospital assets to underwrite the huge financial losses which were now surfacing from the bad investments of Adventist Health Systems North.
During Frank Perez's tenure, he rapidly went through the $12 million in liquid assets and the $12 million in real estate assets and then went on to borrow an additional $32 million of bond debt for a total loss during his tenure of $56 million. Also, in the process of taking on the additional bond debt, he encumbered the church and the academy, which had been left free and clear by Mr. von Maack. This was done with the support and acquiescence of Elder Charles Case, then the Chairman of the Board of Trustees.
While there are many areas that contributed to the huge financial losses under Mr. Perez, certainly one factor was the extremely poor timing of the church leaders in changing administrators just as the new professional building was being completed. This caused a crisis in confidence making it impossible to sell half of the professional building and requiring sweetheart deals on much of the half which was sold. Mr. Perez was also asleep at the wheel and did not keep up with the sweeping changes in health care reimbursement, which rapidly became an HMO insurance environment (health maintenance organization). This led to millions of dollars of lost business and put the hospital well behind its neighboring facilities.
Mr. Perez lived lavishly at hospital expense, having a luxury booth at the Boston Garden for entertaining and a getaway house on the Cape which he shared with Conference President and Chairman of the Board of Trustees, Elder Charles Case. Having basically sunk the ship, Frank Perez naturally took the first lifeboat out. Also, about the time of his departure, Adventist Health Systems North went defunct having run up a $45 million debt with its bad investments, much as President von Maack had foretold. The next administrator to come on the scene was Charles Ricks.
His immediate problem, in addition to the huge bond debt, were a liquidity crisis and almost no HMO contracts, all of which were thanks to Frank Perez. Besides cutting the staff and budget, the largest critical task Ricks faced was playing catch-up from behind on the HMO contracts. This necessitated that he make better deals than his competitors, and much better than would have been necessary had these contracts been negotiated on a timely basis along the way.
The Ricks administration was severely hampered by the dire financial straights that Perez had left them in. While they were able to come close to breaking even on the hospital operations, they could never begin to service the huge debt load that Perez had left them. Finally, early in 1997, Charles Ricks advised the Board of Directors that The Boston Regional Medical Center would not be able to make it into the future without a financial partner. The Board, therefore, agreed to have an investment banking firm assist the hospital in seeking a financial partner. Ultimately, an offer which almost seemed too good to be true was put forward by the Doctor's Corpor-ation Healthcare out of Phoenix, Arizona. This was for $52 million for 80 percent of BRMC, leaving Adventist Healthcare Corporation a 20 percent equity and a seat on the Board.
As an interim measure, the Doctor's Corporation Healthcare took over management of the hospital and began factoring its accounts receivable and encumbering all of its equipment and assets. When DCH ultimately pulled out of the deal, BRMC had virtually no operational capital and was forced to declare bankruptcy. It did not even have sufficient funds to do a formal Chapter 11 reorganizational filing which might have allowed them to survive.
Many local doctors and business leaders wondered why Ricks did not do a Chapter 11 reorganization early on instead of seeking a financial partner. Had he done so, it is likely that the hospital would have survived to this day. But even having proceeded with Doctor's Corporation Healthcare, it would have seemed that Ricks should have closely monitored what was going on and questioned the factoring of receivables and total encumberment of hospital equipment and assets.
It should be noted that the doctors, hospital employees, local business leaders, and all parties concerned were kept 100 percent in the dark by Mr. Ricks and we did not know up until the very end of the imminent bankruptcy.
In finally analysis, few of us would have any doubt that the hospital would be here now and doing well had Mr. Wolfgang von Maack been retained as the President and CEO. What makes the pill particularly bitter is that this was very clear at the time (Mr. Von Maack currently manages 27 heath care facilities simultaneously and profitably).
This, as far as I know is the worst financial disaster in the history of the Seventh Day Adventist Church. It is no fault of the church members, who have remained faithful and true, but is totally the responsibility of the top church leaders. The church must develop a system of accountability for its leaders. There should be audited financial statements, with an elected governing body of responsible church members to review these and empowered to take action if need be. Current Union President, Elder Ted Jones, feels that businessmen and not ministers should run the finances of the church. Naturally, action and not lip service is required.
Sincerely,
Will Horsley, M.D.
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