Pandemic-fueled construction costs and overly optimistic operational expectations have saddled Sevier County Medical Center with an unplanned debt load of $7.4 million. The combination of lingering construction debt and bank loans underscore the fiscal tribulation of building a rural hospital from the ground up during trying times.
After weathering its first 14 months of operations, the newest hospital in Arkansas hit the financial wall in April. The 42,000-SF acute care facility was literally a couple of days away from closing if significant changes weren’t made.
“We were at a pinch point where we weren’t going to make payroll,” said Mike Branson, a member of the hospital’s board of governors.
Ten days after the Sevier County Quorum Court was confronted with that news, a third of the hospital’s 121-member staff was laid off. Thirty-nine jobs were eliminated.
“We had the management team look at each of the departments and identify the minimum manning levels to handle the current patient usage,” Branson said.
“That was a difficult task to do, but it had to be done,” said Stacy Dowdy, chief nursing officer at the hospital who was named CEO on Oct. 17 after holding the post on an interim basis.
The layoffs followed a specially called Quorum Court meeting on April 2 during which $145,000 was provided for temporary relief. County officials also served up a no-confidence vote regarding Dowdy’s predecessor: Lori House.
That led to an April 3 vote by the board of governors to not renew House’s employment contract, which had expired on May 31. Too much positive spin on the hospital’s financial condition and future prospects was blamed for eroding confidence in her leadership.
“I just don’t think all the information on how big a challenge we were facing was communicated, and there was a loss of trust,” said Branson, a retired Weyerhaeuser executive who joined the hospital board in 2023.
Other changes included the exodus of Steve Cole as chairman of the board and the addition of four nonvoting, advisory members: County Judge Sandra Dunn, Justices of the Peace Scottie Morris and Angie Walker, and Bruce Jackson, chairman of the Sevier County Medical Center Foundation.
“One of the things I’ve learned is you never want to waste a good crisis,” Branson said stoically. “It opens up all kinds of ways to improve things.
“I learned how important it was to know where you are, so there’s no wasted motion to get where you need to be. We started the process in late fall last year, and we were in the last steps when we ran into the pinch point with cash.”
That forced the board of governors to deal with the unpleasant task of reducing the hospital staff from 121 to 82.
$1 Million a Month
The job cuts were long overdue for a startup hospital that struggled to meet its monthly financial obligations and service debt never envisioned for it to shoulder.
A big load of debt was taken on when the hospital began staffing up nearly four months before opening in January 2023 with no revenue flowing. Another three months passed before the hospital was qualified for all-important Medicare and Medicaid payments.
“The startup took longer than expected, and the meter is running at $1 million a month,” Branson said of the hospital’s overhead.
To cover payroll and ongoing vendor expenses with little or no revenue, the hospital board turned to bank loans that now total more than $4.7 million.
Magnolia’s Farmers Bank & Trust, which operates a branch in De Queen, provided $3.5 million in financing during 2023. Loans from Horatio State Bank that flowed into 2024 total more than $1.2 million.
“Our biggest challenge is how to retire debt,” Branson said. “We’re going to make things work, but it’s always going to be a struggle.”
Efforts are in motion to convert the county-owned hospital into a 501(c)(3) nonprofit. The organizational change will give Sevier County Medical Center more flexibility in seeking grants as well as operational cost savings.
The cash flow woes earlier this year prompted vendors to deal with the hospital on a cash-only basis. Local support helped restore order.
“We were at a point where our vendors said, ‘You have to send us money before we send you anything,’” said Greg Revels, chairman of the board. “Our accounts payable are 30 days out, so we’re current. We paid a lot of money to get caught up. We appreciate all the help. Now we have to maintain.
“The thing that has impressed me is how the community, employees and county government pulled together to make this work. It’s been everybody pulling together.
“We recognize we’re going to face challenges almost on a daily basis because we’re a rural hospital.”
About $2.8 million in owed and disputed construction debt remains in play. The main issues in dispute are linked with roofing work and plumbing.
“We’re working on getting that resolved,” Branson said. “There will be some litigation or mediation to deal with that on a long-term basis.”
Adding to the construction costs was the decision to build a second procedure room, an expanded laundry room and reconfigured landscaping and parking area to accommodate a second helipad.
The air ambulance service facility, operated by Air Evac Lifeteam of O’Fallon, Missouri, adjoins the south side of the hospital grounds where a hangar provides shelter for a helicopter based on site.
“The air evacuation has proven to be very beneficial,” Dowdy said. “There’s been times when we’ve had three helicopters in action.