Erlanger gains financial traction, eyes expansion

photo Erlanger Medical Center

Erlanger finalizes sale of Chattanooga Lifestyle CenterThe site of Erlanger's Chattanooga Lifestyle Center will soon be the newest scene of downtown redevelopment.Erlanger, which has owned the building at 325 Market St. for 15 years, finalized the sale of the property for $4 million to private investment group Noon Development LLC.Noon Development is comprised of CEO Todd Phillips, who is president of Wealth Preservation Advisors, and Chairman John Foy, who retired as a longtime executive with CBL & Associates Properties Inc. in 2012.Phillips has previously said that they hope to use the 44,738-square-foot space office, retail and restaurant use. Erlanger will continue to lease the third floor for cardiac rehab.The building sits on a block near the Tennessee Aquarium that already has undergone major development within the last three years with the construction of the Carmike Cinemas Majestic movie theater and The Block climbing complex.While Phillips and Foy are both founding partners of new venture capitalist group, SwiftWing Ventures, the development of the Chattanooga Lifestyle building will be a separate enterprise, the group said.

It is not enough for Erlanger Health System to pull off a financial comeback this year, says hospital CEO Kevin Spiegel.

"We want to prove that this turnaround is sustainable," Spiegel said at the hospital board's budget and finance committee meeting Monday night.

Erlanger's positive financial trajectory appears to have traction, as the public hospital posted a $7.7 million profit in its first quarter of financials this year.

More significant, though, is the hospital committee's decision Monday to refinance Erlanger's current debt to bring in $70 million for three major projects:

• A $50 million expansion of the Erlanger East campus to a full service hospital.

• $8.5 million toward an orthopedic center and other surgical improvements.

• $11.5 million to put toward a new children's and women's ambulatory center - the first phase of the hospital's planned new children's hospital.

Erlanger has been unable to take out more debt or refinance its bonds since it ended the two previous years deep in the red and defaulted on its bond covenants. At this time last year, the hospital was running a $700,000 deficit.

But after the hospital gained access to $19 million from a federal public hospital fund, the hospital ended this past year with a $18 million operating profit. Other cost-saving initiatives like overhauling employee pensions and benefits are also starting to make an impact.

Spiegel said the recent rebound "couldn't have come at a better time" as current interest rates hit historical lows.

"Erlanger's in a very good position," Frank Taylor, Erlanger's financial adviser from Ponder & Co., told board members Monday.

"The turnaround over the last 18 months has positioned it to be able to access the capital markets ... at a time when interest rates are extremely low," he said.

Chief Financial Officer Britt Tabor said even with the $70 million in new loans, the Erlanger will lower its annual debt service by $4.5 million by restructuring under the new rates, and will be able to transition some of its taxable bonds to nontaxable bonds.

Tabor said the move is "crucial" for Erlanger's strategic plan and freeing up nearly $40 million in cash flow over the next 10 years.

The hospital is planning to make some more sizable purchases in the coming weeks as it tries to get an edge on its local competition. It is planning to invest $3.8 million to upgrade its surgical robotics, upgrading two robots and adding a third.

Erlanger surgeon Dr. Amar Sighn said the robotics program has "exploded," and that the new technology, DaVinci XI, will be the first of its kind in the state and will allow surgeons to operate on a larger area of the abdomen.

The board committee also approved a proposal to spend $1.4 million in redoing one of its cardiac cath labs, and to invest $3 million in upgrading voice and data equipment.

Despite its more stable financial status, Erlanger is still not budging on several high-profile financial disputes.

Erlanger is still pushing to get $20 million in loans to Hutcheson Medical Center paid back. Erlanger is currently moving ahead to foreclose on the North Georgia hospital on Nov. 4.

Hutcheson has appealed to a federal judge to halt the foreclosure, and has launched a community campaign called "Save Hutcheson" to build grassroots protest against foreclosure.

Meanwhile, the Erlanger is standing firm on its decision to go out of network with insurer UnitedHealthcare's Medicaid product, claiming the insurer has refused to agree to fair reimbursement rates.

Contact staff writer Kate Harrison Belz at kbelz@timesfreepress.com or 423-757-6673.

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