Legacy Health has reached a tentative deal to unload its lab operations, an effort to restructure the struggling Portland hospital chain’s balance sheet and pull out of a steep financial nosedive.
Laboratory Corporation of America, commonly known as Labcorp, will buy some Legacy lab facilities and manage its in-patient labs under a long-term agreement, Legacy announced Tuesday.
No layoffs are expected as a result of the deal. About 700 Legacy employees will join Labcorp. Terms of the sale were not disclosed.
Legacy officials pointed to the health system’s severe financial problems as a reason for the sale. It is losing $10 million a month, which has forced it to raid its own reserves. It suffered one of the worst years in its history, losing $172 million last fiscal year.
“This is Legacy’s financial crisis,” said Kecia Kelly, chief nursing officer and senior vice president.
Management attributed the loss to higher personnel costs, longer patient stays, inflation and low reimbursement rates by Medicare, Medicaid and other government programs. About 70% of Legacy’s 500,000 patients a year rely on programs like Medicare, which typically pay healthcare providers less than private insurance.
Legacy declined to offer any detail about how much of its reserves it has spent. In a video offered to employees and the public, Anna Loomis, Legacy’s chief financial officer, did say that its reserves exceed its total debt by 160%.
The health system has not met certain financial metrics required by its lenders. Legacy managed to get extensions through September, but if the health system fails to improve its finances by then, the lenders could call the loan due, company officials said.
Moody’s, the credit rating agency, downgraded its outlook on Legacy debt from stable to negative in April.
“Legacy will fail its quarterly debt service coverage test on several bank agreements for the next couple of quarters,” Moody’s said. “We expect it to seek waivers or amendments” of the loan agreements.
Legacy’s total debt in April was $738 million.
The nonprofit owns and operates six hospitals in Oregon and southwest Washington.
Hospitals all over the state are dealing with the same headwinds with similar results. The first quarter of 2023 marks the fifth consecutive quarter of negative overall operating margins for Oregon hospitals. Collectively, they lost a total of $414 million from operations since the first quarter of 2022, according to the Oregon Association of Hospitals and Health Systems.
