Once Rated ‘Junk,' Lenox Hill Begins Recovery

Eighteen months after Lenox Hill Hospital had its bonds downgraded to junk status, the Upper East Side institution seems to be regaining its financial footing.

The hospital had a "break-even" budget this year — a stark change from 2005, when operating losses totaled $37.9 million.

"Break-even is not where I want the hospital to be ultimately, but it represents a lot of progress from where we were," the chairman of Lenox Hill's board of trustees, William Hiltz, told The New York Sun.

Mr. Hiltz said several real estate transactions — some recently already inked and others that are expected to close soon — would give the institution a cash infusion of $100 million. About two weeks ago, the hospital closed a $26 million deal to sell six brownstones on East 76th Street to the Chetrit Group. A 100-year-old building on East 63rd Street is currently under contract to be sold for $30.7 million.

An analyst for Moody's Investment Service, Pamela Federbusch, said Lenox Hill's bonds were still rated below investment grade, at Ba2. She noted, however, that the rating could change once her report on the hospital is finalized.

"They're not depleting their cash anymore," she said, noting that in fiscal year 2006, Lenox Hill's operating loss was reduced to $20.2 million from $37.9 million in 2005.

"It looks like they've really concentrated on holding their expenses. I think their plan to right their facility has taken effect," Ms. Federbusch said.

Lenox Hill is not alone in dealing with its financial struggles. Hospitals all over the country are struggling to adjust to a health care market that is making it increasingly difficult to compete and keep their books in the black.

The hospital's chief financial officer, Michael Breslin, said that after reducing operating expenses, shifting investments, and selling real estate, Lenox Hill's costs are significantly more stable than they were in 2005.

The hospital is "continuing to grow, especially in some very important, high-end services that generate significant revenue," Mr. Breslin said.

Indeed, the cardiology department — which lost several prominent physicians to NewYork-Presbyterian Hospital — has seemingly rebounded. Three new cardiologists are joining the roster in the coming months.

A key component of Lenox Hill's strategy to revitalize is its merger with Manhattan Eye, Ear and Throat Hospital. Last year, a state commission recommended shutting down 150 beds at the latter hospital — a move Lenox Hill supports.

"There is a financial benefit for us to close the inpatient services there," Mr. Breslin said, noting that it would free up space for more serious and higher paying cases.

Hospital executives said they plan to leverage the influx of capital from real estate sales to strengthen historically strong departments, such as cardiology, orthopedics, and obstetrics.

In addition to closing several lucrative real estate transactions, it's launched an aggressive campaign to curtail expenses, in part by eliminating jobs.

Over the past two years Lenox Hill has paid $500,000 to consultants at the Studor Group to help improve patient satisfaction, which the hospital's president, Gladys George, described as a major priority. "It's the most important part of the strategy, to make Lenox Hill a very attractive place for patients to get care," she said.

Still, not everyone supports the Studor recommendations and other cost-saving measures favored by administrators. The head of the New York Professional Nurses Union, Naomi Zauderer, said the consultants have forced "rigid" scripts for the nurses at Lenox Hill to use when addressing patients. She said there are still other problems, such as staffing shortages and a lack of adequate medical supplies.

But hospital officials said its key programs are growing, and they are in the process of recruiting doctors to make Lenox Hill even stronger.

Overall, the hospital is completing the final stages of a major rebuilding, including new intensive care units and a new emergency room that doubled the hospital's capacity. "We've already seen significant growth in the volume of patients coming through the emergency room," Lenox Hill's chief operating officer, Terence O'Brien, said. "We're excited about where we are right now."

Another centerpiece of the hospital's investment in new facilities and equipment is its radiology department, which opened last year and is outfitted with a digital mammography lab and a series of cutting edge CT scanners.