TOLEDO, Ohio — ProMedica's impact on northwest Ohio and the resurgence of downtown Toledo over the last 10 or 20 years was profound, but it came at a steep cost.
Like many healthcare systems in the United States, ProMedica has lost hundreds of millions of dollars in the last few years coming out of the COVID-19 pandemic. Executives were let go, the longtime president and CEO retired and entire segments of the company were sold, or in some cases, given away to curb further losses.
2023 has been a year of refocusing and rebuilding with new President and CEO Arturo Polizzi calling the shots. He executed a pending $710 million sale of the company's hospice and home healthcare division, which should help ProMedica pay certain debts.
However the new direction has also had negative consequences for others.
Hundreds of people were laid off after the divestiture of 147 skilled nursing facilities that were racking up hundreds of millions in losses. The annual summer concert series was scaled back and major sponsorship dollars were pulled from public projects and events.
Industry experts say ProMedica's return to its core business - a hospital and healthcare provider business - will likely continue for the foreseeable future. That could mean less dollars for community programs and projects.
"I think the days of people going to ProMedica or ProMedica coming forward to do investments are over," Lucas County Commissioner Pete Gerken said. "The debate has always been there. Should they be putting more money in healthcare and less in development? That’s for them to answer and suffer the consequences of. But don’t forget the community has benefitted from their investments, and we have things around here we wouldn’t have today had they not closed the gap."
ProMedica declined to make anyone available for this story and has denied multiple requests to interview Polizzi. Mayor Wade Kapszukiewicz also declined to be interviewed.
Those who did speak to WTOL 11 helped paint the picture of how ProMedica got to this point, and more importantly, where the region's largest employer goes from here.
'A worldwide pandemic wasn't on the risk assessment'
Former ProMedica President and CEO Randy Oostra didn't shy away from his desire to grow the organization on a national scale. He partnered with Welltower to finalize an agreement in July 2018 to purchase HCR ManorCare for $300 million in cash, and agreed to take on $1.1 billion in ManorCare debt.
The acquisition totaled $3.3 billion and ProMedica suddenly owned the second-largest chain of nursing homes in the country, and became a massive $7 billion healthcare company. It was an outside-the-box move that made sense at the time when the company was experiencing tremendous financial success.
Fast forward two years later and the pandemic changed everything.
Hospitals were forced to pause elective surgeries in 2020 and many skilled nursing facilities couldn't take new patients. Then ProMedica's insurance arm, Paramount Advantage, lost a lucrative contract with the state's Medicaid program in 2021.
"If you look at ProMedica, there was no safe place to hide," said Kevin Holloran, a senior director at Fitch Ratings who covers non-profit healthcare systems. "There was always one major division under duress. When you’ve got three large legs of the stool, one might be doing bad and the other two are doing OK and propping you up. One of those legs gets chopped because you lose so many of those patients. That did not help ProMedica’s financials at all."
Oostra's title changed to solely CEO in May of 2022, and by the end of October, he retired.
Just weeks later, ProMedica announced it was divesting from all of its skilled nursing facilities, which were responsible for the bulk of the company's losses last year. The company essentially gave them away to California-based Integra Health, and even provided additional money to help run the facilities.
ProMedica posted operating losses of $281 million through the first half of 2022. More than 80% of those losses were attributed to the senior care division.
Oostra said in hindsight ProMedica would have done things differently, but stopped short of saying the HCR ManorCare purchase was the wrong decision.
"I would say it wasn’t a mistake," Oostra said on a recent episode of Leading Edge on WTOL 11. "We loved the strategy pre-COVID and we were off the races. We were probably having our best financial times, and then COVID changed everything. We do these risk assessments in companies. A worldwide pandemic wasn’t on the risk assessment."
Fitch Ratings downgraded ProMedica's credit rating in May of last year before doing so again this month. The senior care business crushed ProMedica financially the last couple years, but Holloran believes divesting was the right decision and will improve the organization's outlook in the long run.
"This was one of those big goals and ‘Let’s try something new,'" he said. "Sometimes it doesn't work. As we are today, they’re dismantling that. You would maybe call it a failure if you had to put a word to it. But the reality is had life not changed with COVID and staffing, we might be looking at a very different ProMedica than we are today."
A return to the core
Effects of ProMedica's financial spiral became more visible in early 2023.
In March the company asked the city of Toledo and Lucas County for more money than last year to stage its annual concert series with half as many shows. Then ProMedica asked the county for a friendlier payment structure for naming rights to the Glass City Center and paused a $10 million pledge to the Metroparks for the Glass City River Wall project.
The company also pulled $60,000 earmarked for the annual Jeep Fest and ended a major 10-year sponsorship agreement with the United States Golf Association for the U.S. Women's Open barely a year into the deal.
In April, ProMedica posted operating losses of nearly $350 million for the fourth quarter of 2022 - by far the most money it had lost in any three-month period since the pandemic. Fitch lowered ProMedica's credit rating a couple weeks later, while Moody's affirmed its existing rating - although both consider ProMedica's credit below investment grade.
Throughout the turmoil, the company worked behind the scenes to refocus and reorganize its priorities as it shifts to a company roughly half the size it was pre-pandemic.
"I think there’s a return to the core," Holloran said. "Not quite hitting the do-over button, but getting back to basics. They’ve always been a large health system in the Toledo market and that’s what they’ve gotten back to. I think you’ll see them more committed to Toledo than they have been in the past."
Holloran predicted ProMedica will earn back its investment-grade status at some point and could reach the break-even mark on a month-to-month basis before the end of the year.
Oostra expressed confidence his former company will rebound, but admitted it's hard to see them struggle.
"Sadness is probably the right word," he said. "You never want to see an organization go through that. You never want to have to deal with layoffs and those changes. [But] ProMedica has an outstanding board and they’re community-based people doing the right things. The leadership that’s in place is outstanding. No matter who’s there right now, if I was still there, these are the changes that would have to be made."
There was a glimmer of hope earlier this month when ProMedica posted an operating income of $23.7 million for the first quarter of the year. It may not seem like a huge amount considering recent losses, but it was the first time ProMedica completed a quarter without losing money since 2020.
Meggi Carr, a director at Fitch, said there are positive signs in the Provider division and a rebound in volume. That division was responsible for 70% of ProMedica's revenue in the first quarter.
She believes ProMedica's finances could continue to turn around this year.
"I don’t think it’s going to be more of the same," she said. "The SNF is behind them, the hospice sale is hopefully coming to a close in the second quarter. On the Provider side, I think they have the ability to really focus in on that division. But just by getting rid of the senior care division, that will hopefully lead to better operational performance in the future."
While ProMedica could finally be on the road to recovery, it could leave public entities in northwest Ohio without a private partner for community and economic development. Gerken views that dilemma as more of an opportunity than a problem.
"It’s easy to kick people when they’re down, but we’re better off for what they did," he said. "Someone once told me pioneers are great, but sometimes they get shot in the back. They were the pioneers to be an institutional investor with the public sector downtown. There are plenty of corporations in this region that can step up and do the same."
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