SCL Health Reclassified $289 Million In Investments From St. Francis Health Center

By Michael Hooper

Tax returns show SCL Health reclassified $289 million in investments on the balance sheet of St. Francis Health Center in 2013. SCL Health reclassified the investments as "other assets” or “intercompany receivables”  in subsequent tax returns for St. Francis.

If you look at the 2013 St. Francis Health Center tax return Form 990, it says there was $289 million in investments at the beginning of the year, but by the end of the year, the investment total was $9.1 million, with the bulk of the assets -- $266 million -- transferred to “other assets.”

The 2015 Form 990, the latest available tax return for St. Francis Health Center, lists $248 million as “intercompany receivables.”

Attorney General Derek Schmidt said in a statement he would launch an inquiry aimed at ensuring charitable assets of St. Francis remained in Kansas.

The statement from Schmidt said, "The hospital’s parent company maintains over $2 billion dollars in assets, yet is seeking to “divest” St. Francis, possibly leading to its closure. The Kansas roots of St. Francis trace back to 1858 and the founding of Sisters of Charity of Leavenworth which remains organized as a non-profit corporation under the laws of the State of Kansas. The actions by Governor Brownback and Attorney General Schmidt seek to protect Kansas-based charitable assets from being improperly transferred from the state leading to the closure of St. Francis.

“St. Francis has benefitted from its status as a Kansas charity for many years, and it is important to make certain that such charitable assets are properly managed and remain in Kansas,” said Governor Brownback.  “The charitable assets should stay here for the benefit of Kansans, to serve their stated mission of improving the health of those who are poor and vulnerable. Northeast Kansas needs the medical services St. Francis provides.”

The office of the Attorney General has the authority to safeguard Kansas charities.

“Any decision by its out-of-state owners that would fail to maintain full operations of Saint Francis Hospital would be deeply troubling,” Schmidt said. “The absence of meaningful consultation with local leaders compounds the concern, particularly in light of the considerable benefits the people of Kansas have bestowed on this charitable operation over the years.”

Topeka Mayor Larry Wolgast emphasized the importance of St. Francis to the health and economy of Topeka and surrounding communities.

“I share Governor Brownback and the Attorney General’s deep concern that the charitable assets of St. Francis Hospital, a hospital that met the health care needs of our community for so long, will be improperly removed from the people it serves,” Wolgast said. “I welcome the action the Attorney General is taking. St. Francis has been a vital part of this city and northeast Kansas for 159 years and has benefitted by the non-profit status the citizens of Kansas granted."

I believe SCL Health does not really own St. Francis, SCL Health only controls it. St. Francis Health Center is a nonprofit corporation without stock holders. An argument can be made that the owner is the state of Kansas.

SCL Health plans to sell/give away St. Francis Health Center by summer or risk closing the hospital. Stormont-Vail Health is looking at acquiring St. Francis, the newspaper reported.

SCL Health says, “St. Francis has struggled financially, losing $117 million over the last five years. Physician clinics lost $31 million in 2016 alone. All of this has come as the number of patients has dramatically decreased. Additionally without expanded Medicaid coverage and other challenges related to public programs, St. Francis experienced added pressure. Uncompensated and charity care more than doubled from 2012 to 2016.”

David Tangeman, an accountant, recently reviewed the 2015 Form 990 Tax Return. 

“In reviewing the 2015 St Francis tax returns it shows a $12.5 million loss,” he said.  “The buildings, land and equipment are carried on the books at $67.7 million after depreciation is deducted. Total assets are carried at $368.3 million in assets less $19.2 million in liabilities.”

“It is worth noting that $248 million of assets is listed as “Intercompany receivables. About $21 million is supposed to be bad debt or accounts receivable that is likely to be unrecovered. Still the Equity is $349 million so if you take that out you still have $328 million at the end of 2015," Tangeman said.

If you include all those assets, the picture does not look so dire. 

“This hardly seems like a entity that would go out of business on the face of it, but losing $12.5 million a year isn't sustainable either over the long term.” Tangeman said.

Tangeman wonders if the $289 million in investments was the charitable assets that transferred to the parent company?

Tangeman said the $248 million in intercompany receivables should be paid back to the hospital, it belongs to St. Francis Health Center.

The hospital and its staff were able to generate a modest profit over time and invest proceeds wisely and grow them into a quarter billion dollars. For many years, the hospital had a very strong balance sheet, with around $200 million investments in 2006. By 2013, those investments had grown to $289 million.

Brian Newsome, of SCL Health, said he would prepare a response to a list of questions that I gave him regarding the charitable assets of St. Francis Health Center. Several hours later this is what he had to say, "I connected with our finance folks this a.m., and I am now waiting for them to get out of a meeting this afternoon to confirm that what I’m pulling together for you is accurate. In the meantime, I wanted to let you know sooner rather than later that what you’ve reported thus far does not appear to be accurate. I’ll work on getting you correct info as soon as possible."

Newsome of SCL Health says St. Francis Health Center had a negative cash balance of $51.6 million as of March 31, 2017.

What happened to the $289 million in investments reported at the beginning of the year on the 2013 tax return? I asked. Later reported as $248 million in intercompany receivables on the 2015 tax return?

“There is not like a big cash reserve,” said Newsome, spokesman for SCL Health. “What you saw has been used to keep the hospital going. It didn’t leave the market.”

Newsome said a change on the balance sheet for the reporting of investments in the 2013 Form 990 was not a material change to the organization. Reporting on the tax return changed that year to be consistent with health care reporting standards, he said. Nothing material changed.

Newsome said any implication that money was taken from St. Francis and transferred to the parent company is not true. He said assets did not leave the Kansas market. Some of the hospital’s reserves were used to keep the hospital going, cover losses and expenditures on electronic medical records, pensions and debt.

 “We’ve paid off debt associated with the hospital,” he said. That is not reflected in the 2015 tax return. He said St. Francis has lost $117 million over the last five years.