Whidbey Health officials told Island County commissioners the hospital barely has enough money to make one more payroll. (WhidbeyHealth)

Whidbey Health officials told Island County commissioners the hospital barely has enough money to make one more payroll. (WhidbeyHealth)

Island County turns down WhidbeyHealth request to co-sign loan

The hospital says it is running out of money, with barely enough to make one more payroll.

The same day that Moody’s Investors Services downgraded WhidbeyHealth’s bond ratings to below investor grade due to “severe liquidity problems,” two hospital commissioners and the chief financial officer asked the Island County Board of Commissioners to co-sign a loan.

The county commissioners turned them down during the Wednesday work session, citing financial policy, but expressed grave concerns about the hospital’s future.

But on Thursday, hospital Chief Financial Officer James Childers, who was appointed as interim CEO just for this week, said he expects the hospital will be approved for a loan from a health care financing company. He was awaiting a term sheet Friday.

Also, a contract with management services company HealthTechS3 and interim CEO Michael Layfield were approved this week, which means the hospital will have an experienced leader with a team of experts to support him.

Hospital officials described a dire situation to the county commissioners. Hospital Commissioner James Golder said they were “desperate.”

“We have run out of money. We have gone to the banks. We have been turned down,” he said. “Our credit rating today was dropped to a B3. We have barely enough money to make one more payroll. Once that payroll is done, we’re out. If we close our doors, we’re looking at 700 people without jobs.”

Childers explained to the commissioners that the public hospital district needs a bridge loan to make payroll until it receives property tax levy money, which starts rolling in mid-May. Two local banks turned down the hospital’s request for a loan, but one of them indicated that it might be approved if the county is a co-signer.

Golder said he reached out to local lawmakers but didn’t hear back from them. Local lawmakers, however, said that’s not the case, though they didn’t have any solutions.

State Sen. Ron Muzzall, R-Oak Harbor, said neither he nor his staff have heard from any hospital officials. He explained that it would be best if a united board had contacted him, but that didn’t happen.

Rep. Dave Paul, D-Oak Harbor, said he spoke with Golder, but it was too late to get anything in the budget this session. He said he has been in contact with the governor’s office, and the governor’s staff is working with the Health Care Authority to see if there’s a way to help the hospital.

Rep. Greg Gilday, R-Camano, said his staff spoke with the hospital commissioner this week. Gilday said he has asked for written information about the issue.

After the meeting Wednesday, Island County Commissioner Janet St. Clair hosted a conference call with staff from the offices of U.S. Sen. Maria Cantwell, U.S. Sen. Patty Murray and U.S. Rep. Rick Larsen about the hospital.

“At a minimum, we must protect critical care access as (WhidbeyHealth) works through this financial crisis,” she wrote in an email to local lawmakers.

Wednesday, Hospital Commissioner Nancy Fey criticized the newspapers for reports on the hospital’s problems and gave the commissioners bogus information.

“We have a letter ready to go to the paper but they have told us that it won’t get printed,” she said. “The only way we can get it printed is if we buy an ad.”

She was wrong.

The newspaper never charges people to run letters to the editor or “Sound Off” opinion pieces. Neither Fey nor anyone at the hospital had contacted the newspaper about a letter until Thursday. The letter is on page 4 of this edition.

RJ Benner, publisher of the South Whidbey Record and the Whidbey News-Times, said he was disheartened to hear about Fey’s false accusation.

“We at the Whidbey News Group hold ourselves to a standard of fairness that is unwavering,” he said, “and we are steadfast in our commitment to keep our journalism unbiased and representative of our community. The commissioner’s statement is nothing more than a desire to seek absolution rather than resolution, and indicative of the behaviors that have contributed to the untenable situation we find our public hospital in today.”

Fey also gave an example of an “inaccuracy” in a story about Mike Layfield, who will start as interim CEO next week. The story explained that he had been a CEO of a hospital that went bankrupt, but Fey said he was only hired for a few months to take the hospital through bankruptcy.

She was wrong.

As the story stated, Layfield was CEO of Lauderdale Community Hospital in Tennessee from 2016 to 2019, and it went through a bankruptcy at the end of his employment there.

There is more to the story, however, as Layfield explained in statement. He wrote that the hospital was financially sound until it and nine others were purchased by the firm Empower. The company drained Lauderdale’s finances to support the other hospitals, he wrote. Lauderdale then experienced serious operational problems. During his last four to five months as CEO, Layfield worked to have a receiver appointed, took control of $5 million of the hospital’s money from Empower and guided the hospital through bankruptcy while keeping the doors open. It is the only one of the hospitals purchased by Empower that is still open.

The South Whidbey Record reached out to the hospital and Layfield prior to publishing the story and received a statement that said the hospital supported him and HealthTechS3, but it did not address any of the specifics.

Moody’s Investors Service, which rates bonds based on risk, downgraded WhidbeyHealth’s bonds to non-investment grade — also known as junk bond status, according to the Wall Street Journal — and placed the ratings under review.

The hospital district’s unlimited tax general obligation bonds, affecting $44.9 million, were downgraded from Baa3 to Ba2. That’s the second highest rating of “speculative grade” and means the bonds are judged to have substantial credit risk.

Moody’s downgraded the hospital’s limited tax general obligation bonds, which affects $12.3 million, from Ba2 to B3. That means the bonds are considered speculative and subject to high credit risk.

Similarly, Moody’s downgraded Russia’s credit rating to B3 this week.

Moody’s reports that the hospital’s challenges arose in the past several months, despite the levy increase being approved by voters. The company concluded that unless the hospital secures a $17 million loan, it is unlikely to be able to make payroll March 18 through mid-May, when levy revenues come in, or repay an outstanding $6.8 million line of credit related to “bond anticipated notes” with Heritage Bank, due June 1, 2022.

“Unless the hospital secures this additional liquidity, Moody’s believes the district is at immediate risk of becoming insolvent and filing for Chapter 11 bankruptcy,” according to the statement.

Moody’s cites recent problems at the hospital as contributing to the downgrades. The statement points to the firing of CEO Ron Telles; the medical staff’s vote of no confidence in the CEO, COO and hospital attorney; impaired financial reporting; delayed audits; and material weaknesses identified by the auditor.

Despite the problems, hospital leaders said they were optimistic about the hospital’s future once they get past this “hump.” Besides hiring HealthTechS3, the hospital has already made significant cost reductions, including a new contract with a group purchasing organization that will save the hospital more than $1 million a year.

In an interview, Childers said the hospital hasn’t updated its charges to insurance companies in years, which contributed to its financial problems; a 3% increase has already been instituted and more is possible in order to bring the hospital to market rates.

Childers said the terminations of the hospital CEO and four other executives will save the hospital significant money in the future. He was hired at the beginning of the year to straighten out the hospital’s finances and saw that the hospital had eight members of its executive team while a rural hospital its size should only have four.

“We need to invest in the staff and not leadership,” he said.

This story originally appeared in the Whidbey News-Times, a sister publication to The Herald.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Local News

LifeWise local co-directors Darcie Hammer and Sarah Sweeny talk about what a typical classroom routine looks like on Monday, April 14, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Everett off-campus Bible program draws mixed reaction from parents

The weekly optional program, LifeWise Academy, takes children out of public school during the day for religious lessons.

Protesters line Broadway in Everett for Main Street USA rally

Thousands turn out to protest President Trump on Saturday in Everett, joining hundreds of other towns and cities.

An EcoRemedy employee checks a control panel of their equipment at the Edmonds Wastewater Treatment Plant on Thursday, April 17, 2025 in Edmonds, Washington. (Olivia Vanni / The Herald)
Edmonds launches technology to destroy PFAS

Edmonds is the first city in the country to implement… Continue reading

Over a dozen parents and some Snohomish School District students gather outside of the district office to protest and discuss safety concerns after an incident with a student at Machias Elementary School on Friday, April 18, 2025 in Snohomish, Washington. (Olivia Vanni / The Herald)
Parents protest handling of alleged weapon incident at Machias Elementary

Families say district failed to communicate clearly; some have kept kids home for weeks.

Irene Pfister, left, holds a sign reading “Justice for Jonathan” next to another protester with a sign that says “Major Crimes Needs to Investigate,” during a call to action Saturday, April 12, 2025, in Arlington. (Aspen Anderson / The Herald)
Arlington community rallies, a family waits for news on missing man

Family and neighbors say more can be done in the search for Jonathan Hoang. The sheriff’s office says all leads are being pursued.

Mary Ann Karber, 101, spins the wheel during Wheel of Forunte at Washington Oakes on Tuesday, April 1, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
Lunch and Wheel of Fortune with some Everett swinging seniors

She’s 101 and he’s 76. At Washington Oakes, fun and friendship are on the menu.

Connect Casino Road Director Alvaro Gullien speaks at an Everett City Council meeting to share community thoughts regarding affordable housing and preventing displacement of those that live along Casino Road on Wednesday, April 16, 2025 in Everett, Washington. (Olivia Vanni / The Herald)
How will Everett’s comprehensive plan work in Casino Road?

Residents in the diverse, tight-knit neighborhood want “Investment without displacement.” The city’s plan will help achieve that, staff say.

Henry M. Jackson High School’s FIRST Robotics Competition championship robotics Team 2910 Jack in the Bot on Thursday, April 24, 2025 in Mill Creek, Washington. (Olivia Vanni / The Herald)
Mill Creek robotics team celebrates world championship win

The team — known as “Jack in the Bot” — came in first place above about 600 others at a Texas world championship event last week.

Trees and foliage grow at the Rockport State Park on Wednesday, April 3, 2024 in Rockport, Washington. (Annie Barker / The Herald)
Washington Legislature approves hiking Discover Pass price to $45

The price for a Washington state Discover Pass would rise by $15… Continue reading

The Washington state Capitol on April 18, 2025. (Photo by Jacquelyn Jimenez Romero/Washington State Standard)
Parental rights overhaul gains final approval in WA Legislature

The bill was among the most controversial of this year’s session.

Snohomish firefighters appeal vaccine suspensions to Ninth Circuit

Despite lower court’s decision, eight men maintain their department did not properly accommodate their religious beliefs during COVID.

A rental sign seen in Everett. Saturday, May 23, 2020 (Sue Misao / Herald file)
Compromise reached on Washington bill to cap rent increases

Under a version released Thursday, rent hikes would be limited to 7% plus inflation, or 10%, whichever is lower.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.