There are two groups Community Health Systems Inc. can’t pushtoo far: the doctors at its hospitals, and the debtholders it owesbillions of dollars. Right now, the creditors are winning, and thedoctors aren’t happy.

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In Fort Wayne, Indiana, the rancor about Community’s neglect ofa local health system has gotten so bad that a group of doctorstried to get rid of corporate ownership and buy the company out.And 1,500 miles away on the island of Key West, Florida, doctorssay patients are being overcharged so that Community, sometimescalled CHS, can rake in cash.

The two locations are among Community’s most lucrative, andtheir conflicts are part of the flip side of an industrywideacquisition binge over the last decade. For-profit hospital chainslike Community borrowed billions to snap up rivals, facing massivedebt reimbursements just as the benefits of the Affordable CareAct, known as Obamacare, began to wane.

“I understand that they have billions in debt and may need totake money from this chain to service it,” said William Pond, ananesthesiologist at one of the Fort Wayne hospitals and presidentof the county health department’s executive board. “But it’s verydisappointing to see the course that CHS is taking and thedevastating effect they’re having on our community.”

Once the biggest U.S. for-profit hospital chain, Community isselling off other, poorly performing facilities to pay off $2billion of its $15 billion in debt. Yet even as the company skimpson spending and patient satisfaction lags at key facilities likeFort Wayne, its bonds are rising in value -- an indication thatdebtholders are betting that the chain will make a financialturnaround.

The company’s $3 billion of 6.875 percent bonds due February2022 have gained almost 30 percent this year and were changinghands at 89 cents on the dollar, according to Trace, the bond-pricereporting system of the Financial Industry Regulatory Authority.The debt still trades at yields about 8 percentage points more thangovernment debt.

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If the chain can’t subdue the unrest at its most profitablelocations, it’s not clear how successful the turnaround will be.Indiana and Key West represent just nine of Community’s about 150hospitals, yet they contribute an estimated 16 percent of thecompany’s adjusted earnings before interest, taxes, depreciationand amortization, according to Mizuho Securities analyst SherylSkolnick.

‘Dirty, dingy hospital’

Quality has been suffering at the flagship Lutheran Hospital inFort Wayne, which has about 400 beds. Patients rate their overallexperience at two stars, compared with four stars at the crosstownhospital owned by nonprofit Parkview Health, according to theCenters for Medicare and Medicaid Services’ Medicare.govwebsite.

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“The doctors are great but it’s a dirty, dingy hospital,” saidChuck Surack, founder of Sweetwater Sound Inc., a music retailer inFort Wayne, who is considering taking his 1,500 employees to thecross-town rival if quality doesn’t improve. Community “doesn’tinvest in the facilities.”

Community is working to support Lutheran “with thefacilities and resources they need,” said company spokeswomanTomi Galin. The Franklin, Tennessee-based chain has spent $400million on upgrades since buying Lutheran in 2007, includingconstruction of a free-standing emergency room and robotic surgerysystems, and has given raises to most employees, she said inan email.

‘Going to fester’

Complaints about Key West, where patients have no other choicethan the Community-run hospital short of traveling 50 miles or tothe mainland, came to a head last year when politicians tried tocancel the company’s 30-year lease on the facility. They backed offafter Community replaced the hospital’s chief executive and othermanagers, although a local group continues to collect stories fromunhappy patients.

Quality measures and patient satisfaction are improving at thefacility, called Lower Keys Medical Center, and Community isinvesting $20 million in infrastructure, according to Galin, thespokeswoman. Still, doctors said patients are overcharged,according to Richard Payne, a city commissioner. Lower Keys had anaverage revenue of $13,348 per patient last year, compared with amedian of $8,269 at Community’s 21 Florida hospitals, according toMorrow, the Franklin Trust analyst.

“This is going to fester and get worse and worse,” Payne said.“People who live in the Keys go out of town for treatment. Somepeople have moved so they can get good treatment at a reasonableprice.”

Caught off-guard

The anger at Fort Wayne’s Lutheran Health Network, however,caught the company unaware.

“Frankly, we were surprised by some of these concerns,”Community Chief Executive Officer Wayne Smith and Chief OperatingOfficer Tim Hingtgen said in a May 22 letter to Lutheran employees.“We believed things were going well, based on reports we receivedfrom your market and division leadership.”

Analysts call the eight-hospital Lutheran system Community’s“crown jewel,” as it brings in an estimated $300 million in annualprofit. Its situation embodies the dilemma faced by the chain: Itneeds every last penny it can find to pay down debt, yet also needsto invest in the long-term health of its facilities to build thefuture for the business.

“We’re seeing dissatisfaction in some of their top-performingcommunities,” said John Morrow, a managing director at FranklinTrust Ratings who analyzes hospitals. “They’re not focused on thetactics of running hospitals.”

Community’s shares have slumped more than 80 percent since their2015 peak, a slide that began as the $3.9 billion acquisition ofrival Health Management Associates in 2014 soured.

After putting off buying a new $80 million medical recordssystem for Lutheran, Community recently committed to the purchase.But time is running out to get staff trained before the old systemgoes out of service, said John Fallon, a surgeon and board memberat the Lutheran’s Dupont Hospital.

“We can’t just go back to pencil and paper,” Fallon said.“They’ve really pushed us to the limit on this one.”

‘Beyond salvage’

Dupont’s board issued a no-confidence vote in Community lastmonth, saying the relationship was “beyond salvage or repair.” Agroup of 300 doctors who own 20 percent of the network offered $2.4billion to buy the rest, with seventeen members of the IndianaGeneral Assembly supporting the bid. Community turned the offerdown, saying it was about $1 billion too low and that the doctors’group had declined to sign a customary agreement barring disclosureand disparagement.

The Fort Wayne doctors responded Wednesday, saying in a letterto Lutheran Health Network employees that Community’s demands ondisclosure were so restrictive, they effectively sabotaged effortsto find a partner to purchase the network.

“Compliance with CHS’s proposed restrictions would require thatwe not report faulty equipment to maintenance and that we notdisclose a medical mistake to anyone, including patients andstaff,” they said in the letter. “We could not accept whatessentially was a gag-order on anything related to LHN that was notgood news.”

Galin, the company spokeswoman, didn’t immediately respond to anemail and phone call requesting comment on the letter. Communitysaid it first heard in November that doctors were interested inbuying the Lutheran network. On May 11, the company announced $500million in capital projects to spruce up the network and “refresh”Lutheran Hospital.

Doctors say headquarters’ stinginess has particularly hurtsurgeries, one of the biggest profit centers for hospitals. At theend of the year, when surgery demand accelerates, urogynecologistScott Boyd frequently can’t get enough nurses and technicians forprocedures, and sometimes reschedules patients to Parkview,the nonprofit cross-town rival.

Parkview said in a statement that it’s prepared to “supportanyone in need of care during this time,” although it can’t see adirect impact of any dissatisfaction with Lutheran on its ownpatient volumes.

Meanwhile Parkview just snapped up the only gynecological cancerspecialist in town, Boyd said. Lutheran had a chance to hirethe doctor, but moved too slowly, he said.

“It was a huge coup,” the doctor said.

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