Butler Health System Crossroads campus in Butler. Butler Eagle file photo

Financial reports released Tuesday, Nov. 28, by Independence Health System indicate losses for the third quarter of 2023 were substantially higher than losses recorded over the same period in 2022.

According to the reports, the Butler Health System and Excela Health System saw a combined operating loss of more than $22.6 million between July 1 and Sept. 30. Over the same period a year ago, the two lost a combined $3.67 million.

The Butler Health System’s continuing disclosure report for the third quarter of 2023 showed the system sustained an operating loss of $12.97 million. Over the same period a year ago, the system lost more than $1.6 million

Excela Health, the Westmoreland County-based system that merged with Butler Health to created Independence Health System, also saw an increase in operating loss year-over-year. For the third quarter, Excela reported an operating loss of $9.7 million. This compares with an operating loss of $2.07 million over the same period last year.

A representative from Independence Health System declined to comment.

Earlier this month, Butler Health System reported that it had sustained an operating loss of $43.7 million between July 1, 2022 and June 30. This is nearly double the $22.7 million operating loss that the system sustained over the previous year.

While the two hospital systems have been merged since 2022, they have each kept separate financial records.

In a presentation on Nov. 7, Butler Health System told bondholders that it did not expect to meet its debt service covenants. This was announced on the website of the credit rating agency Moody’s the following week.

“The covenant breach will trigger an event of default,” Moody’s wrote. “Favorably, Butler still has sufficient cash to cover debt liabilities … although cash reserves are expected to decline further as a result of ongoing cashflow losses.”

Moody’s downgraded Butler Health’s credit rating from Baa2 to Baa3 in mid-May. In addition, another credit rating agency, Fitch Ratings, downgraded Butler Health from an “A” rating to a “BBB” rating in June.

In the Nov. 7 presentation to bondholders, the Butler Health System outlined the steps it would take to save money, reduce costs, and emerge from its financial hole. These included plans to “appropriately” convert brand name drugs to generic drugs, outsource some key functions, and optimize its supply chain.

For this financial improvement plan, Butler Health System turned to Washington, D.C.-based FTI Consulting.

Switching to generic drugs is estimated to save $1.5 million a year, while the proposed supply-chain optimizations would lead to an annual savings of $4.5 million. In total, FTI and Butler Health System identified 83 potential cost-saving actions which could lead to an estimated $33.7 million in savings for Butler Health in fiscal year 2024.