Money Woes May End Mission of Historic Hospital

As William Hudock, acting CEO of CPC Health Corporation, the owner of Chestnut Lodge Hospital, told Psychiatric News: “CPC Health has given notice to its employees that it will close operation on or around April 27 unless we are able to find a buyer and/or are able to find a cash infusion, probably either from a benefactor or from the government.”

He continued, “It is a sad situation when a 91-year-old institution is in this position. It is even sadder when we reflect upon the fact that we are among the last, if not the last, psychiatric institution in America that is committed to providing long-term care through an entire continuum, from inpatient to outpatient.”

Major Loss

Psychiatric News spoke with Paul Williams, M.D., who was until recently chief of CPC Health’s adult psychiatric services unit. He had this to say about the probable closing: “That is truly the biggest part of the story—what is being lost from the national perspective. It is an institution that has played a very important role in the development of hospital psychiatry and a continuum of care for the seriously, persistently mentally ill population. The fact that this institution has gone so quickly from being a renowned hospital to being on the verge of extinction is a major loss for the entire psychiatric community, both nationally and abroad.”

Wayne Fenton, M.D., who is now with the National Institute of Mental Health, was with Chestnut Lodge between 1984 and 1997 in various positions. Between 1994 and 1996, he was its medical director and CEO. “Over the past 90 years,” he said, “Chestnut Lodge has both shaped and reflected changes in American psychiatry. Its [probable] closure is a loss not only to patients and families, but the field at large.”

Why is Chestnut Lodge in such straits? Williams had a reply: “I think it is very important that it be emphasized that this failure is totally a business failure; it is not a failure of the programs that were developed at Chestnut Lodge. . . . It appears to be basically a problem in management. . . . I think management apparently wasn’t aware of, or prepared to deal with, the scope of the issues they were confronted with at the time they merged CPC clinics and Chestnut Lodge Hospital.”

The merger occurred in 1996, when Community Psychiatric Clinic, a local network of outpatient mental health clinics, bought Chestnut Lodge and formed a private, nonprofit mental health organization called CPC Health Corporation.

Why It Happened

In Hudock’s opinion, the reasons why Chestnut Lodge is so imperiled boil down to essentially three. The first, he said, “is the changing economics of mental health care, which make it difficult to be able to make a living at this. I think that if you look at the losses that many institutions are incurring at this time, I think it becomes pretty clear that this is a tough business to make money in. The government is increasingly becoming the payer source; insurance has walked away from providing the level of care it did 15 or 20 years ago—if you will, managed care. And if one looks at government, it is not paying adequate amounts to be able to maintain the levels of service provided. In the state of Maryland, for example, government is paying only about 80 percent to 85 percent of what it costs to be able to provide care.”

The second reason Chestnut Lodge is endangered, Hudock believes, is because of the excessive bureaucracy CPC Health has had to go through to get payments from government. “And those cash-flow difficulties,” he explained, “are especially hard on a company such as ours in that we were highly leveraged, that is, had a lot of debt and a very little cash cushion.”

And the third reason for Chestnut Lodge’s precarious state, he contended, is that CPC Health has not handled its finances as well as it could have. Or as he put it: “We were not able to adequately track and manage our finances, so that we got ourselves into financial trouble, and we could not dig our way out.”

Chestnut Lodge was founded in 1910 as a family business by Ernest Bullard, M.D. Three generations of Bullards served as its medical director. It was a pioneer in the intensive psychodynamic-psychotherapeutic treatment of serious mental illness, and two legendary psychiatrists-psychoanalysts—Frieda Fromm-Reichmann, M.D., and Harry Stack Sullivan, M.D.—served on its staff. When its third medical director, Dexter Bullard Jr., M.D., became ill in 1994, he asked Fenton to take over for him as medical director and CEO.

“I was the first nonfamily member to work in that capacity at Chestnut Lodge,” Fenton said. “I essentially worked to help the family restore Chestnut Lodge’s financial solvency and to help the family sell it ultimately to the community provider that bought it [Community Psychiatric Clinic]. . . . The Chestnut Lodge tradition has been one of full, open, and public examination of both its successes and failures. The institution’s failure under CPC Health’s management should be fully examined.” ▪