Audit report dominates hospital meeting
Published 6:29 am Tuesday, August 24, 2010
The August meeting of Memorial Hospital and Manor Authority was primarily spent reviewing the annual report from the independent auditor.
C. Bert Bennett, CPA, from Draffin & Tucker, LLP, Albany, began by saying that Chief Financial Officer Billy Walker and his staff are doing a very good job of keeping the numbers and reporting them accurately.
He then went into detail regarding the financial condition of the hospital and reviewing the internal controls and processes used.
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Looking at year-end figures for the years ended March 31, 2010 and 2009, the hospital reported an operating loss of $1,293,092 for the year 2010, a figure slightly improved from the operating loss of $1,302,984 in 2009.
Comparisons were made with figures from hospitals of the same general size nationwide and also of those of various sizes statewide, to give an idea of how Memorial Hospital ranks. Information was tracked over a five-year period, beginning with 2006.
The study focused on net revenue trends, expenses and bad debt percentages.
Bennett complimented the hospital on better management of their expenses, saying they were holding costs down as much as they can, but that they still lost money. Total expenses in 2009 were $40,145,000, and for 2010 they were $40,043,000.
Bennett was also complimentary of the hospital for better management of accounts receivables. The average number of days in accounts receivables outstanding is 65 for 2010, down from 81 in 2009. There was an average high of 90 days in 2007. The national average is 52 and of the state 57.
The proportion of long-term debt to the sum of long-term debt and net assets, or equity, is 12.4 percent. The national average is 26.6 and state is 20.1 percent. Thus, Memorial is in a better position than other hospitals in the comparison study. Bennett commented that he was aware the board had postponed building and expansion plans rather than go further into debt.
As he looked at the proportion of operating revenue retained as income, he suggested a lot of things can impact this number.
“I don’t see a huge increase in patient revenues for you in a hospital this size,” he said. He then added, “At some point you may have to look at the services you provide in order to get to a break-even position.”
One example he gave was that some hospitals have ceased delivering babies, claimed to be a money losing service.
Because of contractual arrangements with Medicare and Medicaid the hospital writes off between 45 to 47 percent of their charges.
The bad debt percentage provides a measure of the percentage of gross patient revenue from inpatient, outpatient and other health care operations that are not collected because of bad debt write-offs.
In 2006, the hospital wrote off 3.1 percent. In 2010 they wrote off 5.5 percent. Bennett commented that when the bad debt percentage is added, the figure becomes over 51 percent.
“You are writing off half of your charges per year. Your payers are cutting down on what they pay, and you can’t do a whole lot about that,” said Bennett.
Bennett told the board the number and type of payers in the community cannot be changed.
Board members indicated they needed advice and expertise on how to stop the losses and asked if the auditors could make some specific studies and comparisons with hospitals this size that are doing better to see if recommendations can be made to improve Memorial’s financial condition.
The observation was made by CEO and President Jim Peak that it is difficult to make comparisons due to the different way other hospitals do business and the billing systems they use.
In new business, the board voted to make a capital investment purchase of a software program designed to capture digital images of medical records that are currently being stored by the hospital on paper.
The purchase price is $659,112 over a five-year total and is said to be necessary to meet mandated compliance with the HITECH act. HITECH is an acronym for Health Information Technology for Economic and Clinical Health. It governs the electronic transmission of health information, including claims made to Medicare and Medicaid as well as private insurers.
Prior to the vote, Peak informed the board that the hospital must show significant improvement annually toward meeting this goal.
“This is one step we must take,” he said.
Additional benefits are that it makes it easier for the staff to retrieve information and is an opportunity to impact patient care and service in a positive manner.
He added that by the year 2013 a certain percentage of all physician orders must be done electronically.
Peak reported on a rural hospital conference he attended recently where much of the discussion was that other small hospitals are also “feeling the heat.”
Peak also gave an update on the 1.45 percent hospital use tax recently passed by the state legislature requiring Memorial Hospital to make a first quarterly payment of $80,038 by Sept. 30.
Chief Financial Officer Billy Walker explained the figure is based on 1.45 percent of the hospital net revenue, before expenses. This amounts to $320,153 annually.
Walker further explained the hospital industry had reached an agreement with the governor that the industry would cease fighting passage of the tax if the state would get federal matching funds to increase Medicaid reimbursements to hospitals.
The recommendation was 11.5 percent for Medicaid payments. This had to be approved by the Department of Community Health, and payment was to have been made to hospitals by July l. Peak said to the best of his knowledge, no hospital has yet received a reimbursement, but it is his hope that once DCH approves it, reimbursement payments will commence.