The Human Touch Revealing All that is Real
Here's a look at the financial condition of the Beaufort Health System
Publisher's Note: What would appear to be common sense is becoming quite political in the county of Beaufort, so we have relegated this feature by Delma Blinson to the Bloodless Warfare: Politics category. I think Delma is on to something so I'm sticking with this thread.
What the records show is very enlightening and something much different than what we have been told.
We are being constantly asked by our readers "what's the problem at the hospital." And we have been working on that question now for about two months. So we don't think we know nearly all that we need to know to provide the needed information that our readers can answer that question for themselves, but some things are becoming clear.
One group on the Hospital Board, led by the Chairman, Sandy Hardy, says that "the problem" is that a small independent hospital simply cannot survive in the current environment. Significantly, that same group seems to have already decided what the solution is: Affiliate with University Health Systems.
The other half of the board seems to say: We need to be sure we are operating as efficiently and as effectively as possible before we determine to "dispose" of the hospital and turn the enterprise over to another organization. And while seeking greater efficiency in operations we need to cast a wide net to get the best possible deals for whoever is interested in coming in to take over the operation.
The "divest now" group contends that they have already tried to achieve a viable operation to survive. It is on that point that we have focused our research.
The first window to that issue can be seen in the video below. It is a clip of the Financial Committee's report, including a report from the Chief Financial Officer Chris Riggs. As you watch this clip we would suggest you focus on two things: It's content and the board's response.
The sound in the video is not ideal because there is no sound system but if you listen carefully you hear Treasurer Jack Piland summarize the financial condition of the system as: "...suffice it to say, it's a pretty bad month and a pretty bad year..."
The CFO says that for May the cash flow was $5.7 million, but that he would "like to see it be $6.2/6.3 million." He goes on to say that the Accounts Payable (what is owed) is up to 72 days, meaning they are further behind in paying the bills than he feels comfortable with (although we might add that there are a number of private businesses and families right now that would like to have "that problem" although we would concede that most businesses would like for it to be between 30 and 60 days ideally).
But then he reveals: "May was a break-even month..." but he explains that it needs to be $200,000 or more in order to "build up cash reserves." Of course, a net income of $200K would generate $2.4 million in fund balance over the year.
But that is a snap shot (May). Over the year Mr. Riggs says they are now looking at a loss year to date of eight months of $231,000. Now that is on revenue of approximately $70 million.
Then Trustee Sandy Easley questions what percentage of the Payables (what is owed) are past due. Mr. Riggs does not know that number off the top is his head.
There are few questions from other board members and almost no discussion. There is no report from the "Cost Containment Committee" and no one question why not. Apparently they know the Committee has not met since the last meeting when the Board voted to reinstitute the Committee and proceed with cost cutting.
We find it most interesting that the CFO, nor any board member, questioned, along with the Payables, what the Receivables (what they are owed) were. The May 31 balance sheet the Board was presented listed total receivables at a whopping $34,995,624.77. So if the Hospital collected just 10% of what it is now owed the deficit would be plugged, with enough left over to make their debt service payment to the County. Even when they "write-off" the receivables they classify as "Bad Debts" they still have $16,948,399.16.
Now what you need to know to get a perspective on this snapshot report is the following:
• "The FY 2008 (through September, 2009) external audit shows that the net assets of the system decreased by $1.3 million as a result of a loss from operations of $1.5 million. The audit attributes this to a 6.1% decline in acute admissions but with an increase in "adjusted patient days" (inpatient and outpatient volumes) of 7.1% Simply put, they lost $1.5 million in 2009.
• "The FY 2007 audit (for 2008 through September 08) showed an increase in net assets of $600,000 which reflected an "...improved income from operation of $3,216.977 from 2007 to 2008." Acute admissions rose 5.4% and adjusted patient days increased 8.5%. The net income was $597,653, with net income from operations $303,914 which was a positive statement that many similarly-sized hospitals could not make in 2008(emphasis added)" the audit says. But the audit added: "We are still facing the challenge of improving the financial performance of our owned physician practices." But interestingly, on Page 8 of the audit it says:
During fiscal year 2008 total operating expenses were $73.9 million. This equated to an increase of $10.4 million over 2007 or a 16% increase. This increase was driven in part by ownership of the physician practices acquired in 2007 for an entire fiscal year and additional costs associated with growth in medical and radiation oncology. Salaries and benefits comprise the largest system expense and accounts for 51% of the operating expenses in both 2008 and 2007. Salaries and benefits increased almost $5.3 million from 2007 which represents a 16% increase. Over the course of the year, full time equivalents (FTE's) increased 4.4% which accounted for a portion of the salary increases. Also contributing to the salary increases was the full year of salary expenses for employees of the eight practices started or acquired in 2007. The increase in benefits expense was driven by an increase in health insurance costs. Physician fees (payment to doctors, i.e., salaries) increased almost 29%
• The FY 2006 audit shows that "net assets decreased approximately $800,00 during 2007. This decrease was caused by operating losses realized as the result of the start up of two new physician practices and the acquisition of five existing practices. These practice losses were compounded by an unexpected drop in hospital activity. For the year, acute admissions declined by 5%, behavioral health admissions declined by 18%, and inpatient surgical visits declined by 8%. In summary the Authority posted a deficit in revenues over expenses of $771,032. However, it should be noted that hospital operations actually resulted in an excess of revenue over expenses of approximately $450,000 while the medical practices as a whole experienced losses of slightly more than $1.2 million.
We would repeat that six weeks ago we asked to see the records that would show which doctors' practices or other affiliates were making money and which were losing money. We were told that information does not exist. We were promised that this information would be provided to the board at its meeting Tuesday, but it was not. It was stated that they are "working on it." But apparently neither this board nor the board as it existed from 2006 to 2009 knew which units (practices, affiliates etc.) were making money before they acquired them nor whether they made money after being acquired.
What the audit shows is that most of the financial problem since 2007 has come from the doctors' practices, not the hospital's operations. And what the audits show is that the largest increases in expenses have come disproportionately from the doctors' practices and that the single largest driver of those increased costs were salaries in those practices and payment to the doctors.
Without going into details, the Accounts Receivables of the doctor's practices collectively was worse than the Hospital's receivables.
In 2006 the Hospital Association's tax return showed a loss of $644,069, while in 2005 their 990 showed a profit of $1,857.906.
Thus, the "bottom line" is that while patient counts declined, personnel costs went up, with the greatest increases being payments to doctors, while the collection rate for what is owed was at such levels that almost no enterprise could long endure. Notwithstanding this, the loss comes more from the doctors' practices than from the Hospital
Commentary
We would be the first to say that we are not accounting experts. And we would say up front that we do not feel we know whether it would be better for the Health System to remain independent or whether it would be better in the long term to have someone else operate the system. But neither do we feel those who are saying that "the hospital can't survive and must therefore bring in someone from the outside to take over" have the information to come to that conclusion. If they do they are keeping it secret.
What is clear from the financials is that it is not legitimate to decide the viability of the Health System without disaggregating the doctors' practices and other affiliates. Taken at face value, several audits have said repeatedly that some doctors' practices are losing money. But the System does not know how much, or more importantly, which ones are paying their way. So there is no way one can legitimately decide whether "the hospital" is viable or not without knowing how the practices are affecting the bottom line.
Secondly, the claim that the hospital cannot survive is not supported by the data. Even this year the loss is $300,000. That is less than 1% of the budget. Even at its worst (in recent years) the deficit was $1.5 million and that is only 2% of the total budget. We are not persuaded that with the decline in patients the system has experienced that they can't find a 2% cut. To contend otherwise is so absurd that it raised a real question of motive and intent of anyone who argues that this justifies abandoning the system. And again, that is including the affiliates that are obviously causing the major part of the problem, as stated by the auditors.
And for any organization that is owed nearly half of its gross annual income in receivables to assume it is broke is astounding. There appears to be no systematic effort to address the receivables problem and without such an effort over time it is patently false to conclude that the organization cannot survive.
There may be justifiable reasons for changes, but putting the system in a fire sale is not justified by the numbers.
And it may be that UHS is a better approach to providing health care for Beaufort County. But again, we have not seen the data to support that. So we question the motivation of those who say it is the only way to go, without ever seeing other proposals and without knowing where the fiscal holes are in the bucket.
No, we think something else is going on here. And the time is past for those board members who advocate getting rid of the hospital to produce the solid, hard data to support that conclusion. They have not done so thus far and they should be ashamed of voting to do so without doing their due diligence. If they cannot produce that data they should resign.
It should be noted that we attempted to review this article with Board Chair Sandy Hardy but he did not return our call. Nonetheless, we offer to him or any board member, equal space here to respond in order to explain why they don't agree with our conclusions. We believe hose who advocate divestiture have a duty to this community to explain or even debate their position.
Delma Blinson writes the "Teacher's Desk" column for our friend in the local publishing business: The Beaufort Observer. His concentration is in the area of his expertise - the education of our youth. He is a former teacher, principal, superintendent and university professor.
Go Back
What the records show is very enlightening and something much different than what we have been told.
We are being constantly asked by our readers "what's the problem at the hospital." And we have been working on that question now for about two months. So we don't think we know nearly all that we need to know to provide the needed information that our readers can answer that question for themselves, but some things are becoming clear.
One group on the Hospital Board, led by the Chairman, Sandy Hardy, says that "the problem" is that a small independent hospital simply cannot survive in the current environment. Significantly, that same group seems to have already decided what the solution is: Affiliate with University Health Systems.
The other half of the board seems to say: We need to be sure we are operating as efficiently and as effectively as possible before we determine to "dispose" of the hospital and turn the enterprise over to another organization. And while seeking greater efficiency in operations we need to cast a wide net to get the best possible deals for whoever is interested in coming in to take over the operation.
The "divest now" group contends that they have already tried to achieve a viable operation to survive. It is on that point that we have focused our research.
The first window to that issue can be seen in the video below. It is a clip of the Financial Committee's report, including a report from the Chief Financial Officer Chris Riggs. As you watch this clip we would suggest you focus on two things: It's content and the board's response.
The sound in the video is not ideal because there is no sound system but if you listen carefully you hear Treasurer Jack Piland summarize the financial condition of the system as: "...suffice it to say, it's a pretty bad month and a pretty bad year..."
The CFO says that for May the cash flow was $5.7 million, but that he would "like to see it be $6.2/6.3 million." He goes on to say that the Accounts Payable (what is owed) is up to 72 days, meaning they are further behind in paying the bills than he feels comfortable with (although we might add that there are a number of private businesses and families right now that would like to have "that problem" although we would concede that most businesses would like for it to be between 30 and 60 days ideally).
But then he reveals: "May was a break-even month..." but he explains that it needs to be $200,000 or more in order to "build up cash reserves." Of course, a net income of $200K would generate $2.4 million in fund balance over the year.
But that is a snap shot (May). Over the year Mr. Riggs says they are now looking at a loss year to date of eight months of $231,000. Now that is on revenue of approximately $70 million.
Then Trustee Sandy Easley questions what percentage of the Payables (what is owed) are past due. Mr. Riggs does not know that number off the top is his head.
There are few questions from other board members and almost no discussion. There is no report from the "Cost Containment Committee" and no one question why not. Apparently they know the Committee has not met since the last meeting when the Board voted to reinstitute the Committee and proceed with cost cutting.
We find it most interesting that the CFO, nor any board member, questioned, along with the Payables, what the Receivables (what they are owed) were. The May 31 balance sheet the Board was presented listed total receivables at a whopping $34,995,624.77. So if the Hospital collected just 10% of what it is now owed the deficit would be plugged, with enough left over to make their debt service payment to the County. Even when they "write-off" the receivables they classify as "Bad Debts" they still have $16,948,399.16.
Now what you need to know to get a perspective on this snapshot report is the following:
• "The FY 2008 (through September, 2009) external audit shows that the net assets of the system decreased by $1.3 million as a result of a loss from operations of $1.5 million. The audit attributes this to a 6.1% decline in acute admissions but with an increase in "adjusted patient days" (inpatient and outpatient volumes) of 7.1% Simply put, they lost $1.5 million in 2009.
• "The FY 2007 audit (for 2008 through September 08) showed an increase in net assets of $600,000 which reflected an "...improved income from operation of $3,216.977 from 2007 to 2008." Acute admissions rose 5.4% and adjusted patient days increased 8.5%. The net income was $597,653, with net income from operations $303,914 which was a positive statement that many similarly-sized hospitals could not make in 2008(emphasis added)" the audit says. But the audit added: "We are still facing the challenge of improving the financial performance of our owned physician practices." But interestingly, on Page 8 of the audit it says:
During fiscal year 2008 total operating expenses were $73.9 million. This equated to an increase of $10.4 million over 2007 or a 16% increase. This increase was driven in part by ownership of the physician practices acquired in 2007 for an entire fiscal year and additional costs associated with growth in medical and radiation oncology. Salaries and benefits comprise the largest system expense and accounts for 51% of the operating expenses in both 2008 and 2007. Salaries and benefits increased almost $5.3 million from 2007 which represents a 16% increase. Over the course of the year, full time equivalents (FTE's) increased 4.4% which accounted for a portion of the salary increases. Also contributing to the salary increases was the full year of salary expenses for employees of the eight practices started or acquired in 2007. The increase in benefits expense was driven by an increase in health insurance costs. Physician fees (payment to doctors, i.e., salaries) increased almost 29%
• The FY 2006 audit shows that "net assets decreased approximately $800,00 during 2007. This decrease was caused by operating losses realized as the result of the start up of two new physician practices and the acquisition of five existing practices. These practice losses were compounded by an unexpected drop in hospital activity. For the year, acute admissions declined by 5%, behavioral health admissions declined by 18%, and inpatient surgical visits declined by 8%. In summary the Authority posted a deficit in revenues over expenses of $771,032. However, it should be noted that hospital operations actually resulted in an excess of revenue over expenses of approximately $450,000 while the medical practices as a whole experienced losses of slightly more than $1.2 million.
We would repeat that six weeks ago we asked to see the records that would show which doctors' practices or other affiliates were making money and which were losing money. We were told that information does not exist. We were promised that this information would be provided to the board at its meeting Tuesday, but it was not. It was stated that they are "working on it." But apparently neither this board nor the board as it existed from 2006 to 2009 knew which units (practices, affiliates etc.) were making money before they acquired them nor whether they made money after being acquired.
What the audit shows is that most of the financial problem since 2007 has come from the doctors' practices, not the hospital's operations. And what the audits show is that the largest increases in expenses have come disproportionately from the doctors' practices and that the single largest driver of those increased costs were salaries in those practices and payment to the doctors.
Without going into details, the Accounts Receivables of the doctor's practices collectively was worse than the Hospital's receivables.
In 2006 the Hospital Association's tax return showed a loss of $644,069, while in 2005 their 990 showed a profit of $1,857.906.
Thus, the "bottom line" is that while patient counts declined, personnel costs went up, with the greatest increases being payments to doctors, while the collection rate for what is owed was at such levels that almost no enterprise could long endure. Notwithstanding this, the loss comes more from the doctors' practices than from the Hospital
Commentary
We would be the first to say that we are not accounting experts. And we would say up front that we do not feel we know whether it would be better for the Health System to remain independent or whether it would be better in the long term to have someone else operate the system. But neither do we feel those who are saying that "the hospital can't survive and must therefore bring in someone from the outside to take over" have the information to come to that conclusion. If they do they are keeping it secret.
What is clear from the financials is that it is not legitimate to decide the viability of the Health System without disaggregating the doctors' practices and other affiliates. Taken at face value, several audits have said repeatedly that some doctors' practices are losing money. But the System does not know how much, or more importantly, which ones are paying their way. So there is no way one can legitimately decide whether "the hospital" is viable or not without knowing how the practices are affecting the bottom line.
Secondly, the claim that the hospital cannot survive is not supported by the data. Even this year the loss is $300,000. That is less than 1% of the budget. Even at its worst (in recent years) the deficit was $1.5 million and that is only 2% of the total budget. We are not persuaded that with the decline in patients the system has experienced that they can't find a 2% cut. To contend otherwise is so absurd that it raised a real question of motive and intent of anyone who argues that this justifies abandoning the system. And again, that is including the affiliates that are obviously causing the major part of the problem, as stated by the auditors.
And for any organization that is owed nearly half of its gross annual income in receivables to assume it is broke is astounding. There appears to be no systematic effort to address the receivables problem and without such an effort over time it is patently false to conclude that the organization cannot survive.
There may be justifiable reasons for changes, but putting the system in a fire sale is not justified by the numbers.
And it may be that UHS is a better approach to providing health care for Beaufort County. But again, we have not seen the data to support that. So we question the motivation of those who say it is the only way to go, without ever seeing other proposals and without knowing where the fiscal holes are in the bucket.
No, we think something else is going on here. And the time is past for those board members who advocate getting rid of the hospital to produce the solid, hard data to support that conclusion. They have not done so thus far and they should be ashamed of voting to do so without doing their due diligence. If they cannot produce that data they should resign.
It should be noted that we attempted to review this article with Board Chair Sandy Hardy but he did not return our call. Nonetheless, we offer to him or any board member, equal space here to respond in order to explain why they don't agree with our conclusions. We believe hose who advocate divestiture have a duty to this community to explain or even debate their position.
Delma Blinson writes the "Teacher's Desk" column for our friend in the local publishing business: The Beaufort Observer. His concentration is in the area of his expertise - the education of our youth. He is a former teacher, principal, superintendent and university professor.
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