FMH on life support

WINNSBORO – The 800-pound gorilla in the room, also known as Fairfield Memorial Hospital’s mounting financial losses, has for months begged the question – ‘How is FMH going to keep its doors open until the new emergency services facility becomes operational?’

Month after month, the hospital has tried to stop the bleeding – closing the most unprofitable departments, initiating greater efficiencies in billing and reducing operating costs by more than $2.2 million over the past two years.

But the financial decline of the hospital continues to snowball, and CFO Tim Mitchell summarized the hospital’s position in no uncertain terms during its monthly meeting on Feb. 27.

“Fiscal year-to-date operating expenses have decreased by $566,492,” Mitchell told the Board. “But during this same period, gross patient revenues have declined by $1,306,000. Hospital EBITDA (earnings before interest, taxes, depreciation and amortization) for the four months ending Jan. 31, 2018 had a deficit of $692,429.”

In addition, Board Trustee Randy Bright, who chairs the Board’s Finance and Audit Committee, said during the committee meeting that the current budget is already off by about $400,000 because the hospital has failed to make its revenue projections.

He feared that the hospital is “on pace for a $2,861,000 loss at the end of the year.”

With no other options left, the hospital turned to the taxpayers for help, in the form of a $4,000,801 funding request to the Fairfield County Council during its meeting the night before the Board meeting.

The $4,000,801 would be used for several on-going items, Doscher said, such as replacing the hospital’s heating/air conditioning unit and painting the exterior of the building.

“Some of the funding request would also go towards the planned digitization of hospital patient records since, as we are winding down, we need to deal with all these paper records,” Doscher said.

Approximately $1 million of the funding would go to support the emergency department until the end of the year, and the remainder – about $2.7 million – would be used to help the hospital deal with its on-going operating losses.

The Board approved the $4 million county budget request after the fact, with only Board Trustee Ron Smith objecting.  Smith said the request reflected only a worst case scenario and that he wanted the hospital management to develop a best case and an intermediate case scenario to present to the County Council as well.

Next Steps

During the County Council meeting Feb. 26, Council Chairman Billy Smith suggested the County purchase the hospital property and thus have a tangible return on the taxpayer’s investment.   Reached by telephone after the Board meeting, Smith said the next steps for County will be to get an appraisal and inspections of the property in order to evaluate its potential purchase.  This could take several weeks, he said.

Smith noted that the $1.2 million that the County normally budgets for the hospital is part of the FMH budget request and would be provided in quarterly installments as long as the FMH emergency department remains open.  However, this does not necessarily mean the hospital will get everything it asked for.

“I am not in favor of providing all of the $4 million regardless of the results of the appraisal,” he said.

“There was no scenario in which any extra funding will be provided over the $1.2 million that the County has traditionally budgeted for the past 20 – 30 years, unless the hospital property is involved,” Smith said.

Grim Financial Picture

Despite Board members’ assertion that the need for more than$4 million is a worst case scenario, the information presented during the Finance and Audit Committee meeting prior to the full Board meeting  again highlighted the hospital’s deficit position caused by an unfavorable patient mix, declining revenues and operating costs that are fixed despite an absence of patients.

For example, the hospital posted adjusted patient collections for January, 2018 of $429,877. This included payments for patient debt collected through tax offsets and the Governmental Enterprise Accounts Receivable collections (GEAR).  Excluding these payments, the hospital collected about $371,000 last month.

Excluding the GEAR and debt offset payments, Mitchell said, “we have been averaging about $400,000 a month in patient collections, and that is down considerably from a year ago.”

Mitchell said the hospital had to use some of its board restricted cash to help make the February payroll. Currently, there is a little more than $400,000 in the two funds.  Mitchell proposed moving $25,000 from each fund for a total of $50,000. The board has previously granted hospital management discretion in using board-restricted cash. The finance committee asked Mitchell to pay back these funds from the expected debt set-off and GEAR collections in March.

By the end of January, the hospital only had a total of 14.9 days cash on hand.  Normally, Mitchell said, the state disproportionate share (DSH) payments and county appropriation the hospital receives in January will help bolster its cash position, but now it is burning through this money a lot quicker.

For example, Mitchell said, in November and December the hospital’s accounts payable (the money it owes to vendors for goods and services) increased by $200,000.  As of the end of December, 2017, the hospital owed almost $2.9 million for services and supplies to various vendors, making it necessary to use the county and DSH funds to pay down its debts.

“It’s all a reflection in our decline in revenues,” Finance and Audit Committee Chairman Randy Bright said.  He pointed out that the last time the hospital received the quarterly government funding, it had 28 days cash on hand.

“If I may re-cast what Randy is saying …our net asset position at the end of October 2017 was $793,000. Our net assets by the end of January 2018 were $283,000.  That is due to these cumulative losses,” Mitchell said. “That net asset position is before we record our unfunded pension liability which is a minus $8 million.”

Also telling was that the “good” news in the monthly financial report was apparently due to this winter’s flu outbreak. Admissions to the ER department increased to 762 in January from 581 in December, and, therefore, gross revenue exceeded the amount budgeted for the month for both the ER and the imaging services department.

Even then, Mitchell said, the fact that the emergency department is becoming a much bigger part of the hospital’s “book of business” is not helping its financial picture but it actually hurting it.  This is, by design, he said, since the hospital has closed its cardiac rehab, Blue Granite and home health departments.

However, a higher percentage of ER patients are either uninsured or receive Medicaid to help them pay for health care.  Of the hospital’s gross charges, 30 percent are self-pay and 34 percent are billed to Medicaid, which pays the least compared to Medicare and commercial health insurance.

“Typically, we see reimbursement rates from Medicaid at 18 cents on the dollar and from self-pay 15 cents on the dollar,” Mitchell said.

“So we are seeing an ‘unfavorable’ mix of patients in the emergency department, which is growing as a percentage of our total business.  That is a recipe for these types of numbers,” Mitchell said.

What’s not making these numbers worse is that the hospital had a considerably better bad debt experience compared to a year ago, Mitchell said.

Despite this, he pointed out that while operating costs had declined by $566,492, gross patient revenues had declined by $1,306,142.

“It would be wonderful if they declined by the same amount, but that’s not the way it works, unfortunately. You have got fixed operating costs that either don’t change or that change by very little.   We still have to staff certain departments with the same compliment of services whether we see one patient or a thousand.”