OCH Regional Medical Center’s Fiscal Year 2015-16 audit reported a $190,844 drop in its end-of-the-year net position after all operational and nonoperational revenues and expenses were accounted.
The audit, which Oktibbeha County supervisors will acknowledge during Monday’s 9 a.m. meeting at the chancery courthouse, shows a $416,064 loss between OCH’s operating revenues ($71.75 million) and expenses ($72.17 million) after both categories moved negatively from the previous fiscal year’s marks. Revenues decreased $1.98 million and expenses increased $1.26 million from FY 2014-15 to the fiscal year ending Sept. 30, 2016.
After factoring in nonoperational revenues — contributions, gains on investment income and the extinguishment of debt, and disposals of capital assets, among others — and other factors, the audit shows a $190,844 decrease in the hospital’s overall position.
Overall patient service revenue dropped about $2.01 million, from $196.55 million to $194.46 million, for the fiscal year. While OCH’s outpatient earnings increased $1.13 million, its inpatient revenue decreased by $3.23 million.
The report cites numerous reasons for the loss: increases in Medicaid-related programs (up $1.09 million, or about 50.76 percent from FY 14-15), declining net patient service revenues (a 2.82 percent slide), rising costs associated with employees’ salaries, raises and benefits ($1.21 million), a drop in electronic health records incentives funds and others.
Despite the overall loss, OCH Chief Executive Officer Richard Hilton said the hospital remains on a strong financial footing as recent trends show financial gains in the past years. For example, the audit states the hospital’s net end-of-the-year position remains almost $4 million above where it was at the start of FY 2013-14.
OCH showed a $2.43 million decrease in total liabilities between FY 2014-15 ($24.33 million) and the last fiscal year ($21.91 million), and Hilton also touted the hospital’s $127 million economic impact for Starkville and Oktibbeha County.
As for the last fiscal year, Hilton said OCH experienced an unusual drop in inpatient care and its service area did not see as severe of a respiratory illness and flu season as many predicted, which led to fewer patients and less income.
The hospital also administered raises to many of its employees and hired additional staff and doctors, he said, thereby increasing costs.
“People’s health was better, and you simply cannot determine when people are going to be sick. The whole emphasis in health care right now is to keep people from coming to hospitals, and that’s why there’s been the outpatient shift,” Hilton said. “We’re a community-owned hospital, so our business philosophy is different (than for-profit and nonprofit systems). Our board isn’t concerned about comparing us to other hospitals, because we’re about providing as many services to the community as we can. They know we need to have a bottom line, but they’re not looking for 15- or 20-percent margins.
“We’ll continue to assess our services and adjust accordingly,” he added. “Manpower is our biggest expense right now, but we have the ability to support our staff.”
Consultant responds
Hospital consultant Ted Woodrell, whom the Oktibbeha County Board of Supervisors hired to assist the county in analyzing OCH and broaching a possible transaction for the publicly owned facility, said the hospital isn’t in a “desperate situation” but needs to address its losses before it a trend of reaching into cash reserves develops.
“They have enough cash to fund operations, but it could become a significant risk if it’s not addressed. Cash has to come from somewhere. Someone has to kick it in or you’ll deplete your reserves quick,” he said. “(OCH needs to look at) what it can do in the way of needed services that will generate revenue without costing too much on the capital side. On the expense side, you always look to try and maximize the efficiency of an operation, then you look for what can be done in the long run to substantially change market share capture rates. Right now, they’re just not capturing the market they should be.”
Last year, county supervisors tasked Stroudwater and Associates with performing an assessment of OCH’s financials and market conditions.
That report suggested the county explore transaction possibilities while the hospital continues to improve its sustainability in case a sale or lease option isn’t available and floated a potential $20 million to $60 million price tag for OCH.
It also alleged an annual $3 million to $4 million gap exists between operating results and needed levels of performance before strategic capital investments are considered. Hilton refuted those claims, saying Stroudwater’s report was based on misleading information that inflated losses, diminished revenues and did not adhere to generally accepted accounting practices, and only a portion of the fiscal year’s data was available for the study, which meant the team used estimates for its calculations.
Hilton refutes Woodrell
On Thursday, Hilton again refuted some of Woodrell’s FY 2015-16 audit assessment to The Dispatch, saying the analyst again was not using generally accepted accounting practices when discussing what he called “negative trends” created from comparing only two fiscal years.
“That’s the fallacy of the Stroudwater report. In the hospital business, it’s month to month and it’s up and down. You can’t really get a picture of the hospital without having all of the data,” Hilton said. “The impression they were leaving was we don’t have the ability to generate and service additional debt. They’re wrong about that. Local bankers actually ask us to do more debt financing. They wouldn’t do that if we have a weak statement.”
Last month, supervisors tasked Butler Snow attorneys and Woodrell with drafting a request for proposals for the hospital. That action does not formally start a transaction process, as a majority of supervisors must still approve a resolution of intent to sell the hospital and release the finished document.
Carl Smith covers Starkville and Oktibbeha County for The Dispatch. Follow him on Twitter @StarkDispatch
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