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Financial challenges continue for KH

Posted: March 10, 2011 2:55 p.m.
Updated: March 11, 2011 5:00 a.m.

The economy continues to be a challenge for many, and KershawHealth is no exception. Although January was a better month for the health care system -- compared to both its budget and to financial reports of the previous three months -- “year to date, we are still extremely challenged,” KershawHealth Board of Trustee Vice Chair Scott Ziemke told his fellow trustees during the board’s Feb. 28 meeting.

“We performed better than budgeted, but we’re still not experiencing large, significant numbers,” Ziemke said, “and we are going to continue to be challenged for the rest of the year as we try to meet our goals.”

Financial matters were at the heart of the February board meeting, from Ziemke’s report to a discussion by President and CEO Donnie Weeks on challenges presented by both changes in Medicaid to the country’s general economic climate.

Ziemke’s report actually began with a quick brief on KershawHealth’s recently completed Fiscal Year 2010 audit; the fiscal year ended Sept. 30. Ziemke said the hospital received an unqualified report, meaning there was nothing wrong with the financials from an accounting practices viewpoint. However, the highlights began to tell the evening’s story of obstacles to be overcome.

Ziemke said the audit showed KershawHealth suffered an operating loss of $136,000 for Fiscal Year 2010 compared to operating income in Fiscal Year 2009 of $3.6 million. However, he said auditors treat interest expenses as non-operating expenses, whereas KershawHealth internally reports interest expenses associated with outstanding debt as operating expenses. That is why, he said, the $136,000 loss was different than an unaudited report in October of a 2010 fiscal year operating loss of $1.9 million.

One piece of good news from the audit: KershawHealth spent more than $10 million on charity care in Fiscal Year 2010.

Ziemke then turned to the January financials. He reported KershawHealth generated operating income of a slim $8,000, but that was healthy compared to a budgeted loss of $114,000. Total net income was $89,000 compared to budgeted net income of only $6,000.

The month’s operating income was $59,000 below January 2010’s and more than $900,000 under the year-to-date income levels at that time.

Furthermore, the fiscal year-to-date operating loss is still a problem at $859,000 compared to a projected loss of $629,000. The fiscal year-to-date net loss is no better, coming in at a loss of $789,000 compared to a projected loss of $153,000.

Ziemke then turned to Executive Vice President and COO/CFO Mike Bunch for a report on KershawHealth’s volumes in January. For at least the third month in a row, total surgery cases were under budget -- in this case, by 19 percent. Surgeries were also 13 percent below January 2010 levels. Bunch said the primary reason, as with December’s report, was a slowdown in ear, nose and throat (ENT) procedures.

Generating more discussion, however, was the fact that hospice volumes were 40 percent behind those of a year ago and 47 percent below budget.

“A study is underway to look at market share and referrals,” said Bunch. “Competition is a factor.”

Weeks said if trustees were to look at a graph of hospice cases over the last year, they would have seen a spike in volumes.

“We’re now back to what they were before,” Weeks said. “We need to look at the length of stay -- the number of days.”

Lengths-of-stay came up again later in Ziemke’s report when he presented what has been termed a financial “dashboard” to the board. The dashboard has been used during the past two years to gauge how KershawHealth is doing compared to other hospitals based on standards provided by the bond rating firms of Moody’s, Standard & Poor’s and Fitch.

The one drawback to the dashboard is that the three firms’ ratings are up to 18 months behind KershawHealth’s, meaning the hospital is comparing where it is now to where other hospitals were as far back as 2009.

The fiscal 2011 year-to-date average length-of-stay is at 4.4, the only figure on the income statement side of the dashboard where KershawHealth was ahead of its peers from 2009. That disclosure prompted Trustee Dr. Tallulah Holmstrom to say there is probably nothing more the hospital needs to do in that area.

“That’s probably not going to change, so what we need to do is work on things that affect the whole operation,” she suggested.

Weeks, however, said there is always room for more improvement on lengths-of-stay, especially since Medicare patients is a population that could contribute to significant savings.

“We need to do an analysis to know for sure,” Weeks said.

Holmstrom inquired again as to when the board would begin to see profit and loss statements for specific lines of business within KershawHealth. She said she wanted to see such statements in light of January’s financials showing that expenses were 9 percent above January 2010, in part due to new physician salaries.

“We don’t have those yet,” said Ziemke. “We ask each month. It’s probably going to be the end of the fiscal year before they’re done.”

“Someone has to have some idea,” Holmstrom said.

Yes, said Ziemke, but not with enough detail and accuracy to bring to the board.

Bunch said that might change with a new, full accounting system that could be set up by September.

“We may be able to bring forward an interim statement before then,” Bunch said, “but you’d have to recognize that it wouldn’t be as detailed and may have discrepancies.”

Weeks warned against making decisions based on such interim reports, however.

“It’s going to be sophisticated,” Weeks said in regard to the new accounting system; in reference to a number of service lines Holmstrom was referring to, he added, “It will serve us beyond just those practices.”

Other categories contributing to the higher expenses included health insurance benefit expenses, drugs and patient supplies.

In his president’s report, Weeks said KershawHealth has already been responding to the continued economic depression, pending health care reforms and a possible 10 percent reduction in Medicaid reimbursements. That, he said, could account for a $2.1 million annualized loss beginning July 1.

“We are already being careful about filling jobs. We have already reduced 17 positions by non-replacement,” said Weeks.

On the other hand, he said, the hospital is being careful not to hit staff positions that would affect patients’ quality of care.

“That’s why we’re looking at partnering with other providers to gain scale, but we won’t give up local control. We will not sell or lease the hospital, but there are advantages to working with other hospital systems,” said Weeks.

He likened the financial situation in health care nationwide as a “burning platform” many institutions are jumping off.

“But we’re not going to put this all on the backs of our personnel. We had a way to mitigate this, by doing what we’ve done for years. We were even willing to increase our (Medicare) match,” Weeks said of members of the S.C. Hospital Association. “But the governor’s office was not receptive, so federal dollars are being left behind.”

In other financial news, the board voted unanimously to authorize the purchase of a new ambulance, which will be paid for by a $150,000 Kershaw County Council grant. The cost of the ambulance, plus equipment, will come to $138,784, thanks to a low bid from McCoy Miller of Elkhart, Ind. The ambulance will replace a high-mileage unit that will be used as a backup. Another backup unit has been retired due to age and safety concerns.

Weeks said the more than $11,000 left over from the county council grant would be saved for future ambulance needs.

The KershawHealth Board of Trustees meets on the fourth Monday of each month at 6:30 p.m. All meetings are held at the KershawHealth Community Outreach and Wellness Center (formerly the Health Resource Center) on Battleship Road and are open to the public.

(The fifth paragraph of this story has been rewritten to correctly reflect an explanation of KershawHealth's Fiscal Year 2010 operating losses as reported in a recent audit. For a full explanation of the correction, please see Monday's print editon of the Chronicle-Independent.)

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