Non-profit growth
In this recent article from Modern Healthcare Online it is clear that although the hospital industry remains fragile, the overall outlook for non-profit facilities like Floyd has looked very good. The 2005 numbers posted in the article are very good with projections for 2006 to be as good or better. We then have to question why Floyd is financially struggling.
Some key excerpts from the article are:
"As anyone can tell, things are getting better," said Marcelo Olarte, an analyst for Fitch Ratings, which scrutinizes the performance of 240 not-for-profit hospitals.
Much better, by many measures, according to the trade group's yearly snapshot of nearly 4,900 hospitals' aggregate finances and operations.
Revenue growth -- which held steady at roughly 7.3% -- outpaced expenses in 2005 to deliver a $28.9 billion profit and the highest margin, 5.3%, in seven years, the hospital association figures show.
Actual revenue totaled a record $544.7 billion last year. Expenses climbed to $515.7 billion, up 7.1%. That's a slight uptick from the 6.9% rise a year earlier. Despite that increase, efforts to curb expenses such as labor, supplies, capital-intensive technology or construction have fueled recent financial gains, credit analysts said. That success, combined with favorable, or "benign," reimbursement from private and public insurers, including Medicare, buoyed budgets, they said.
Some questions that need to be asked are:
As of the end of september,
Gross revenue is only down about 1% from the budget projection
Net revenue is only down about 0.5% from the budget projection
FTE’s paid are actually down 1.4% from the budget
Operating expenses are up ~2%
Yet the reported net income is actually down 50% from the budget.
It is very difficult to see how this happened if the budget approved for 2006 was correct. Where is the money?
posted by Anonymous at 6:05 AM
5 Comments:
A few observations:
1. The article refers to 2005 results, but you are citing Floyd's numbers for September 2006 YTD. How did Floyd's 2005 numbers compare to what you have copied?
2. There have been a number of recent articles in the press indicating that local private hospital organizations are running operating deficits. According to what you say, Floyd is producing a profit. How is producing a profit in this environment a crises? Are their currently unprofitable peers on the verge of going under?
3. Based on many years of experience in large organizations, a 2% variance in an annual expense projection doesn't seem that unusual. Expenses are often very difficult to predict and prices of goods and services are hard to control. The standard response to higher costs is to reduce the use of goods and services--an outcome that is very familar to managers and employees in large companies everywhere. It is never fun but a failure to act on expenses is not an option.
As stated in the article, the projections for 2006 are to be better than 2005, yet the trend here is the opposite.
Expenses do have to be managed, but cutting staff is not the primary answer at a time you spent 65 million dollars for a new huge expansion.
You will never generate the revenue needed to sustain the addition if staff cuts are the primary means of cutting expenses.
It becomes a downward spiral.
So what would you cut instead?
I would not attempt to maintain a 4% margin for 2007 and make efforts to increase outside referrals for high yielding procedures.
I would increase the hours that the cath lab and the OR operates based on the needs of the physicians who utilize the services.
I would increase bed utilization to decrease diversions and possibly hold off finishing the new 4th floor. If more beds are needed, I would consider an arrangement with Landmark or other local ECF and close down the rehab floor and turn it back into a medical nursing station.
I would make some cuts in Administration (surprise, surprise)
Another option would be the use of the old TCU and ICU for extra beds. Admittedly these units arent as "pretty and fancy" as the new ones, but they worked well for years. Currently these units are being used for nothing but storage of junk, however the old ICU was used temporarily immediately after the move to the new expansion as an overflow unit.
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