This week I had the opportunity to attend the Board meeting of the Western Health Alliance in Grand Junction. WHA is an organization that we are actually a founding member of and part owner that advocates for rural healthcare providers on the Western Slope of Colorado. It was a very interesting meeting in that I was able to learn a lot about what is going on in our state in healthcare. It also made me realize that we have to be cautious as an organization that we do not get so caught up in our local issues that we forget that there is lot going on around us that can affect us and our future. I will discuss some of those issues a little later in this update after the financial report.
Also, this week we had the monthly meeting of the SHS board. At that meeting Rick Shrader, our CFO, presented the January financial report. Rick is out of town today preparing for his daughter’s wedding tomorrow and as such I will be providing the January financial report in this update.
JANUARY FINANCIAL REPORT:
By any measure January was an excellent month financially. It was a busy month and we did an excellent job of controlling our costs and as a result we exceeded budget and are well ahead of prior year. It’s an excellent way to start 2019!
Some of the Key Statistics are:
|Actual Jan 2019||Budget Jan 2019||# Variance||% Variance||Actual Jan 2018||# Variance||% Variance|
As you can see from the above, January was a busy month and we exceeded both budget and prior year for Admissions, Patient Days, Surgeries, Births and Clinic Visits. We came up a little short of prior year for ER visits and Imaging, but did exceed budget for ER Visits. These volume increases resulted in a substantial increase in our Total Gross Patient Revenue which increased by $1.56 million or 17.2% over prior year and was $716 thousand over budget, or 7.2%. The more important number however is Net Patient Revenue (NPR), which is what we actually expect to receive from those gross charges. For January NPR was $5.2 million which was $651 thousand better than budget and $1.1 million better than prior year.
So, I am going to veer off the path a little and provide a little bit of education on how we develop the Net Patient Revenue numbers every month. As I have explained before, the Net Patient Revenue number involves a significant number of estimates. As a healthcare provider, we do not receive the amount we bill. Medicare, Medicaid, Commercial payors and even those individuals that have no insurance pay substantially less then we charge and, in some cases, nothing and we do not know at the time we bill exactly what we will collect. As a result, every month we have to determine, based on historical payments received, how much we will receive on the amount we bill. Its really not as complicated as it may sound and if done correctly will result in accurate estimates. To check the accuracy of our estimates we continuously monitor our collections against what we estimated we would receive or Collections versus Net Patient Revenue over an extended period of time. For the last 12 months, February 2018 through January, 2019 we have estimated our Net Patient Revenue at $54,348,000. Our actual collections during that period have been $55,848,000 or $1,500,000 more than we estimated which is about 103% of expected. While you always want this number to be about 100% you never want it to be under 100% and in either case you want to be able to easily explain the variation. In our current case we know that we are over 100% because we have actually improved our collections during this time. Meaning we have reduced the amount of time it takes to collect our receivables from where it was prior to February, 2018. The real take away from this is we can have a lot of confidence we are presenting financial statements that are accurately reflecting our results.
So back to January, as we all know we have had a real focus on reducing expenses over the past several months and January is very much a positive reflection of those efforts. Even with a busier month, our total operating expenses were $397,000 less then prior year. Our labor expense which has been a real focus were $902,000 below prior year. The Salary portion of that number was down $405,000 and we were down 78 Full-time equivalent employees from last January. Our Labor costs consumed 45.8% of our NPR this year versus 81.4% last January due to our higher revenue and lower labor costs.
With the increased Net Revenue and the reduction in Operating Expenses, our Operating Margin exceeded budget by $143,000 or 34.8% and exceeded prior year by $1,687,000 148.9%. Our operating margin was $554,000 this year versus a loss of ($1,133,000) last year in January. A remarkable improvement and a very good sign our plans are working.
For the month our total cash was down about $280,000 but we reduced our current liabilities by over $937,000. We have Accounts Payable at a very manageable level at this point which is a substantial improvement over where we were even a few months ago.
Obviously, this is an excellent start to the year but by no means are we out of the woods. Our requirements through our forbearance for building our cash balances are substantial over the next 18 months and we will need to continue to maintain our focus as we have been doing to get there and I know we will get there. You also will understand more about our challenges when I get back to what I started in the beginning of this update on what is happening in Colorado regarding the healthcare industry.
The out of the woods comment made me think of a question. The question is, how far can you walk into the woods? Please feel free to email me your answers and no fair looking it up.
BACK TO THE UPDATE:
All across the country there is major discussion by healthcare consumers about the rising cost of health insurance premiums which have been steadily increasing. This is particularly true in Colorado where health insurance premiums are some of the highest in the country. This outcry from consumers was a major focus during the recent elections and is now a major focus of the Colorado Governor, his administration and the State Legislator. They are completely convinced that the issue is that healthcare providers are not controlling costs. Currently there are 40 bills that have been put forth to address what is viewed as a “crisis situation.” Unfortunately, the feeling that something has to be done immediately is overriding the logical approach that they make sure what they are doing will have the intended effect. The opposite approach of my “do it right the first time”. The Western Health Alliance and Colorado Hospital Association both oppose most of what is being proposed but there is a lot of concern about whether logic will prevail. WHA is particularly concerned about how some of these proposals will affect rural providers like us. The concern is that a lot of the questions about rising costs are coming from what is being seen in the more urban areas such as Denver where there is a tremendous amount of money being spent on expanding services. In a lot of cases, this is just duplicating already-available services. Obviously, the issues facing rural providers are much different than urban areas and CHA and WHA hope to protect the rural providers.
The Governor and many legislators have publicly stated that they feel that healthcare systems are driving up costs through expanding overhead costs. I totally agree and most of my CEO colleagues will agree that healthcare administrative costs are too high. However, what we also all agree on is that the reason administrative costs are continuing to grow is that the regulatory burden on our institutions continue to grow. We are one of the most regulated industries in the country and it continues to increase. The growing regulations burden providers with exponential overhead costs.
With that said, one thing that is obvious is that it will never become easier to operate healthcare organizations. The outside pressures will not go away and as an organization, we have to continue down our current path to assure we continue to provide high quality services in the most efficient and cost-effective manor possible. We are going in the right direction and have already recognized the need to become more efficient. We also need to recognize that while we continue to progress at getting out of the woods, the woods are growing every day and our efforts will need to continue as we move forward.
DONOR APPRECIATION MARCH 14TH AT 5:30PM IN THE HOSPITAL LOBBY:
Just a reminder that the Donor Appreciation/Open House will be taking place on March 14th at 5:30 in the new Lobby. We will be unveiling the new donor wall at that time also. It’ll be a fun time to reflect on how healthcare has grown in the last 100+ years in Montezuma county. Below is a before and after if you will:
1917 Johnson Hospital
2018 SWMH Entrance
Once again thanks to all of you for your efforts. The turn-around we are experiencing in not just the financial aspects but in culture and attitude is something we can all be proud of.
This is going to be a great 2019!
Anthony Sudduth, CPA, FACHE, FHFMA