Friday, March 29, 2024

Auditors want plan to address profit and loss at Okanogan Douglas Hospital

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Washington state auditors have recommended that Okanogan Douglas Hospital officials devise a plan to increase revenues following a review of the hospital's books for 2007. Hospital officials say they are working - and were working in 2007 - on ways to increase profit, and in fact profits have increased - but expenses have too.

The Washington State Auditor's Office issued a finding for the district after reviewing the books for 2007, saying the operating losses had increased from 2005 to 2007, and that net assets declined in the same period. Cash and equivalent cash balances also went down in 2005-07, the audit report said, and the district's use of interest bearing warrants increased.

Interest bearing warrants are issued by the Okanogan County Auditor's Office; they're a "loan made by the county treasurer," the audit report said. The hospital district pays it back with interest, which is the interest bearing part.

The hospital's operating loss was $509,656 in 2006 and $1,051,011 in 2007, the report said. Net assets declined in value, to $2,553,553 in 2007. At the end of 2007 the hospital owed Okanogan County more than $470,000 in interest bearing warrants, the report said.

In addition, hospital officials made capital purchases in 2005-07 and operating expenses increased, the auditors wrote. Coupled with reduced cash flows, that forced the hospital to do more borrowing, which will require additional revenue to pay off the debts. The auditors said they looked at 2008 as well, and in their projections gross revenues (before expenses are deducted) would have to be about $2 million per month to meet the budget projections, but through November revenue was falling about $700,000 short.

"We feel the necessary steps have been taken to assure the continued viability of our facility and believe the results support our positions," said hospital officials in their response.

Hospital administrator Dale Polla said that in his opinion there's a missing piece in the auditors' calculations - they didn't include tax revenues, which play a crucial role in the district's profit and loss picture. And some of the expenditures in 2007 - and 2007 was a bad year, Polla said - did increase debt in the short term, but were designed to increase profitability in the long term. Those expenditures have been ongoing as the hospital expanded services and weren't confined to 2007.

Hospital use is changing, Polla said - there is more outpatient treatment, where the procedure or treatment is done and the patient goes home rather than spending a night (or more) in the hospital.

Generally hospitals receive less reimbursement for outpatient services, Polla said, so hospitals nationwide are looking for other ways make up some of that lost revenue. At Okanogan Douglas Hospital that means adding services that previously weren't available locally. Along with diversifying revenue "we think that's part of our mission," Polla said.

The district's response to the audit finding listed some of them, including recruiting an internal medicine specialist along with a family practice doctor who could perform cesarean sections, adding new programs like sleep medicine and cardiopulmonary rehabilitation, purchasing new equipment in the radiology department and adding MRI (magnetic resonance imaging) services through a mobile unit. Hospital district officials also upgraded the facility by redoing floors in some sections and painting most of the building, remodeling space to add a walk-in clinic and revamping the intensive care unit. And the hospital's income has increased, from $13,841,466 in 2004 to $24,259,228 in 2008. Gross revenue was $18,792,232 in 2006 and $21,281,929 in 2007.

But along with increased growth has come increased costs, especially in the area of contractual adjustments. Contractual adjustments are a function of reimbursement, especially from publicly funded insurance programs like Medicare and Medicaid. All hospitals have a schedule of charges for their services, and everybody gets charged the same, whether they're on Medicare, have a private insurance carrier or are paying for it from their own pocket.

However, publicly funded insurance (Medicare and Medicaid being the biggest examples) and some private insurance companies have their own reimbursement schedule and that's all the hospital gets, whether or not the procedure actually was more expensive. The difference between what's billed and what's paid is called the contractual adjustment and in 2004 that was $4,034,814 that the hospital didn't get. By 2008 that had increased to $8,880,916.

That's only adjustments in insurance reimbursement; people who just don't pay the bills or who couldn't pay for the care in the first place are handled in different categories. Bad debt (people who just don't pay the bills) and charity care (people who can't pay) amounts fluctuate from year to year, being as low as $603,957 in 2005 and as high as $1,251,137 in 2007. For 2008 the figure is $843,083; of that, $483,061 was bad debt and $360,022 was charity care.

Charity care costs increased dramatically between 2006 and 2007; Polla said that was due to a change in polices for charity care.

Total operating expenses as a percentage of gross revenue have been dropping; in 2004 operating expenses were at 75 percent of gross revenue, in 2008 they were at 61 percent of gross revenue. But the amount of money the hospital has been forced to write off has been going up. In 2004 bad debt, charity care and contractual adjustments were $4,859,074; in 2008 they were $9,723,999.

The programs have to be in place before the patients can use them, Polla said, so the hospital had to incur the capital expense before it could start getting profit. The program appeared to be paying off - literally - through October, when the hospital was turning a profit for the year.

November and December changed that - hospital use dropped off dramatically in November. Patient use went back up in December, but the services utilized were not ones that returned high reimbursement, so profits suffered as a result. The hospital lost money both months and posted a $118,883.36 loss for the year.

"We did not anticipate that, November in particular," Polla said; traditionally November is a relatively strong month. But while it's a loss it's a lot smaller loss than 2007, Polla said. The net loss in 2007 was $735,755. In his opinion that's a sign the hospital is on the right track. "Are we going in the right direction? I would say yes."

January is traditionally a slow month, Polla said, and January 2009 is no exception; revenues for January were below 2008. But through Feb. 9 patient usage was back up, Polla said. The unknown factor is the national and state economy, which are in recession.

"I don't think anybody knows what's going on right now," Polla said. He said he thinks the hospital's profit and loss picture will stabilize in 2009, but it won't be as profitable as he had hoped.
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