I’m painfully aware of the turmoil we are living through in this world, in our country and on Whidbey Island. These are certainly difficult times. But I’m writing to tell you that Whidbey General Hospital is still strong, and management is focused on maintaining our financial integrity. A series of negative events compounded our financial difficulties and it’s important for hospital staff, medical staff and the community to understand where we are and where we are going.
l During the three quarters ending September 30, 2002, we received $30,274,000 in revenues, $1,143,000 short of our budgeted net revenue. (3.6 percent below budget)
l Hospital expenses through September were $30,839,000 (2.5 percent over budget)
l This operating loss of $565,000 is slightly offset with interest income and donations of $273,000, yielding a year to date bottom line loss of $292,000. (We had budgeted for a bottom-line income of $1.6 million for this period)
l Our cash reserves are down. We try to maintain an operating cash balance of at least $1,000,000 and an equipment fund of at least $3,000,000, for a total of $4,000,000 cash on hand. Presently, operating cash is $488,000 and cash reserved for equipment is $2,288,000, for a total cash balance of $2,776,000, well short of our $4,000,000 goal.
The causes are complex, but contributing factors fall into three categories:
l Decreasing patient volumes
l Decreasing reimbursement for patient care
l Increasing hospital expenses
Inpatient admissions have decreased this year by more than 8 percent.
l More patients being admitted as Medicare observation patients (outpatients).
l Islanders can’t find local doctors, especially doctors willing to accept Medicare patients. If a patient finds a doctor off-island, most likely they’ll receive hospital care off-island.
l We’re trying to recruit more physicians. Washington reimbursement rates are some of the lowest in the nation, and doctors decline to come here.
Major payors for hospitals are government payors, primarily Medicare. Medicare, Medicaid, and CHAMPUS revenue is over 60 percent of our total revenue. Government payors have not kept up with inflation:
l Medicare reimbursement is 50 cents on the dollar.
l Medicaid is worse at 34 cents on the dollar.
l CHAMPUS reimburses at a percentage similar to Medicare.
l During 2002, we saw a decrease in Medicare volume and an increase in Medicaid volume, significantly decreasing our reimbursement.
l We also saw an increase in Medicare observation patients. This category of Medicare patients is reimbursed about the same rate as Medicaid, again, significantly decreasing our reimbursement. Regrettably, we’ve been informed that reimbursement for this category will be reduced further next year.
Hospital expenses have increased 8.3 percent this year. Biggest areas of expense increases are:
l Temporary agency staffing.
l Medications.
l Malpractice insurance.
l Increased costs in physician fees, primarily for Emergency Department.
In these four categories alone, expenses have increased by 1.5 million dollars!
Hospitals go through a rigorous auditing process and the community can be assured the financial records accurately portray the financial performance of the district. 2001 figures have been audited by the state as well as a CPA firm. 2002 data will be audited at year’s end.
Where are we planning to do?
We have offered two programs for employees to consider:
l A voluntary severance program in which the employee is paid a severance package for voluntarily terminating employment.
l An early retirement program for managers that meet eligibility criteria.
The purpose is to provide incentives for those considering separation or retirement to do so this year.
We are looking for opportunities to reduce expenses and/or to consider services that would enhance reimbursement.
The Board of Commissioners and hospital administration agree the hospital needs a margin of approximately 5 percent for the district to maintain financial viability. It is estimated that cost reductions of $2.3 million dollars; in combination with a 6 percent rate increase will be necessary next year. We’ll look at staffing and management reductions, as well as reducing costs. We’ll look to provide additional services, including some retail services to increase revenue.
We’ll also review currently provided services. They’ll be evaluated based on community need, level of reimbursement and sustainability from a financial as well as a staff resource potential. Services review will occur in public board meetings and the Board of Commissioners will make final determinations. We’ll retain our Patients First philosophy and make every effort to maintain services and staffing that will provide the level of care that we all desire.
We will do everything we can to maintain the positive efforts of our hospital and medical staff and the wonderful community support that we have received. If you have any comments, please feel free to contact us.
Scott Rhine is chief executive officer of Whidbey General.
