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VAN DYKE -- The Board of Directors of the
Comanche County Consolidated Hospital District and the Medical Staff
of the Comanche County Medical Center met in a special joint meeting
on Tuesday, December 19, at the hospital cafeteria.
Evan Moore, Chief Executive Officer of
CCMC, noted that it is a requirement that the two bodies have an
annual conference meeting to foster communications between the Medical
Staff and the Board.
Moore added that Michael Oatman, CPA, the
hospital’s independent auditor, had been invited to speak at the
meeting to address a topic that is on everyone’s mind, and that is
financial matters, “where we are, where we need to go and to let
everybody know what we are working on to get to where we need to
be...”
Dr. Howard Dickey chaired the Medical
Staff portion of the meeting and Charles Mazurek chaired the Board
meeting. Directors Mary Jane Atkins, John Mack Weaver, Karen Carr and
Joe Locke were present for all or portions of the meeting. Numerous
members of the Medical Staff were in attendance.
Oatman opened his discourse with a few
themes that he would repeat. He warned at the outset against focusing
solely upon the number of employees as the cause of the new hospital's
difficulties, noting that the real problem was the relationship of
hospital employees to net revenues. He stated that the way to improve
performance was to manage the number of people, the amount of revenue,
or a combination of the two.
Oatman also warned against spending a lot
of effort to develop departmental financial statements. "I just want
to tell people, that is not the solution, because hospitals are
integrated activities. You've got some departments that will make
money every month, and some departments that will lose money every
month. Neither one of them can stand alone. Being able to look at
departments strictly by whatever they will produce income-wise,
doesn't give you anything you can manage. The department managers
can't really change many aspects of the revenue numbers. That depends
upon the doctors sending patients to the hospital and how sick people
are. What the departmental managers can change is what do we do with
the expenses that develop that revenue. Can we manage our FTE's (full
time equivalent employees) per procedure, our cost per visit, or
whatever number there is out there as an operational measure? If we
can change those, and move them in a positive direction, then we can
change the bottom line of the hospital."
Oatman continued, "The ability of the
hospital (district) to pay for a new hospital, without a substantial
tax increase, was predicated on gaining efficiency, primarily
personnel, not eliminating people, but keeping the employees that
DeLeon and Comanche had, combine them, and grow the hospital.
Therefore, we grow revenues, keeping the number of employees that we
had, and the revenues per FTE gets better." He then stated that while
this was a good plan, that the hospital has not experienced many
economies of scale.
Oatman reviewed some historical computer
slides presented to the hospital board during the past four years as
the hospital district was combined, the new hospital was built and
opened.
The first slide shown was one that
compared trends in average net revenue per FTE performance for
comparable hospitals in the size ranges smaller than CCMC and slightly
larger. The slide also contained information on CCMC as projected in
2001 and as actually achieved.
The slide showed that larger hospitals
tend to produce more revenues per full time employee and, therefore,
are generally more profitable. It showed that before consolidation
both Comanche and DeLeon hospitals were comparable in performance to
their smaller peers' averages in the early 2000's.
The consolidation projections were based
on the normal experience that hospitals of a larger size are generally
more efficient. They typically experience revenues of $10-15,000 more
per year for full time employee.
The same slide showed, however, that what
actually occurred is that, after the new hospital was opened, the net
revenues per FTE declined to below what it was when two separate and
smaller hospitals operated.
Oatman pointed out that the difference of
around $30,000 per FTE between CCMC's actual experience and the
average experience of comparably-sized hospitals is causing the
financial problems currently being experienced.
Oatman pointed out that in 2001 hospital
management identified approximately $1.7 million in cost savings that
could be achieved by operating a single hospital. He added that he was
criticized for being too conservative in his projections for only
forecasting around $700,000 of the savings to be realized after moving
into a new hospital. Oatman noted that operating a single emergency
room was a significant component of projected cost savings.
Oatman then reviewed financial
performance during the years 2002 through the present. He said that
the new hospital has achieved the projected growth in revenues typical
of a new hospital and expressed satisfaction in that fact.
Oatman reiterated that the hospital has
fallen behind on the expense side, however. He added that while that
should not be the sole focus of correcting the hospital's financial
performance, it is probably the most readily addressable element that
needs attention.
Oatman's financial prescription for the
ailing hospital is to look at the merits of each department, both on
revenues and expenses. The focus should not be on net income, but
rather how efficiently the department is operating, relating
departmental costs to some identifiable unit of departmental
performance, whether by patient served, lab test performed,
radiological analysis, or other.
Oatman noted that the hospital's
financial situation has improved during the last few weeks and said it
should continue to experience improved cash flow during the winter and
spring. He added that his big worry was late next summer and fall. He
described the need to change the hospital's cost structure as urgent,
if significant problems are to be avoided at that time.
Oatman suggested changes be made in the
clinic so that physicians working there are paid strictly off of the
income that they and th clinic produce. He noted that under this
arrangement, physicians who are busy, see patients and are efficient
will still earn a good income.
Oatman continued, displaying slides that
showed that CCMC was less cost-efficient than the governmental
hospitals average by around 4%. He noted that roughly 1% of CCMC’s
higher cost structure was the non-cash provision for depreciation
related to the new hospital building.
Personnel costs, however, are around 2.5%
of the difference, accounting for more than $300,000 of the hospital’s
higher than average costs.
Oatman said he had discussed with
management some of the changes in the cost structure that are needed
to improve the hospital's operating results. He added that the Board
of Directors needed to make a clear charge to management as to what it
expects to occur, and then allow management to make the necessary
changes.
Oatman recommended a dual strategy be
pursued of changing and cutting the hospital's cost structure over the
next 90-120 days while pursuing, at the same time as a backup
strategy, an application to become reclassified as a Critical Access
Hospital.
Oatman commented, "So, if we can't get
the cost cuts in place, we've got a fall back position." He stated his
personal opinion that it was better for the hospital not to become a
CAH if at all possible, and then added, "But, it's better to be a
Critical Access Hospital than it is to be a broke hospital."
Oatman recommended that the hospital
speed up its monthly information cycle. He noted that the hospital's
financial executive, Pam Rice, needed to be more focused on providing
timely and useful information, rather than struggling with day-to-day
cash management.
Oatman emphasized the need for the
hospital to accumulate cash reserves that will free it from
continually worrying with paying overdue bills and meeting payrolls.
He added that ample cash reserves frees management to engage in better
long range strategies and decision-making.
Oatman said that as an objective outsider
looking at the situation, he believed that the Hospital District needs
to raise property taxes. But to do that, however, he said that the
Board and management must impress the taxpayers that they are doing
their job effectively.
The most important focus for improving
the hospital's financial health, Oatman reiterated, would be to
improve the revenue per employee relationship. He suggested that a
complete departmental review was needed, focusing on the expense per
activity unit, and developing targets for improvement.
What would be a bad outcome? In Oatman's
opinion it would be for the Board and management to be unable to agree
on an appropriate strategy and stay paralyzed for three months. "If we
are here three months from now still unable to agree on what we need
to do, I think you are going to have a terrible experience come this
summer, if not sooner. You have to pull together, and you need to have
somebody at the helm telling you where you need to go, and then you
have to go that direction."
Oatman said that the hospital's cost
structure must be re-evaluated soon, "over the next 30 days", and then
make the needed changes.
A lengthy discussion followed Oatman's
presentation. Various physicians asked questions and offered
suggestions and complaints. Both Oatman and hospital management
responded.
Although occasionally critical, most of
the physicians' comments were directed toward constructive suggestions
for improvement or inquiring what they could do to assist the
hospital's financial performance. Some expressed frustration at the
lack of clear and consistent management directives and the absence of
useful financial information. There was no argument with the elements
of Oatman's presentation.
After a question regarding where costs
should be cut, Oatman responded that outside of personnel and
depreciation, the hospital's expenses were pretty much on the average.
He then added that being average isn't working, and that the hospital
needs to aim for better than average.
Oatman later stated, "There's something
wrong here, that we got bigger, we got to be a bigger hospital by
putting the two together, we got more revenues, and our fundamental
efficiency slipped. We didn't move up. We moved down. There's
something wrong with the personnel and revenue relationship here. We
didn't even stay the same. We got worse. We got negative economies of
scale."
After further discussion Oatman
concluded, "Bottom line is, your situation is salvageable. It's
nothing that money wouldn't help. You've got some money coming in that
I think will address some of the immediate pressure that you have.
But, to me, a good outcome is, and I hear that in here, we've got a
unified view and are willing to do whatever it takes to move the
hospital in the right direction and start making changes."
Dr. Dwayne Miller spoke, noting that he
was seeing growth and increasing patient volumes in the clinic, and
expressed general optimism regarding the hospital's future once the
needed cost and performance changes have been put into place and
become effective.
Oatman agreed, noting that revenue had
grown by $3 million, "but it sure didn't get to the bottom line." |
