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BRMC lease a possibility

Thursday, November 1, 2007

Hospital Board signs Letter of Intent

A decline in revenue in 2007 from nearly all the services Fulton County Hospital provides has the Hospital Board looking to Baxter Regional Medical Center in Mountain Home for help to keep it's doors open.

At a special session of the board Thursday, Oct. 25, a representative, Mike Steigler, of Alliant Management Services, a part of Blue and Company CPAs and Advisors, gave the board a report on the analysis that was conducted on the hospital. The same report, Steigler said, was presented to the Baxter County Hospital Board the previous day.

The 25-bed facility, located in Salem, is currently undergoing an extensive renovation that has brought the debt service of the small rural hospital to $500,000 a year. Voters approved a one-half cent sales tax in 2004, but this revenue, according to Steigler will only supply about half the revenue needed to meet the yearly debt payment.

Although the hospital saw a small growth in revenue in 2005 after the closing of Eastern Ozarks hospital in Cherokee Village the hospital now faces the same problems other rural hospitals have struggled with, as a mobile patient base travels to other locations for specialized care.

"You haven't made a lot of money in the past, so you haven't been able to reinvest in services to the community," Steigler said. "This is very much a primary care hospital and as a primary care hospital you are only going to serve a certain percentage of the population. There are certain things that people need that you don't do. I'm not saying that's good or bad, I'm saying there's opportunities here for other services you are not currently providing."

Steigler pointed out that every hospital experiences ups and downs in the number of patients who are admitted to a hospital. The loss in numbers for 2007 are attributed to the fact that the hospital has lost two doctors who were affiliated with it. According to the report, Dr. John Scribner severed ties with the hospital in May of 2007.

Another doctor, Dr. David Kauffman, has had his license suspended by the Arkansas Medical Board.

"This past year, you lost one of your physicians that was loyal to this facility, that became employed by a group that takes patients elsewhere. There's also been a physician who has been on leave of absence the past couple of months, and that's hurt your utilization," he said. "For a facility your size to lose two physicians, you only have six that practice in the community to begin with, and to lose two of them, that's a significant blow to utilization."

Steigler said that Fulton County Hospital has a large percentage of Medicare patients, and although the hospital serves those patients well, revenue from commercially insured patients is needed to sustain a hospital. "Medicare is important to you," he said. "But Medicare is not where you make your money. If this hospital is going to be profitable, you make your money off of providing services to commercial patients, because commercial insurance pays better than Medicare. The reality is, as a critical care hospital, if all you are serving is Medicare and Medicaid, you're not going to make any money."

BRMC President and CEO Ron Peterson said, "When Mike keeps talking about making a profit, what you have to realize is, we understand this is a not for profit organization. We are not looking to 'make a profit' to make sure individuals can profit. We want to make sure it makes a profit on the bottom line so we can reinvest it back into the organization here."

"There's an old saying in hospital industry too, even among the non-profits -- no money, no mission" Steigler said. "As a nonprofit you still have to make a profit to reinvest in bricks and mortar, to be able to invest in new services, to be able to fund growth in your organization."

Operating Income Declines

"This hospital has struggled in terms of the operating income. There has been one out of five years when you had a margin (1% in 2005). In the years when you had losses, they were fairly significant losses," he said. (2003-minus 8%; 2004-minus 12%; 2005-plus 1%; 2006-minus 4%; 2007-minus 16%)

"In our days cash on hand, you're in a position where you've had to borrow recently to meet operations because of the operating loss. You can't continue a trend like that to be able to make the investments you need and keep the doors open," Steigler said. (Days cash on hand: 2003-plus 6.8 days; 2004-plus 1.5 days; 2005- plus 3.8 days; 2006-minus 2 days; 2007-minus 1 day.)

Debt service

Steigler said that from talking with people in the community the perception of FCH appears to be that it's a good place for people with age who are on Medicare to come for care, but, that people with commercial insurance, who have the ability to drive, go elsewhere for hospital services.

"The perception of the hospital was not one that you come here for your service if you had the ability to go anywhere else. It's tough to turn that perception when you get that embedded within a community," he said. "I applaud you for making the investments you have in the facilities out front. Anytime a facility has gone through a major renovation, people perceive new with quality. If you have a new facility that looks new, looks clean, looks efficient, there's that perception that it must be good care. It's the same people, the same physicians. It's just a change of perception sometimes when you have a catalyst like that. So, when we looked at what you've done, we applaud you on that. We think you needed to do something to change the community's perception."

"The troubling part we have is, when you did this, when you took on a significant amount of debt for your capital structure, your debt services, starting next year, starts out at a little more than half-a-million dollars. And, it's at the half million range at an ongoing basis. You haven't had the cash flow or the operating income, to make those debt service payments," Steigler said. "Even with the sales tax revenue you've got coming in to take care of part of it, you still have a significant cash flow component in order to make the debt service payment. That was the hurdle we needed to look at to change that."


Steigler said there were different areas that could be changed to help the hospital operate more efficiently. He pointed out that $396,110 is tied up in accounts receivables alone.

"Historically, it's not been your policy to collect the deductible from patients at time of service," he said. "Once folks get out the door, the hospital is the last paid. (The hospital) needs paid as well as everyone else to keep the doors open."

Steigler said that the hospital's fee schedule was among the lowest in the state; that no rate increase had been implemented in two years; that the mark-up policy for supplies and pharmacy was low; and that Medicare charge utilization needed updated.

"I don't know a hospital yet that charges less than $500 a day (for room rate)," he said. "Your rate is $300 to $375 a day. I haven't seen those rates since the early 90s."

Patient satisfaction

remains high

Patient satisfaction surveys were handed out to patients of FHC upon discharge. Through the second quarter of 2007 inpatient satisfaction was 78.2 percent, outpatient satisfaction 70.4 percent satisfaction and ER satisfaction at 67.7 percent.

Restructuring needed

The analysis said restructuring opportunities for the hospital include: ambulance transferred to the county to lessen the overhead allocation and loss; establish a RHC (Rural Health Clinic) for recruitment of MDs and for managing the cost of guarantees; and manage the hospital through a lease of the physical plant with maximum administration allocation from BRMC and to structure the lease to account for the debt structure.

Hospital Board blocks

public information

At this point during the meeting, Steigler said, "This is the point where we need to look at what Baxter Regional has to offer." Barry Aldridge, chairman of the Fulton County Hospital Board, called for the board to go into executive session (a closed meeting) stating, "This is the point where we get into the financial aspects. We're going into executive session at this time and need to ask some of the people to step out of the room." When a representative of Areawide Media objected to the closed meeting, stating that the only reason allowed under the Freedom of Information Act for going into executive session was for the purpose of discussing a personnel matter, and that the discussion of financial arrangements was not an allowable reason, the representative was told by Fulton County Judge Charles Willet, "It will be, (personnel) and it will be numbers also. But all we have to do is state the fact and motion and it's over. It's over."

According to state law the only reason for going into executive session and closing a meeting to the public is for the specific purpose of considering "employment, appointment, promotion, demotion, disciplining or resignation of any public officer or employee." This does not include the general discussion about making policies related to these. That must be done in open session. Anything else violates the FOIA. In addition, no vote may be taken in private about this matter. The board must reopen the meeting to the public, state what was discussed and vote in public on this matter.

Areawide Media's representative stood in the hallway outside the meeting room door for over 2 hours while representatives from BRMC made their proposal to the board. The reporter was told after this presentation that, "Fulton County Hospital had signed a letter of intent for proposal of lease to be a subsidiary of BRMC. That the proposal will come back in 90 days, and that BRMC is sending a member of their management team to assist the current interim administrators at BRMC's expense."

All discussion, vote and approval of the letter of intent were conducted in a closed meeting in a direct violation of the FOIA.

Areawide Media's publisher Janie Flynn received an e-mail sent Thursday, Oct. 25, at 8:46 p.m., from a member of the Fulton County Hospital Foundation Board. It contained information that was not part of the meeting Areawide Media was allowed to attend.

On Friday afternoon at 4 p.m., an e-mail was sent to Areawide Media from BRMC. It read: "Baxter Regional Medical Center has signed a letter of intent with the Fulton County Hospital Board for BRMC to assume operations of the Fulton County Hospital and lease the building from the county. The Fulton County Hospital is at Salem. 'During the next 90 days, we will work diligently to finalize this transition,' said BRMC President and CEO Ron Peterson. 'We look forward to partnering with the Fulton County communities to continue providing excellent health care.'"

On Monday, Oct. 29, Flynn and Erma Harris, managing editor, met with Fulton County Judge Charles Willett and hospital board member Al Roork. They issued the following statement:

"On Thursday, Oct. 25, the Fulton County Hospital Board met with representatives from Baxter Regional Medical Center to review the results of a Due Diligence report. This report shows strengths and weaknesses of day to day operation of the hospital.

"After reviewing the results, BRMC presented a proposal for a lease arrangement for day to day operations of the Fulton County Hospital. A Letter of Intent was signed by the Board.

"During the next 90 days we will work with BRMC to finalize this transition. If an agreement is reached this will allow Fulton County Hospital to offer services that we have never been able to offer before."

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