SMH budget forecasts increased losses, pushes productivty

David Gulliver - posted 1:45 p.m. Wednesday, Aug. 26; updated 8:30 a.m. Thursday, Aug. 27

If there’s a message in the mass of numbers that make up Sarasota Memorial Hospital’s proposed budget, it is this: The staff, already fine-tuned for efficiency, will have to be even more productive.

The system’s top officers presented the fiscal 2010 budget to the governing board Wednesday morning. It projects operating revenues of $485.6 million, a 3.5 percent increase, and operating expenses of $501 million, a 4.8 percent increase.

After three straight years of cutting losses on operations, the financial plan shows those losses rising slightly, to $15.4 million from an expected $9.1 million this year.

Officials said most of the increased losses, about $4 million, comes from the new cost of running the North Port free-standing emergency room, which opens Sept. 1.

But the hospital system also is dealing with rising costs across the system -- most importantly, rising salaries, benefits and supplies, which account for $15.9 million in new costs.

To make up ground, the hospital system set several ambitious targets. It hopes to increase admissions and inpatient revenue, which have fallen for two straight years.

And with no new facilities opening -- for the first time in several years -- it also is counting on more patients and procedures at its ambulatory centers. Officials called it increased “same store” performance, borrowing a term from retail.

The budget calls for a 5.5 percent increase in volume of outpatient services, for a $6.5 million improvement. Those pay much less than traditional inpatient care, so hospitals need many procedures to see significant revenue increases.

One possible way to do so, officials said, is to add night or weekend hours. And they will do it with staff held at current levels.

“We’re really pushing our outpatient campuses to their capacity,” Chief Executive Officer Gwen MacKenzie said.

The high expectations are one reason the hospital system is maintaining its merit increase program, which offers raises of up to 4 percent, she said. But staff will see some cuts and squeezes in other areas.

Bonus pay for nurses in the hospital’s Work Only Weekend program will drop, as will pay for specialty call nurse shifts. All employees will pay slightly more for health benefits. Administrative departments will see furlough days, as already do patient care workers when demand is low.

Efficiency also is a key to hitting the 1.3 percent target of increased inpatient cases, which would bring in another $3.1 million. Administration has zeroed in on the hospital’s observation unit, where patients are evaluated to see if their conditions warrant admission.

Moving patients into observation frees emergency room space and is a less expensive way to provide care. It can help avoid unnecessary admissions, but if managed well, can get more patients for admission.

In peak season, as many as 70 patients a day are under observation, and now abut half are eventually admitted. The hospital plans to centralize all observation patients in one unit, to better manage their cases.

While the North Port emergency room is expected to lose money on its own operations, Chief Financial Officer Michael Harrington said it would help the hospital with “building an overall market share relationship” -- in essence, getting more south county patients to use the hospital’s services.

Another challenge to short-term improvement in inpatient numbers is the planned construction of a new nine-story bed tower on the main downtown campus. Officials fear it may deter some people from choosing the hospital.

But on that front, they received some good news last week: The $103.9 million bond issue was in high demand and received a 5.5 percent interest rate, much lower than expected, because of two bond rating agencies’ upgrades. That should mean lower interest payments for the 30-year bond, as Sarasota Health News previously reported.

Board Chairwoman Dr. Marguerite Malone, a retired professor and consultant, attributed the ratings upgrades in part to the board’s willingness to increase tax revenues if needed, also as previously reported.

MacKenzie credited the hospital’s record of cutting losses and meeting profit margin targets. It posted 4 percent profit margins, after including tax revenues, from 2007 through 2009. “We have a three-year record of doing that, and that’s really why we got the rating upgrade,” she said.

The hospital financing is a point of pride with administrators, who note that they used cash reserves and bond sales to pay for the building. “We have not asked the community for one dime, and we will not ask the community for one dime,” MacKenzie said.

Meeting its targets also will require Sarasota Memorial to somehow improve on already impressive feats.

Despite the skyrocketing costs of supplies, the hospital has held that cost flat from 2008 to 2009, and hopes to hold them to a 2.5 percent increase next year, less than the rate of inflation. While about a third of savings have come from lower-than-expected demand, most of the improvement is from better management and purchasing, Chief Financial Officer David Verinder said.

Despite a poor economy and a surge of uninsured patients, it cut bad debt from unpaid bills 20 percent. And despite two straight years of reducing staff hours per admission and salary per admission, it plans to do so again.

It also hopes to reduce readmission rates, a field where it already is a top performer, as previously reported.

And it will do so while facing a $2 million cut -- instead of an expected $3 million boost -- from Medicare, which pays 55 percent of all Sarasota Memorial patients’ bills.

MacKenzie said the hospital’s three-year performance proves it is up to the challenge. “We’re going to execute this budget,” she said. “Staying on budget is going to be absolutely critical the next three to five years.”