By the books: Signs of a turnaround at SMH

David Gulliver - posted 4:15 p.m. Friday, Jan. 22

The most impressive figure in Sarasota Memorial Hospital’s audited financial report may be in red ink.

The hospital lost just $8.5 million on operations last year, its best showing since 2002, according to the financials released late Tuesday. That number signifies that both the current administration’s cost controls and the board’s long-planned strategy of building a network of outpatient sites are taking effect.

“I think it was a great year, financially,” Chief Financial Officer David Verinder said. Overall, net revenues rose about 3.2 percent, to $466.4 million, while expenses rose 1.7 percent, to $474.9 million.

Verinder pointed to a few components of the two sides of the sheet.

On revenues:

-- Outpatient cases rose 11 percent in 2009, even after a 9.4 percent increase the year before. It came as new facilities came on line, such as the Heritage Harbour center in Manatee County, and other new additions hit their stride, like the Institute for Advanced Medicine, on Clark Road.

While outpatient cases have a lower profit margin, that growth helped counter a decline in inpatient admissions, down 4.3 percent in 2009 and 5.4 percent in 2008.

-- Despite an ongoing recession and rise in county residents with no health insurance, the hospital managed to reduce its losses from unpaid bills for the second straight year. Bad debts and charity write-offs fell by 7.3 percent, even better than last year’s 7 percent improvement, and even with an increase in charity case.

-- A 10 percent price increase actually had little effect on net revenues, accounting for about $ 1 million, or less than one-quarter of 1 percent of the total, Verinder said. That’s because most of that increase is negated in contracts with insurers.

-- Improved payments in new contracts with insurers accounted for about 40 percent of the gain in net revenues. The improved bad debt accounted for another 40 percent, while outpatient gains accounted for about 20 percent, Verinder said.

-- Tax and investment income covered the operating loss. The hospital system took in $48.2 million from its share of property taxes -- about $8.3 million less than the year before -- and $18.4 million in investment income. That amounted to a $47 million profit, or a 5.1 percent operating margin.

On expenses:

-- Despite the soaring costs of medical supplies -- particularly devices such as stents and artificial joints -- the hospital managed to cut supply expenses for the second straight year.

Much of that is better internal tracking, but it also comes from working with doctors to limit the variety of devices they use. “We continue to push our physicians about what implants they’re using,” Verinder said. A decline in inpatient cases had little effect on supply costs, he said.

-- Interest expense fell by almost one-third, from $15.3 million to $10.8 million, as the hospital’s debt restructuring took effect. In September 2008, just before the close of that fiscal year, the hospital issued about $159 million in new bonds to pay off past issues and reduce borrowing costs.

-- Salaries, wages and benefits rose less than 1 percent, despite the hospital’s hourly average pay rate rising 4.7 percent, the audit found. That same line increased 5.4 percent the previous year.

Job cuts were the key. System-wide, full-time equivalent positions fell from 3,517 to 3,409 in 2009, about 3 percent. The hospital had 3,535 FTEs at the end of 2007. Because of part-time jobs and job-sharing, it employs nearly 4,000 people.

While the hospital had no layoffs in 2009 for budget reasons, it redirected staff and some employees lost jobs in the process -- such as the elimination of a nursing team dedicated to teaching mothers how to breastfeed their babies. (That duty is now shared by the mother-baby nursing team.)

Of 14 nurses who lost their jobs in 2009, five were rehired in comparable positions, five declined comparable positions, and four were not eligible to be rehired because of performance or discipline issues, hospital officials said. Of 19 nursing positions cut in 2008, 10 nurses were rehired, six declined new jobs and three were ineligible for new jobs.

The hospital’s auditors, KPMG, praised the hospital system for its openness and its accounting procedures and issued an unqualified opinion, meaning they had no reservations about the financial reporting.

They noted the hospital system now has $681.7 million of cash, restricted and board-designated investment, and has 431 days of cash on hand -- more than double the median level of its peers.

Vernder said the hospital needs the high level of cash because its high debt level, $459 million, according to the audit. It also has been building up cash because of its plans, announced in late 2005, to build a new patient tower.
It recently borrowed about $100 million for that project, and plans to spend $80 million of its reserves as well.

“Three years ago, we could not have gone into the bond market to build the bed tower,” Verinder said. “We had to build our cash reserves.”

The audit pointed to some challenges for Sarasota Memorial.

Inpatient admissions fell 4.3 percent, to 18,575 patients, after a 5.4 percent decline the year before. It was the fifth straight decline and inpatient cases are now 12 percent lower than in 2005. It was largely due to losing market share: The hospital now gets about 54 percent of the county’s inpatient cases, down from about 60 percent a few years ago.

And the audit reported the average length-of-stay for a patient was 5.15 days, a half-day more than industry norms, which means it costs Sarasota Memorial more to care for a patient than the average hospital. Verinder said the October creation of an short-stay unit has brought that down to about 4.8 days.

But the hospital clearly has already made improvements. As recently as August 2007, the long-term budget projected a $29 million loss in2009, and anticipated that operational improvements would only erase $9 million of that loss.

Now, with the operational loss at just 2 percent of expenses, officials say breaking even is possible.

“I think it’s feasible, Verinder said. “But it’s going to take a lot of hard work to get to that.”