The New River Medical Center Board of Directors rang in its first meeting of the new year by looking back at the hospital district’s financial performance.
Mark Dale, representing the Minneapolis-based firm of Eide Bailly, LLP, presented the financial audit for fiscal year 2012 at the board’s Jan. 10 meeting.
“You have a relatively strong balance sheet,” Dale said near the end of his audit summary and financial statement review, which lasted about a half-hour.
According to Dale, the district’s statements were restated during the recent audit to correct a recently discovered contractual adjustments recording error.
“There were some manual corrections being made to some of the Monticello Cancer Center’s accounts receivable,” he said. “Those ended up going into the hospital contractual adjustment account. A lot of it was credit balances. When you recorded those, they made the hospital’s bottom line higher than it should have been.” While the net assets of the district decreased, the cancer center’s overall profitability showed about 30 percent increase, Dale said.
“When those contractual adjustments were incorrectly recorded, they made the hospital’s bottom line higher than it should have been,” he told the board.
Financial Director Nancy Friesen explained the actual transfer of funds to the Monticello Cancer Center is on a cash basis and isn’t related to net income.
Linda Doerr, newly elected board vice chairperson, wondered why the misstatement wasn’t discovered earlier. Dale replied: “It was just discovered this year.”
During his review of a management discussion document for the fiscal year ending Sept. 30, 2012, Dale said the district’s assets remained consistent.
“Your cash position did increase quite a bit over the previous year, and your receivables from last year were fairly high,” Dale said. “One of the biggest expenses that you’ve had as an organization is the implementation of electronic health records. It takes a pretty significant outlay of capital to do that.”
According to Dale, New River Medical Center’s recent financial statements showed a “very positive trend” of accounts receivable coming back to normal.
After reviewing the district’s revenue and expense statement, Dale said the district reported a fiscal year financial loss of slightly less than $1.5 million.
“A lot of that is from changes in patient referral volumes,” he said, adding that the Monticello Cancer Center had a “pretty significant” change in revenue.
District expenses increased about $1.4 million while New River Medical Center’s overall operating income decreased by almost $500,000, Dale said.
Days cash on hand is a key financial measure of the average number of days New River Medical Center could operate without additional receipts.
According to Dale, the district’s days cash on hand increased during the recent fiscal year, rising from a reported 82 days in 2011 to 99 days in 2012.
Net days revenue in receivables is used to estimate how long a charge is held in receivables before it’s collected.
The district’s net days in accounts receivables decreased in 2012 to 57 days. New River’s assets-to-obligations ratio has remained relatively constant over the last five years, Dale said.
A ratio of 1.0 would indicate that current assets are just sufficient to meet current obligations. During 2012, New River Medical Center’s ratio was 2.0.
The average age of plant ratio estimates the age of the health care facility. The district’s average age of plant (10.6 years) meets industry averages.
New River Medical Center’s total operating revenues in 2012 decreased $65,429 when compared with 2011. Total expenses increased by 2.4 percent.
Operating margin measures the hospital district’s ability to generate income from operating activities and includes interest expense which is reported as a non-operating expense, Dale said.
The last two years, New River has reported negative operating margins of 0.2 percent and 2.3 percent, respectively.
Total profit margin measures the district’s ability to generate income from operating and all non-operating activities. That margin dropped 2.5 percent.
New River Medical Center’s capital expense ratio increased in 2012 due to increased depreciation for electronic health records expenditures.
That ratio was 7.1 percent, compared with 6.6 percent in 2011. Debt service coverage from district cash flow and bond covenants require the district to maintain at least 125 percent coverage, Dale said.
In 2012, the New River Medical Center board approved a tax levy in accordance with its loan agreement, he said.
Near the end of his audit review, Dale provided the board with a strengths, weaknesses, opportunities and threats snapshot of the district’s current position.
New River’s key strengths include a strong and active board of directors, tax support, ability to attract physicians and a relatively strong balance sheet.
According to Dale, the hospital district’s weaknesses include increasing costs related to supplies and fees and changes in patient referral patterns.
Opportunities include process improvement from the district’s efforts involving health information technology implementation, clinic integration, New River’s critical access hospital status and its recently announced affiliation involving a larger health care system provider-St. Cloud-based CentraCare.
Threats include a rising number of uninsured patients, legislation affecting reimbursement, a shortage of skilled staff and current physician relationships.
“There’s a lot to be determined yet with what’s going to happen with health care reform,” Dale said.
“What the government is really trying to do is bend the cost-curve. They are looking at how much they will be paying health care organizations. The burden for payment will shift onto the health care providers.”
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