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Posted: January 15, 2013 10:42 p.m.

Hospital budget back in the black

For the first time five years, Newton Medical Center expects to have a budget surplus instead of los

For the first time since the 2008 calendar year, after years of budget deficits, Newton Medical Center finally expects to get back into the black thanks to increasing revenues and virtually no increase in expenses.

According to the hospital's 2013 budget, which the board approved recently and runs from Jan. 1 to Dec. 31, the hospital expects to actually make money - known in hospital lingo as a positive progress margin. The hospital will have a positive balance of $1.08 million after being $1.92 million in the red in 2012 and $2.99 million in the red in 2011.

Revenues
The hospital is turning around its financial fortunes by boosting revenue without upping expenses - a simple enough, yet often hard to attain solution.

Revenue from outpatient procedures saw one of the biggest jumps, rising 13.11 percent from $42 million in 2012 to $47.59 million in 2013.

In addition, emergency revenue increased 11.47 percent to $79.52 million. Newton Medical Center CFO Troy Brooks said most of the increases are due to increasing emergency room visits. While it's unclear how big of an impact the new $150 emergency room deposit, which was implemented in November, will have, it's expected to provide at least some revenue.

Brooks said the hospital collected $2,546 from the deposit in December, noting that 196 patients chose to stay and pay the deposit, while 143 chose to discontinue the visit rather than pay.

All told patient revenue for the hospital is more than $295 million, but that's a fairly misleading total as the hospital expects to write off more than $219 million in uncollected revenue. Much of that is the result of agreements with health care providers and Medicare and Medicaid, which reimburse hospitals for only a fraction of the billed cost of healthcare. These reimbursement rates will account for $199 million of the write-offs, while pure bad debt will account for more than $20 million in write-offs.

However, Brooks did say the hospital would be getting more money because of its expanded use of electronic health records, which lead to government incentives.

"The combined total of those items (Stage I Meaningful Use of the Electronic Health Record for both Medicare and Medicaid in 2012) came to nearly $2.1 million," Brooks wrote in an email.

"Emergency room visits have grown significantly each year over the last several years and we expect that trend to continue. 2013 will be the first full year of our new oncology practice. While the practice itself will continue to grow in 2013, the hospital is now actively involved in the treating of individuals with cancer, which involves the use of very expensive intravenous pharmaceutical treatment," Brooks said.

"Since [Dr. Renee Riley] took over our orthopedic practice mid-year, the practice has grown significantly and we expect that growth to continue. Dr. Riley is an expert in shoulder repair, which has increased the surgical procedures available at the hospital and is attracting patients to the practice from a wider geographical area than in than in the past," Brooks said.

Other operating revenues at the hospital, which include things such as hospital sales, amounts to $1.6 million and tax subsidies are about $3.2 million. The hospital receives a portion of county property taxes to offset the public service it provides by running an ambulance service.

Overall, the projected total net operating revenue for the hospital is $80 million.

Expenses
Budgeted total operating expenses for the 2013 budget sit at about $79.7 million, which only increased by 0.07 percent from 2012.

Total operating expenses includes salaries at $36,198,600; benefits at $7,720,421; materials and supplies at $13,451,400; professional services at $1,694,500; purchased services at $8,397,280; utilities at $1,673,400; depreciation at $5,840,300; interest at $796,000; and other expenses at $3,935,326.

The benefits line item in the budget showed of increase of 8.35 percent of an increase. Brooks said the increase is not related to healthcare reform but to more employees using their health insurance benefits.

"We have had a particularly bad year in terms of our own employees and their dependents utilizing the health insurance that we offer," Brooks said. "We are a self-funded insurance provider for our personnel and we experienced a high utilization for the year. To establish the budget, we have some predictive measures to use, but also some local knowledge about certain illness situations and where they may be headed in terms of costs to the plan."

The 2013 budget shows that the earnings from operations amounts $562,842 and non-operating revenue is a total of $517,189. Non-operating revenue is mainly leased out space and does not include any county support.

"Revenue is generated by the volume of patient care activity that we see. It is also dependent upon the mix of what types of services are being rendered. In order to come out of our recent experiences of net operating losses, we are constantly trying to attack in two ways- one, figure out ways to increase revenue; and two, figure out ways to cut costs," Brooks said.

"These two things are going on in unison. We are negotiating contracts to increase what we are paid by the insurance carriers wherever possible and also negotiating with vendors to reduce what we pay for goods and services," he said. "In addition, in 2012, we undertook a LEAN process exercise that identified $2 million in costs to be eliminated from our annual operations."

Brooks said several factors contributed to years to budget losses, including increasing costs to supplement professional providers for various reasons; losses on start-up operations for employed physician offices; increasing healthcare demands by self-pay and indigent patients; and decreasing levels of support from the county due to a declining tax base, Brooks said.

Even though it loses money from an accounting standpoint, it's not actually losing money.

"The hospital incurs a non-cash expense of about $6 million per year for depreciation and amortization. When a non-profit loses less than the amount of depreciation, they can continue to cover operating costs without effecting cash flow but will have to curtail purchases of capital equipment during loss periods. There are some other factors to consider, but this is the simplest explanation of how we are affected and how we react to it," Brooks said.

Essentially, continuing to lose money would eventually hurt the hospital in the future when it would have to buy new equipment or build a new building and would find itself short on money. If the hospital can continue to operate on a profit and build up reserves, it will be able to keep operating successfully for years to come.

Editor Gabriel Khouli contributed to this story.

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