RMC considers 6 percent rate increase in 2009

Gene Zaleski

Sep. 14, 2008 (McClatchy-Tribune Regional News delivered by Newstex) -- The Regional Medical Center could increase its charges to patients beginning Oct. 1. But how much more each patient will pay will vary according to the services received and method of payment.

The hospital is considering increasing its charges an average of 6 percent during the next budget year.

"Given the significant increase in health care costs, this type of increase is necessary for RMC to achieve the margins necessary to meet the community's needs," according to a hospital budget report released this week.

Currently, many hospital patients pay through health care providers under fixed contracts that do not take a hospital's budget into consideration.

About 48 percent of the hospital's patients have Medicare coverage and 16 percent have Medicaid coverage. Both have fixed payment contracts and will be impacted little by the increases.

Private insurance companies make up about 22 percent of the hospital's business. Those companies will most likely see the largest increases.

The service increases are a part of the hospital's $181 million budget for the 2009 fiscal year. The hospital's fiscal year runs from Oct. 1 through Sept. 30.

Trustees reviewed the budget during a workshop meeting Tuesday. There was no vote taken.

Hospital officials also say they expect to see more patients during the upcoming year because the RMC will have more physicians.

The hospital has about $850,000 set aside to recruit new doctors. In 2009, the hospital will focus on recruiting doctors in a number of areas, including gastroenterology, general surgery, emergency medicine and urology.

With total operating expenses budgeted at $178.6 million, the hospital is projecting a $2.5 million or a 1.36 percent operating margin during 2009. This is compared to a 2008 projected gain in operations of $1.7 million, with a 1.07 percent operating margin.

The hospital's 2009 spending plan includes about $79.3 million for salaries and $27 million for supplies.

The budget also includes $15 million for capital improvements, including roughly $4.9 million for information systems, $2 million for facility improvements, $3.7 million for medical equipment, $2.7 million for strategic planning, $720,000 for medical practices and $825,000 in contingency funds.

Trustee Danny Covington, who has often been outspoken on the hospital's finances, called the revenue projections "extremely optimistic" compared to past figures.

"My concern is that if we project revenues out here and have a budget based on that projection, we will come up shorthanded," he said. "Do we know we will have a big flu epidemic this year? How are we expecting it to be above '08 when we made a record in '08?"

Trustee Dr. John Hutto said many experts have said there could be a flu pandemic this season.

"We can't know that, but we do have a lot more surgeons and three more orthopedists," he said. "We do anticipate the volume will be higher."

RMC Chief Operational Officer Lisa Goodlett said the budget and expected volume increase is consistent with what the hospital has seen in 2006.

Looking at the hospital ratios compared to the targets set for an A- credit rating, the 2009 budget projects days cash on hand will be 157 (including capital expenditures) compared to 170 needed for an A rating. The total operating margin is projected to be 1.8 percent, compared to the 5.5 percent target for an A rating.

"We are way off kilter on that one," Covington said.

Meeting either an A or AA standard demonstrates a hospital's financial strength and its borrowing capabilities. The better the bond rating, the cheaper it is for the hospital to borrow money.

Trustees reviewed their options related to the hospital's outstanding Series 1998 bonds.

In 1998, the hospital issued a $30 million variable rate demand bond through Ambac Assurance, but in February of this year Fitch downgraded Ambac's credit rating from AAA to AA. If Ambac's rating does not improve or the hospital does not find an alternative, RMC's interest rate on the bonds could increase.

KaufmanHall official Jason Sussman has recommended trustees consider paying off the outstanding $17.7 million by selling new variable rate bonds and getting a letter of credit enhancement for better backing of the bonds. The process would take two to three months.

On Tuesday, trustees received information on the difference between public and private (bank) placement of debt.

Sussman said a public loan would give the hospital greater flexibility than a bank loan.

"The requirement that an individual bank puts in place can be more strict and more specific to what the bank believes to be the risks associated with those loans in hand," Sussman said. "(With) public debt, there are certain standards based on the rating the organization issuing the debt has that investors are comfortable with. They tend to be a little broader and much less stringent."

Hutto asked if there could be an analysis or a truth-in-lending statement of what would cost more: a public or bank bond.

Sussman said potential costs may be obtained various ways. He said the key is to find the most cost-effective way to pursue the debt.

Sussman said the hospital should have the refinancing in place by March 2009, so trustees should make a decision by October if they plan to seek public financing. A bank transaction, if a bank is willing, could be done in a shorter time frame.

In other business, some hospital trustees questioned whether the hospital fully complied with its procurement policy during the selection of an information technology company earlier this year.

The hospital contracted with Missouri-based Cerner Corp. (NASDAQ:CERN) in April to provide an integrated system for the hospital's IT functions.

Trustees Dr. Oscar Butler Jr. and Covington on Tuesday produced a letter written by hospital attorney Bob Horger dated Aug. 17, 2007 to Columbia attorney John Schmidt III related to the hospital's procurement code and exemption procedures under the code.

In the letter, Horger inquired from Schmidt about the exemption process and was given the go ahead to proceed. The code requires the hospital board to vote on any exemption from the code.

Covington has questioned the hospital's selection of Cerner Corp., saying that trustees did not have all the information available to make an educated decision. He also said Massachusetts-based Meditech Information Technology appeared to have the lowest bid, better ratings and that the decision to purchase Cerner was steered by hospital management.

Hospital officials have said all information was provided to the entire board and that the Cerner project was the lowest bid by about $217,800.

But Covington and Butler said they were not been aware of Schmidt's response and questioned whether the procurement procedures were circumvented.

"Was this ever presented to the little old group called the board?" Butler said.

"The exemption was presented to the board," Horger said. "It is my recollection the board voted on the exemption."

"I can tell you that did not happen," Covington said.

A motion to adjourn the meeting was objected to by Covington as he noted there were other issues of concern he wanted to address.

His objection was voted down 6-5. The meeting was adjourned.

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