How financially feasible do you feel the new hospital will be and what means will be used to maintain it?Jul 19th, 2011 | By Staff | Category: Editorials
By David Abercrombie, MCMH CEO
It is feasible to build a new hospital because financing has already been found and the method to pay back the loan has also been found and arranged.
In September 2010, the United States Department of Agriculture/Rural Development (USDA) obligated $22,543,400 to loan to the Madison County Health and Hospital District (District) for the purpose of building a new hospital and buying the equipment and furnishings that go inside. The money will be paid back to the USDA by the District over a span of forty years at a rate of interest of about 3.75%.
Before agreeing to make the loan to the District the USDA required that an accounting firm be engaged to determine if a new hospital would be financially feasible. The USDA does not allow hospitals to pick just any firm to conduct this study. It had to be a firm with experience doing this and one already on a list of “approved” firms. The District engaged EideBaily (EB) of North Dakota to perform this study. The USDA’s national office in Washington concluded that EideBaily was well known by the USDA, had done many USDA financial feasibility projects, and is well respected for their work. They were approved to do the job.
Two years later EB completed the study. It was found that the annual cost (like the mortgage on a house) would be $1,200,000 a year. The EB study also found that payment to the hospital for services provided to its Medicare patients would increase by about $630,000 a year. This is because the federal government structures payments to critical access hospitals in a way to encourage replacing out-of-date rural hospital buildings.
Additionally, back in November, 2006, the citizens of Madison County voted themselves a ½ cent sales tax to help pay the costs of replacing the hospital with a new hospital. This amount comes to roughly $470,000-$500,000 a year. It is kept in an account controlled by the Clerk of Court.
At this point, we have to stop and do some quick addition: $630,000 a year in increased Medicare collections + $470,000 a year in Madison County Sales Tax = $1,100,000. At this point in our math, we’re still $100,000 short of the amount needed to pay the $1,200,000 annual mortgage.
The federal government has required that all hospitals across the country install an electronic health record (EMR) system by the Year 2015. To help make it financially doable, the federal government will pay these hospitals a total of about $1,500,000 spread over four years ($375,000 a year).
If hospitals don’t comply with this new federal law, then in the Year 2015-16 Medicare will start withholding about 20% of payments to these hospitals for their provision of services to their Medicare patients.
So, the District has no choice but to implement this EMR system. Fortunately for the people of Madison, this EMR is already part of building a new hospital! You can’t operate a hospital without a computer system any more than you can operate a bank without a computer system.
Time for us to do more math: $1,100,000 from Medicare and Sales tax + $375,000 Reimbursement for the EMR system = $1,475,000. This is more than enough “guaranteed” money to pay the annual “mortgage” cost of a new hospital. So in answer to the question, “Is it financially feasible to build a new hospital?” The answer is “Yes.”
The more important part of today’s question is, “…and what means will be used to maintain it?” This second part of the question doesn’t have a clear answer because it is based on unknowable things. Being able to maintain it will rely on our good planning, good execution of the plans, and the hope that something significant doesn’t change. It also relies on a belief in people of Madison County. The belief that good medicine put in a good modern building will be supported. After all, the Mayo Clinic would fail if no one chose to support it.
About fifty percent of all this hospital’s patients are Medicare patients. We believe this new hospital can be financially maintained because its floor plan design maximizes the amount of money Medicare pays the hospital for its services. The more square footage in the building set aside for patient care and the less square footage designed for support areas, the more money Medicare will pay the hospital. The opposite is also true – the more space used for support areas and less used for patient care, then the less money Medicare will pay the hospital for its services.
The current hospital was designed back in 1953-54. It is an example of too little space set aside for patient care. This new hospital will give a greater part of its space for patient care. This switch of square footage will increase the amount of money collected from Medicare. The building will be energy efficient, with a cutting edge air conditioning and heating design that is so modern that it is the first approved for hospital use in Florida.
There will also be many service line improvements that are not possible in the current building. These improvements to patient services are estimated to increase the annual cash collections of the hospital by about $1,000,000 each year. Over the course of three to five years AFTER the hospital is built, more patient care additions and improvements are planned. Their descriptions are too detailed for the purposes of today’s article, but they will greatly improve healthcare in Madison County. They should also result in sizable increases in hospital revenue and the hospital’s economic impact contribution to the local economy.
I cannot over-emphasize that to succeed the people of Madison County must use their hospital rather than someone else’s. The actual success or failure of this new hospital will lie directly in the hands of us citizens of our county. In my view, we may either act as if we have a county-wide inferiority complex believing Madison County isn’t capable of delivering good medical care; or we will act with that same pride and support that propelled our little league baseball team and our high school football team to win State championships. Is it something in the water that makes these teams successful? Heck no! It’s because we believed those kids could do anything – and we supported them.