Hospital Board Receives Audit Summary

DAYTON—Tom Dingus, of DZA PLLC, Certified Public Accountants, presented highlights of his unmodified independent auditor’s report for 2016 and highlights from financial indicators to the CCHS Board of Commissioners at their April meeting.

“You guys are off to a good start in 2017,” Dingus told the board.

Dingus said patient accounts receivable revenue growth doubled in 2016. Net patient service revenue has increased 13% from the previous year, with more patient services provided. Also, purchase services went up 20%, he said.

Bad debt and charity care percentage is relatively “low compared to a lot of hospitals,” Dingus added.

With regard to total margin, Dingus said changing net position numbers as a percentage of total revenue is within the range of best practice, at 3.9%.

“More than half of small hospitals have an operating margin of less than 13.5%,” Dingus explained.

“The good news in all this is the operating loss, which was over $1 million the previous year, was down to $741,000, which is a trend in the right direction.” said Dingus. “And once you factor in the taxation from both M&O levies and the debt service, you get to a change from debt to income, which is essentially a break even.”

This represents an almost $600,000 change for the better in the financial position of the organization over 2015, he said.

Problems impacting the year’s annual numbers have been due to the billing conversion process, which has caused disruptions to the revenue cycle credits and balances, administrative staff turnover in the past, and more journal auditing entries in 2016, said Dingus.

Dingus also talked about the sources of revenue for the hospital district, for which 61% is through government programs, and is “pretty typical.”

Dingus said there was a large payable owed to Medicare at the end of 2016, and that was discussed at length during last week’s meeting.

The hospital district is a cost-based reimbursement hospital. Liabilities and net position are determined by estimated third party payment settlements and the amount due on the 2016 Medicare Cost Report, Dingus told the commissioners.

For inpatient, outpatient, and swing bed patients, and for patients at both clinics throughout the year, the district is paid an interim rate, which is an estimate of what the actual costs are going to be and is based on the prior year. The cost report can raise havoc with cash flow, and money will either be owed to Medicare, or the district will receive payments from Medicare.

“It doesn’t change cash in or out. Medicare is going to pay on the best information it has from the cost report filed. It is more chaotic if there are bigger changes, like more volume, or if service lines changed a little bit,” Dingus said. “You had a payable at the end of the year because you have more volume, and that is good. It’s the nature of a cost-based system where the cash flow is not as fluid and even as you want.”

According to CEO Shane McGuire, the district was left owing money to Medicare because the interim cost report was completed “pretty late in the year.”

Commissioner Bob Hutchens asked Dingus how the district could address the issue of cash flow reserves, and Dingus said it was a matter of paying attention to whether a receivable or payable is being built, he said.

“You have really big receivables on the cost report, and you’re not getting that money until July of the following year, so it’s just knowing when you have big payables and receivables, and adjusting your cash flow, appropriately,” Dingus said.

Dingus said the cost-based reimbursement system works well as a risk management type of system.

“It is a struggle for critical access hospitals, especially when you change your volumes or your operations,” he said.

Looking at the financial statements from the first three months of 2017, Dingus said that increasing volumes will create a payable again this year, and cash flow will need to be managed.

McGuire said one way to overcome overpayment is to start building an interim cost report earlier, so an adjustment can be made to the interim rate by Medicare. He proposed doing so as early as June.

Dingus said another goal for the district is to have money set aside for debt service. Long term debt stands at $10.5 million, he said.

Dingus spoke about the effects that two Unlimited Tax General Obligation Bonds, three Limited Tax General Obligations Bonds, and small loans from CREA and General Electric have had on the financial health of the district.

“Long-term debt should be paid down. You’ve been highly leveraged for quite a while,” Dingus said. “Being in debt reduces the ability for borrowing.”

Dingus said he would also like to see an increase in the number of days of cash on hand, from 41 at the end of December, to a minimum of 90 days, and “then balance out the debt service.”