The Financial Forecast
45
2010 Small and Rural Hospital Summit Hospital Replacement – “A Reliable Path to Successful Rebuilding” Mistakes to Avoid and Models to Follow…
Transcript of The Financial Forecast
2010 Small and Rural Hospital Summit
Hospital Replacement – “A Reliable Path to Successful Rebuilding” Mistakes to Avoid and Models to Follow…
Reaction?
“I wouldn’t take my dog there”
“Two physicians called and asked if they could
be part of the organization”
Implicit Association• Implicit biases are pervasive. • People are often unaware of their implicit biases.• Implicit biases predict behavior. • People differ in levels of implicit bias.
» Source: www.projectimplicit.net» Video: www.researchchannel.org, search for “Blink”
• The Psychology of Blink: Understanding How Our Minds Work Unconsciously , Anthony Greenwald, Ph.D., University of Washington
It does not have to be a gamble
Failures…
“Hospital construction likely NOT to begin in 2010 (project approved in 2008; contracted with Hammes)”
“Price of hospital keeps fluctuating, started at $36m, went to over $40m, back to $35m”
(Libby, MT)
“Wanted to break ground in 1Q10—did not happen; need to have construction finished by June 15, 2011”
“Looking for a financial partner—Plan A was county issue bonds, Plan B was HUD financing”
(Morgan County, GA)
“Tri Valley Health System sets Sept 13th for new hospital facility in Cambridge” (Cambridge, NE)
Successes…
“New hospital is first of its kind to benefit from loan program” (Rio Grande, CO)
“Melissa Memorial hospital opens doors to expanded healthcare” (Holyoke, CO)
“Coquille will see hospital grow” (Coquille, OR)
Service area Market needs Market share Outmigration Strategy for growth Financial forecasts Debt capacity Financing methodology Space needs Departmental adjacencies Total project budget Timeline
A comprehensive & diverse perspective
A Strategic Facilities Planning Approach
Strategic & collaborative planning approach
Stakeholder EngagementSupportive AnalysisStrategic ClarificationOptions Development
Seek points of connection
Discover solutionStakeholder Buy-InClear RecommendationImplementation Plan
Wide Range of IssuesIndividual PerspectivesMany “Fixes”Little Consensus
Comprehensiveperspective
Operations Finance
Community
• Charles Ervin, Senior Vice President, Dougherty Mortgage, Bozeman, Montana
• John Downes, Consultant, Stroudwater Associates, Portland, Maine
• Michael Curtis, Vice President, The Neenan Company, Denver, Colorado
Presenters
First a financial assessment
Dougherty Neenan
Stroudwater
Historical financial performance assessment2009 2008 2007 Three Year
Average
Revenue:Operating Revenues 13,868,703$ 12,569,832$ 11,258,815$ 12,565,783$ Other Operating Revenues (including taxes) 964,997 885,581 847,986 899,521
Total Operating Revenue 14,833,700 13,455,413 12,106,801 13,465,305
Expense:Operating Expenses 12,645,001 11,317,463 10,604,750 11,522,405 Depreciation & Amortization 673,588 651,428 499,134 608,050 Interest Expense 104,328 113,865 91,022 103,072
Total Operating Expense 13,422,917 12,082,756 11,194,906 12,233,526
Operating Income 1,410,783$ 1,372,657$ 911,895$ 1,231,778$
Operating Margin 9.51% 10.20% 7.53% 9.15%
Operating Margin
Financial ratios
2010 2011 2012 2013 2014 2015Profitability
Operating Margin 8.3% 7.4% -1.8% 0.5% 2.5% 4.1%Total Margin 9.4% 8.6% 2.4% 1.7% 3.8% 5.4%
Capital StructureDebt Service Coverage Ratio 6.9 7.8 1.7 1.8 2.0 2.3Debt Service as % of Operating Revenue 2.0% 1.7% 11.2% 10.4% 9.6% 9.1%Equity Financing Ratio 79.8% 81.9% 41.1% 41.9% 43.4% 45.4%Long Term Debt to Capitalization 10.4% 8.6% 56.4% 55.4% 53.8% 51.6%
LiquidityWorking Capital as % of Total Assets 61.1% 64.9% 30.0% 33.0% 36.8% 41.1%Current Ratio 7.1 7.7 6.5 6.8 7.3 7.9Days Cash on Hand 245 272 211 222 243 270Days in Accounts Receivable 91.0 91.0 91.0 91.0 91.0 91.0
COQUILLE VALLEY HOSPITALKEY FINANCIAL RATIOS
Projected 2010 - 2015
Next service area, demographics & need
Dougherty Neenan
Stroudwater
Service area
2014 Population Projections
Zip Code Name 00-17 18-44 45-64 65+ Total %of Total97458 Myrtle Point 895 1,352 1,350 1,081 4,678 38%
97466 Powers 152 257 244 222 875 7%97423 Coquille (eastern) 1,200 2,059 1,931 1,601 6,791 55%
Total Service Area 2,247 3,668 3,525 2,904 12,344
Service Area 18% 30% 29% 24% 100%
Oregon 22% 35% 27% 15% 100%
United States 24% 35% 26% 14% 100%
The 65+ age group in theservice area is expected to
increase by almost 10% in the next five years
--Other than the 65+ age cohort,
there is not a significant populationchange projected for the service area
24%29%
30%
18%
0%
10%
20%
30%
40%
00-17 18-44 45-64 65+
Service Area
Oregon
United States
Inpatient service trendsInpatient Market Share by Service Line
2007 Calendar Year Inpatient Days, Excluding Services Not Provided by CVH
37% 43%
18%
43% 39% 38%26%
63%
46%46%
69%34% 40% 43%
41%
31%
0%
20%
40%
60%
80%
100%
Gra
nd T
otal
Gen
eral
Med
icin
e
Wom
en's
& B
abie
s
Sur
gery
Hea
rt
Neu
ro-
scie
nces
Orth
o&
Spi
ne
Can
cer C
are
CVH Bay Area Sacred Heart All Other
Physician ratios
• 0.9 -0.9 1.0 -1.0
• 3.3 -1.8 3.4 -1.9
• Physician FTEs • Area • Area • Surplus • Area • Surplus• Total• 1 • Need• 2 • (Shortage) • Need• 2 • (Shortage)
• Primary care specialties• Family practice • 7.0 • 8.2 • -1.2 • 9.0 • -2.0
• General internal medicine • 0.0 • 3.0 • -3.0 • 3.1 • -3.1• General pediatrics • 0.0 • 1.3 • -1.3 • 1.4 • -1.4
• Primary care total • 7.0 • 12.5 • -5.5 • 13.4 • -6.4• Rural primary care benchmark• 3 • 7.0 • 9.3 • -2.3 • 9.5 • -2.5
• Medical subspecialties• Cardiology • 0.0 • 0.4 • -0.4 • 0.4 • -0.4
• Gastroenterology • 0.0 • 0.3 • -0.3 • 0.3 • -0.3• Hematology/oncology • 0.0 • 0.2 • -0.2 • 0.3 • -0.3
• Medical subspecialty total • 0.0• Surgical specialties
• General and other surgery • 1.0 • 0.8 • 0.2 • 0.8 • 0.2• Obstetrics/gynecology • 0.0 • 1.0 • -1.0 • 1.1 • -1.1
• Ophthalmology • 0.0 • 0.4 • -0.4 • 0.4 • -0.4• Orthopedics • 0.5 • 0.6 • -0.1 • 0.6 • -0.1
• Otolaryngology • 0.0 • 0.2 • -0.2 • 0.2 • -0.2• Urology • 0.0 • 0.3 • -0.3 • 0.3 • -0.3
• Surgical specialty total • 1.5
• Physician: Population Ratios• 2005 Population • 2015 Population
• 12,230 • 12,555
Current market share
Inpatient Days OP Surgery OP Imaging OP Lab Emergency-20%
20%
60%
100%
46%
26%
65% 71% 68%
Facilitated collaborative planning
Dougherty Neenan
Stroudwater
Utilizing experiential gaming
Involving• Executive leadership• Board members• Physicians• Department heads
Opportunities and risks
Strategic operating principles
Facility
Operational
Operational• Recruit a general surgeon • Recruit primary care doctors• Add Physical Therapy• Expand swing bed program• Balance facility investment with working capital needs
for medical equipment, physician recruitment & EMR
Facility• Grow surgery with a 2nd room & functional pre/post op-area• Expand imaging, improve adjacency to ED & in-house MRI• Common nurse station for Med-Surg, ICU and OB• Expand ER w/walk-in entry & triage• Private patient rooms• Improved access & parking
Market share capture Market Share by Key Service Lines
2009 Actual (blue) and 2015 Targeted (red)
46%
26%
65%71% 68%
54%
32%
77% 77% 82%
-20%
20%
60%
100%
Inpatient Days OP Surgery OP Imaging OP Lab Emergency
+9%
+6%
+12% +6%+14%
Financial forecast
CompetencyReliabilitySincerity
Involvement
Collaboration builds trust
Can we secure financing?
Dougherty Neenan
Stroudwater
Financing alternatives
• FHA 242 & 232 mortgage insurance program
• Non-rated, bank qualified, fixed rate bonds
• USDA direct & guaranteed loan program
• Variable rate bonds: FHLB enhanced letter of credit
Compare for most favorable method
Tax-Exempt Bonds
Taxable GNMA BABs/GNMA USDA*
Coupon Rate (Bonds/GNMA) 5.50% 6.63% 6.50% 6.53%Federal Subsidy - - (2.28%) -HUD/GNMA Fees 0.75% 0.75% 0.75% -
Total Cost of Funds 6.25% 7.38% 4.98% 6.53%• * USDA assumes a mix of 25% direct loan at 4.50% and 75% of Guaranteed Loan at 7.00% and 9.00% for the unguaranteed portion
Align on a borrowing amount
• Executive leadership• Board members• Physicians• Department heads
Size the facility to serve the strategic plan
Dougherty Neenan
Stroudwater
Departmental space needs
2098
5394
4547
2252
8529
6356
8475
4280
0 5000 10000
New Facility45,363 sfCurrent Facility21,794 sf
Administration
Emergency & Diagnostics
Clinical Areas &Interventional
Patient Rooms
SupportServices
AncillaryServices
7287
7469
21722967Lobby/
Common Area 785
4546
Balance facility with strategy & borrowing
Project budget
Use of Funds: low range mid range high rangeOperational Planning $151,107 $151,107 $151,107Design and Construction $15,956,349 $16,796,157 $17,635,965Financing $2,547,225 $2,660,875 $2,774,525Medical Equipment, FF&E $2,107,297 $2,209,661 $2,237,025Contingency $1,092,736 $1,148,305 $1,203,875Total Uses $21,854,714 $22,966,105 $24,002,497
Sources of FundsLoan $19,000,000 $20,000,000 $21,000,000Hospital Reserves $2,854,714 $2,966,105 $3,002,497Total Sources of Funds $21,854,714 $22,966,105 $24,002,497
Departmental adjacencies
• MRI
• ED ENTRANCE
• CT
• LDRP
• N• N
• N
• Respiratory & Physical Therapy
• LAB
• M• US
• XRAY
• DEXA
• TECH• OR
• TRAUMA AND OBSERVATION BAYS• PATIENT ROOMS
• PATIENT ROOMS
• OR
Recalibrate financial forecasts
Dougherty Neenan
Stroudwater
Balance borrowing with strategy & facility
Conceptual design delivers strategy within $
Dougherty Neenan
Stroudwater
Site plan
Building image
Collective recommendation
Dougherty Neenan
Stroudwater
Aligned board, physicians, staff and admin
• Builds trust• Makes for job security• Supports financial sustainability• Enhances physician & staff retention & recruitment • Improves patient access • Drives efficiency & quality• Improves moral
Replacement study
• Increase in CAHs replacements • Volumes generally beyond
expectations• Staffing increased as a result• Evidence of reductions to unit costs • Facility as physician recruitment• Recruit and retain staff in an
increasingly competitive environment• Direct and indirect economic impacts
Your team - practiced players or all stars?
VS
Questions?
• Charles Ervin, Senior Vice President, Dougherty Mortgage, Bozeman, Montana: [email protected]; 406-586-5131
• John Downes, Consultant, Stroudwater Associates, Portland, Maine: [email protected]; 207-221-8275
• Michael Curtis, Vice President, The Neenan Company, Denver, Colorado: [email protected]; 303-710-1873
Contact Information
