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Health & Hospitals

Feb. 25 - Memorial Hospital’s Financial Reports for 2015 show minuscule bottomline loss and strong patient growth

Category: Health & Hospitals

By Lou Phelps, Savannah Business Journal

February 25, 2016 – The Board of Directors of Memorial Health, Inc., which is the umbrella company over the hospital – Memorial Health University Medical Center, Inc. – is currently negotiating a deal to sell control of the hospital to Novant Health, Inc. of North Carolina.  But, why? ... remains the question.

The Chatham County Commissioners will hold a public Workshop next Monday, Feb. 29 at the Trade Center at 9:30 a.m. Commissioners expect to receive their first information on the deal, requested by Commissioner Tony Center, as part of the Workshop Agenda, not yet released.  

However, to make sense of why the board wants to sell the hospital, its 2015 financial reports and 2016 operating budget are critical documents, neither of which has been provided to the Commissioners to date.  Back in July, Memorial Health, Inc. board Chairman Harry Haslam, Jr. announced that the hospital was seeking a 'strategic partner,' but it was disclosed in December that in fact the board has entered negotiations with Novant Health, Inc. for that hospital system to become the "sole member" of the corporation that owns the hospital - the business.  The public owns the land and the buildings of the Memorial campus. 

As part of the “Covenant Agreement” between Memorial Health University Medical Center, Inc., Memorial Health, Inc. (the “Obligated Group”) and the Chatham County Board of Commissioners (the County) dated May 1, 2012, Memorial hospital’s leadership must deliver the County a statement of revenues and expenses, balance sheet, and cash flow.  On February 11, Maggie Gill, CEO of Memorial Health, Inc. sent a complete report on 4th Qtr. 2015 and the 2015 Unaudited Financial Results for the hospital and its holding company, as required.   But, they were not sent to the Commissioners. 

And, for reasons still not explained, neither the Chatham County Hospital Authority, which met on Feb. 16, nor the Memorial Health, Inc. Board of Directors which met on Feb. 17, received any financial reports. Normally, they receive monthly reports, but they didn't even get January 2016 financial information. 

The SBJ requested the information of both Memorial Health, Inc. and Chatham County, and received the financial data  from the hospital, and then a more complete submittal from the County which included a “Summary of 2015 Financial Results” produced by Hammond Hanlon Camp LLC (H2C). 

H2C is an investment firm that offers securities, and advises clients on financial transactions. The firm has been hired by the Memorial board, apparently, to assist in the Novant transaction.  

Included in the documents that went to the County administration was their report on the hospital's profits and losses, assets, cash flows and operations.  Also included was a summary of the bond covenants that are guaranteed by the taxpayers of Chatham County, and overseen by the elected Chatham County Commissioners.  The Commissioners appoint nine members to the Chatham County Hospital Authority which provides the day-to-day oversight of these assets of the public. 

Here are highlights from 2015: 

  • In 2015, Memorial had Total Operating Revenue of $565 million.
  • There was an Operating Loss of $24.3 million, which was $19.3 million worse than had been budgeted, however this was due largely to increased Depreciation and Amortization.  The Cash Flow loss from Operations was only $448,000 – very low.  A high Depreciation can be an indication that buildings and equipment is getting older or that a business has purchased property or purchased equipment.  In fact, in 2015, Memorial purchased $46,586 million more in Property & Equipment over 2014. No information on the hospital’s depreciation schedule or comments on equipment was included in the H2C reports.)
  • Memorial ended the year with $22.2 million in cash versus $18.3 million at Dec. 2014, but this was in part due to new loans taken out during the year. 
  • H2C stated that the reasons for performing so poorly versus the budget – the Operating Loss of $19.3 million worse than budget - were:

-  Revenue was down $15.0 million from budget (-2.7%) due to increased Accounts Receivable and year-end adjustments on high deductible plans in Managed Care and an increase in bad debt estimate (money that will be uncollectible) which totaled $8.0 million.

- The Expenses were up $6.1 million over budget in total, but there were certain categories with large increases, including a $10 mil (+20% increase) in Physician Fees and Benefits.  But in arriving at Total Expenses, there were positives and negatives for the year:   Drug costs were +$4.9 million over budget; legal costs and consulting were also $5.1 million over budget; and Depreciation and Interest were above budget because Capital projects were completed sooner than planned… (once completed, depreciation and interest begins to be calculated) than projected.  On the positive side, Insurance expenses were down $4.7 million to budget thanks to improved malpractice claims experience in 2015;

-  2015 EBITDA (earnings before interest, taxes, depreciation and amortization) was $7.9 million, a margin of 1.4%. In 2014, EBITDA was $10.6 million. 

- There was a positive $1.8 million in “Other Revenue” in part from a gain on the HealthSouth joint venture outperforming budget by $900,000 and a reduced bill from the State of Georgia of -$438,000.

- Memorial Health, Inc’s investment income was down $3.1 million from budget, coming in at only $1.4 million for the year.  Investment return was only 1.0% versus a budgeted return of 3.5%.

- In total, Memorial had $47 million in bad debt expense against the $589,473,749 in Net Patient Revenue. (The hospital reported more than $2 billion in gross billings.)  But, the Net Collectible Patient Revenue percentage actually improved in 2015, at 27.1%, up from 26.6% in 2014.

- Salaries for employees (not physicians) went from $232 mil in 2014 to $244 mil in 2015, +5.1%.

- Supplies were up from $115 million in 2014 to $121 million in 2015.

- Physicians Fees & Benefits were up from $47.2 million to $57.1 million, up 21%.  

Memorial’s outside auditing firm, Dixon Hughes Goodman, concurred with the need to increase reserves due to the potential for reduced revenues, increased bad debt, and pending Medicaid payments.

The Assets of the hospital (on the Balance Sheet) grew in 2015 in part because of:   $5.0 million Outpatient Surgery Center Expansion; $8.9 million Emergency Department Expansion; and $2.9 million Heart & Vascular Build-out; $4.0 million as a result of the Joint Venture with Savannah Rehabilitation Hospital (HealthSouth JV; $925,000 from acquisition of Savannah Cardiology; and $355,000 from acquisition of Cardiovascular Consultants.

But, Memorial ended the year with its Accounts Payable up from $46.293 million at Dec. 2014 to $56.592 million at Dec. 31, 2015 “due to cash collection shortfall,” according to H2C.

And, long term debt due to borrowing increased $57.8 million from $212 million to $270 million because of a SunTrust term loan - $25 million to clear line of credit to prepare for ICD-10 and a SunTrust term loan to complete expansion projects of $30 million.

Memorial’s Restricted Fund Balance increased $6.6 million due to donations towards the Children’s Hospital of Savannah Capital Campaign. The construction is set to begin in April.

Admissions Growth in 2015

Memorial Health University Medical Center had a 2.4% increase in admissions but a 3.2% decrease in patient days – patients are not staying as long in the hospital.  The average stay went from 6.09 days down to 5.77 days.  (Many hospitals across the U.S. are experiencing this thanks to improvements in medical care and procedures, but also due to changes in health insurance plans and coverages.)

On average, there were 437 patients each day in the hospital in 2015 versus 451 in 2014.

Emergency Room visits were up 3.8%, to 98,872 in 2015; and inpatient surgeries increased 1.3%.  Outpatient surgeries increased 2.8%; Physician Practice visits at the hospital were up 15.7% and Physician Practices visits at their offices were up 14.2%.

The 2016 Budget – What’s Ahead?

For 2016, Memorial Board approved a Total Operating Revenue budget of $587,551,000 versus actual revenues of $565,479,512. To achieve the 2016 revenue, Memorial will need to grow at a rate of 3.9%.

In 2014, Memorial had Total Revenue of $551,986,749; 2015 Revenues grew by 2.4%.  However, the hospital has been adding services and created new partnerships. 

According to H2C, Memorial has budgeted a $17.1 million loss for 2016 - $587.6 million in revenue and expenses of $604.8 million, creating the operating loss.

Memorial has budgeted to have $5.6 million in Non-Operating Income (was $2.2 million in 2015) which will help reduce that loss. 

Note:  Regarding the County's bond covenants, back in January, the SBJ filed a written request of Gill and Memorial’s Inside Legal Counsel Jeffrey Wilson – when they would not answer an oral question – regarding whether Memorial is including any borrowing room on a Letter of Credit to come up with its “Days Cash on Hand,” figure.  Under the bond covenant’s Memorial must maintain certain amounts of cash to secure the bonds – to demonstrate that they can make monthly bond payments. We have not received a response. 


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    • Guest - Karl

      Savannah, GA, USA
      Rated 4 out of 5 stars

      Good article. Has a lot of information that is very difficult for "team members"(employees) to find. The statement that the raise for employees was 5.1% is interesting. Everyone I spoke with received a 1% raise. Then again we are cautioned about discussing salaries under threat of dismissal.

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