Hospital Ends Year Flush with Cash

By JULIA WELLS

The Martha's Vineyard Community Hospital ended its fiscal year on a high note drenched in black ink, posting a net operating gain of just over $1.5 million, more than double the gain posted last year before gifts and other income. Cash reserves are also at an all-time high at the Island's only hospital, thanks in part to a surge in volume.

"This is the way I like to see things. It's not like we're generating a profit by cutting back on services; our services are growing. It was a very good year," hospital chief executive officer Tim Walsh declared this week. "When you start getting squared away it starts to be fun after awhile," he added.

Year-end audited financial statements were presented to the hospital board of trustees at a meeting last weekend and released to the press this week. The hospital fiscal year ended on March 31. The audit is a consolidated statement of the financial picture at the hospital and its affiliate, the Windemere Nursing Home and Rehabilitation Center. The Windemere fiscal year follows the calendar year.

The hospital also has received the results of the Press-Ganey patient satisfaction survey, and again the news is all upbeat, with high scores across the board for its emergency, ambulatory and inpatient services. Only one ranking stood out for its poor quality and that was the hospital physical plant, which is decrepit and slated for replacement. The survey examined 881 other hospitals for the quality of their services over a six-month period.

Among other things the independent auditors' report offers a detailed accounting of the capital campaign aimed at raising $42 million to build a new facility at the Linton Lane campus in the Eastville section of Oak Bluffs. The capital campaign has amassed $33.6 million in commitments and contributions; $17.4 million of the money is in cash and unconditional commitments, while another $16.1 million is in conditional or what are termed intentional promises. Conditional commitments and intentional promises are not recognized as assets in the financial statements for the last fiscal year.

Total operating revenues for the year 2006 were $44.4 million, up 17 per cent from $37.9 million the year before. Total expenses were $42.8 million, up nearly 15 per cent from $37.2 million the year before. Salaries and wages, at $19.8 million, were up 14 per cent from $17.4 million the year before.

On the balance sheet, cash and cash equivalents stood at $6.9 million at the end of the year, up from $5.3 million in 2005.

Despite its deep cash reserves, the hospital is still not without debt and carried $3.1 million in long-term debt and lease obligations on its books in 2006, including three mortgages with substantially all the hospital property as collateral.

Mr. Walsh said the hospital's debt obligations are of no concern, and he said the cash is better kept in reserve for the upcoming building project than used to pay down debt. "When you do these building projects you better have something in reserve," he said, adding:

"Bank notes are not a burden; we don't have a whole lot of debt and it's really not bad at all. When you have money, then borrowing from the bank is easy; it's when you don't have it and you need it that it's hard."

Mr. Walsh said he expects the hospital will roll the bank notes over into new notes when the hospital building comes down to make way for the new facility. Construction is planned to begin late this year, if the money can be raised and if the building project clears all the necessary regulatory hurdles, including approval from the Martha's Vineyard Commission.

In 2006 net patient service revenue at the hospital was $41.7 million, up from $36 million the previous year. Gross patient service revenue, which includes inpatient, long-term care and outpatient services, was $78.2 million (before $36.5 million in contractual obligations). Outpatient services saw a huge jump, from $45.6 million in 2005 to $57.1 million this year.

Mr. Walsh said the growth in outpatient revenues represents the overall increase in volume that the hospital has seen in everything from lab and X-ray work to rehabilitation services.

A breakdown of operating expenses in the audit shows that the hospital bureaucracy also swelled this year, with administrative expenses up sharply from $6.5 million to $7.7 million, an increase of 18.5 per cent.

Mr. Walsh said the increased number includes recruitment and relocation expenses for five physicians; he said there were also some staffing increases in accounting and medical records that were volume-driven. Advertising costs for the capital campaign are also booked under general expenses, and utility costs went up, Mr. Walsh said.

Fund-raising expenses are also climbing, up 38 per cent from $431,571 in 2005 to $594,072 this year. Mr. Walsh said the fund-raising expense is modest considering the fact that the hospital is running the largest capital campaign in the history of the Island. "We don't have a consultant; we are doing it all in-house and I think that is pretty remarkable," he said.

In conclusion Mr. Walsh, who is the former chief financial officer at the hospital, said the financial picture is dramatically different from 10 years ago when the hospital and Windemere were both in a state of near-financial collapse after a previous board of trustees had invaded and spent endowment money, and an emergency board of trustees stepped in to turn around the crisis and save the hospital.

"Ten years ago it was everything bad . . . so it is striking that we are sitting here today with real strong financials and a load of business coming in the door. I think it shows that people have confidence in the hospital and a lot of the credit goes to [hospital board chairman] John Ferguson and the rest of the board," Mr. Walsh said.

Windemere, the affiliate, is operating at a bare break-even pace, posting an operating gain of just under $4,000 for its fiscal year.

"I think Windemere is going to be okay, but it's a really tough business," Mr. Walsh said. He said two of the three units at the nursing home are full with a waiting list; only the assisted living unit has open beds. A requirement by the state that a separate dining room be built for the residents of the Alzheimer's unit caused the temporary loss of two beds and a commensurate loss of revenue, Mr. Walsh said.

"Even two beds can make a difference," he said.