El Camino Hospital District officials saw a silver lining in the dark cloud of their fiscal year 1999-2000 budget, a budget that projects a $12 million shortfall.
Results of an independent financial audit for 1999-2000 showed positive signs. District board members discussed both the audit and new budget at their Sept. 8 meeting.
In order to balance the fiscal budget, the hospital expects to dip into cash reserves in the year 2000 to make up the deficit.
Marla Gularte, chief financial officer of El Camino Hospital, reviewed total revenues of nearly $187 million and operating expenses of $185 million. Expected refurbishment of equipment and building maintenance costs send capital expenditures to a hefty $13 million which means, she said, that the hospital will look to existing cash reserves to close the $12 million gap.
Richard Warren, the hospital's chief administrator, issued a statement describing a conservative approach to the figures, such that, "(We) possibly may have understated the revenue and overstated the expenses to point out the obvious difficulties we will face over the next several months." Warren, who is recovering from heart surgery, was unable to attend the meeting.
Warren, in his statement, highlighted factors such as regulation, revenue recapture for past government programs, the recent shoring up of the infrastructure, and future drains such as Y2K readiness and seismic retrofits.
An increasing number of patient stays with decreasing insurance reimbursements, and normal increases in operating costs against an unchanging revenue line are major concerns for Warren and the district board, who seem to agree that solutions lie in developing additional revenue programs and services.
As a first step towards changing decreasing insurance patient payments, Aurelio announced the termination of three capitated insurance programs. Under a capitated plan, hospitals agree to a set patient fee, but the set fees are not covering actual patient costs.
Administrators and board members said this budget and future decisions will be particularly challenging.
On the bright side, Rick Messman, representing independent auditors from the firm of Arthur Andersen, said overall, the district has a strong balance sheet, with zero debt, recent strong earnings, a relatively good market competitively, and, he pointed out - plenty of room to borrow.
El Camino is following a trend of the industry as a whole, with a strong net income but a declining operating margin, down this year to 1.8 percent, compared to the 7.1 percent of last year. That margin requires continued attention, Messman said, and added over time the hospital will need to increase earnings. Messman also pointed out that the $2.432 million in El Camino Hospital District Foundation contributions this year is down from contributions of $4 million in 1998.
Auditors underlined the need to establish procedures for consistent corporate compliance, as hospitals are under scrutiny as never before.
Due mainly to longer patient stays and reduced insurance payments, operating expenses were up almost $13 million from last year, but bad debt has been reduced.
In fact, Messman said, El Camino may be the only hospital in Northern California that does not have any long-term debt. He said that officials at most hospitals feel that operating with a 30 percent operating debt is reasonable. He said El Camino's lack of debt reduces day-to-day operating costs and creates future debt capacity.