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1997-10-02 Work Session NEW HANOVER COUNTY BOARD OF COMMISSIONERS WORK SESSION, OCTOBER 2, 1997 BOOK 26 PAGE 130 ASSEMBLY The New Hanover County Board of Commissioners held a Work Session on Thursday, October 2, 1997, at 10:30AM. in Room 501 of the New Hanover County Administration Building, 320 Chestnut Street, Wilmington, North Carolina. Members present were: Commissioners Buzz Birzenieks; Ted Davis, Jr.; Charles R. Howell; Vice-Chairman William A Caster; Chairman Robert G. Greer; County Manager, Allen O'Neal; County Attorney, Wanda M. Copley; and Clerk to the Board, Lucie F. Harrell. Chairman Greer called the meeting to order and announced the purpose of the Work Session was to hear a presentation on the 1998 Budget for the New Hanover Regional Medical Center. He welcomed Mr. Luther Brown, Chairman of the Medical Center Board of Trustees and Mr. Bill Atkinson, the new President/CEO of the Medical Center. PRESENTATION OF 1998 BUDGET FOR NEW HANOVER REGIONAL MEDICAL CENTER Mr. Luther Brown, Chairman of the New Hanover Regional Medical Center Board of Trustees, expressed appreciation to the Board of County Commissioners for providing an opportunity to present the budget and financial condition of the Medical Center. He informed the Board that the Medical Center was an outstanding facility with an excellent medical staff and employees. The financial condition of the Medical Center is strong, and the Board of Trustees and administrative staff will continue to provide quality patient care while meeting the many changes that constantly occur in the health industry. Mr. Bill Atkinson, President of the Medical Center, advised it was a pleasure to be back in North Carolina and have an opportunity to become involved with an excellent medical facility. He reported that efforts were being made to move forward with positive leadership that will focus on better informing the elected officials and citizens about the activities of the hospital. He requested Mr. Steve Purves, Vice-President of the Medical Center, to begin the budget presentation. Mr. Steve Purves reported the 1998 Budget was a financial plan based upon providing the necessary resources to render quality health care. The budget process began from the ground up with a review of all operations. Forecasts were projected by each individual unit on the number of patients expected to be seen during the next fiscal year, the anticipated surgical procedures, outpatient visits, supplies, etc. based upon the demographics of the region. From this information the necessary resources were determined. One item that was addressed in the 1998 Budget as a result of the employee climate survey was upgrading the salary schedule. The current 100% of the market place average has been changed to a figure above this percentage so that entry level salaries will be sufficient to attract skilled personnel. Funding has been placed in the 1998 Budget to upgrade the salary schedule and improve benefits. If the Medical Center had not been in a strong financial condition, additional resources could not have been budgeted for these items. In closing, Mr. Purves stated there are future concerns about enactment of the Balanced Budget Act of 1997 adopted by the U. S. Congress, which will remove $115 billion nationwide from the Medicare Program and $10 billion from the Medicaid Program. Staff is in the process of trying to understand the impact of these reductions on the Medical Center. Mr. Jim Eyerman, Vice-President of Finance, presented slides on the highlights of the 1998 Budget. He reported the budget includes an overall decrease in rates of 1.63% and maintains the financial viability of the Medical Center. A slight increase in revenue, due to volume and intensity of services, generated a 4.5% operating margin of $11 ,266,608 after covering operating expenses of $239,490,011. Non-operating revenues (investment income) of$6,543,000 result in a total excess of revenues over expenses in the amount of$17,809,608. The budget achieves the appropriate financial ratios in order to maintain the current bond rating of A+ with Standards and Poors and Al with Moody's. The budgeted excess of revenues NEW HANOVER COUNTY BOARD OF COMMISSIONERS WORK SESSION, OCTOBER 2, 1997 BOOK 26 PAGE 131 over expenses in the amount of$17,809,608 will be reinvested in current medical technology, plant improvements, information systems and other patient services. Commissioner Birzenieks inquired as to the number of hospitals in North Carolina that have an A+, Al bond rating? Mr. Eyerman responded less than 10% of hospitals nationally have a bond rating of this quality; however, the State has six hospitals with AA ratings because of exceptional institutions, such as Chapel Hill and Duke. New Hanover Regional Medical Center is competitive statewide, and the A+, Al bond rating is excellent. Due to this rating, the hospital can borrow money at a lower interest rate which results in lower charges to patients. The capital budget continues the commitment to invest excess revenues over expenses for the acquisition of equipment and the upgrading of the physical plant. It includes $4,254,328 for medical equipment approved by the Medical Staff Planning and Equipment Evaluation Committee, and $7,085,300 for clinical and other items. Contingency funds for the purchase of clinical and other items total $874,432. Proposed special projects total $2,500,000, which include the renovation of various patient floors as well as other areas of the Medical Center. In summary, the 1998 Budget as proposed will enable New Hanover Regional Medical Center to fulfill its mission of providing quality health care to the entire community while maintaining and strengthening the financial and operational viability of the Medical Center. Mr. Eyerman presented the following lists of current and potential strategic financial commitments for Fiscal Year 1998 and Fiscal Year 1999: Master Space & Site Plan II-B and Projects Information Technology Strategic Plan Normal Capital Expenditures (2 years) Management Service Organization (MSO) Health Maintenance Organization (HMO) Patient Furniture Radiology Equipment Replacement Primary Care Physicians/Centers Mariner Nursing Home Community Health Improvement Program (CHIP) EMS Strategic Commitments $ 70 million 48 million 30 million 5 million 5 million 5 million 10 million 4 million 4 million 3 million 2 million $186 million Reserves to Maintain Bond Rating 90 million Total Potential Capital Needs $276 million The following financial considerations were presented: Potential Commitment Cash and Investments $186 million 90 million Total Required $276 million Sources of Funding: Current Cash and Investments Additional Cash - Fiscal Year 1997 Cash Generated from Operations - 1998 & 1999 $ 90 million 10 million 80 million $180 million 96 million $276 million Potential Deficit to be Funded NEW HANOVER COUNTY BOARD OF COMMISSIONERS WORK SESSION, OCTOBER 2, 1997 BOOK 26 PAGE 132 FINANCIAL CONSIDERATIONS Current Long-Term Debt (8/31/97) Revenue Bonds 1993 Issue 1996 Issue $ 26.9 million 62.5 million Long- Term Leases Current Portion - Long-Term Debt 1.7 million 1.4 million $ 92.5 million 96.0 million $188.5 million Projected Funding Projected Long-Term Debt Estimated Fund Balance 9/30/99 $210.0 million Accumulated Depreciation 9/30/99 $125.0 million Discussion was held on the definition of a Management Service Organization (MSO). Mr. Purves advised that a Management Service Organization works with area medical practices to assist with billing, collections, and the daily operation of business. The hospital develops the entity, and the doctors pay the hospital. Approximately $5 million will be required to establish the organization with returns to the hospital in approximately 3-5 years. Discussion was held on the Community Health Improvement Program (CHIP). Mr. Purves reported this program was to assist the community by approving grants to the various organizations rendering valuable services. Grants have been awarded to assist with supporting Vita Line, the Partners' Program, the Parish Nursing Home Program, the Community Health Center, and the Health Action for Teens Program. The Medical Center feels this is a way to reinvest in the community. Discussion was held on the creation of a Health Maintenance Organization (HMO) for people living in eastern North Carolina. President Atkinson reported the HMO was being implemented to address a segment of the population in eastern North Carolina that other HMOs are not interested in serving. Currently, residents have to travel out of town to receive medical care. Within the next year, the HMO will be established with support of local physicians to provide preventative care at reasonable charges. Patients will be able to receive care locally, which in turn will strengthen the local economy and benefit the hospital as well as the citizens receiving medical services. The HMO will be owned by the providers and will be competitive with other large companies. The Medical Center will be required to keep the necessary infrastructure in place to accommodate the HMO. Discussion was held on the cash reserve of $90 million. Mr. Eyerman reported the daily operation of the Medical Center was $650,000; therefore, a cash reserve of$90 million was needed to maintain a strong financial condition and the current bond rating. Further discussion followed on the daily patient charges of the Medical Center in comparison to other hospitals throughout the State. Mr. Eyerman reported the hospital's daily patient charges were high because it was a public institution that did not receive funding assistance to provide care for the indigent. However, patients charges have been reduced in some areas over the past year and the room rates will not increase for 1998. Staff will continue to concentrate on further reductions in patient charges and focus on finding alternative sources of revenue. President Atkinson explained that to compare room rates and patient charges to quality health care was a public misconception because the charges are manipulated by reimbursement formulas and characteristics of a geographic region. Health care costs can be reduced significantly through the promotion of wellness and preventative measures. NEW HANOVER COUNTY BOARD OF COMMISSIONERS WORK SESSION, OCTOBER 2, 1997 BOOK 26 PAGE 133 Discussion followed on disproportionate shares. Mr. Eyerman advised that New Hanover Regional Medical Center receives disproportionate shares because it provides more care to indigent patients than other hospitals throughout the country. The Medical Center received federal funds in the amount of$12 million this year as Medicaid reimbursement for 1995 and 1996, and an additional $8 million should be received within the near future. Discussion was held on transferring the New Hanover County Emergency Medical Services (EMS) operation to the Medical Center. President Atkinson advised that Staff was studying the transfer in depth and stated a decision would be made in the near future. He assured the Board that regardless of the decision rendered, the Medical Center would provide 100% support of free hospital emergency services because the EMS operation was a public health issue and saved lives. Discussion was held on the effort being made by the Medical Center to work with Pender Memorial Hospital. Mr. Purves reported staff was working with the hospital to prepare a proposal that would be competitive with offers from other medical facilities. Commissioner Birzenieks, the Board's representative on the Medical Center Board of Trustees, congratulated the hospital staff for the excellent job performed in preparing the 1998 Budget. He expressed appreciation to the trustees and administrative staff for the courage shown in focusing on patient needs and providing the necessary resources in the budget to be sure that patients receive quality care. Appreciation was expressed to President Atkinson for his desire to better inform the Board and citizens about hospital activities. Commissioner Birzenieks stated this type of positive leadership will build confidence and trust among the County Commissioners, hospital administrators, and citizens living in the region. President Atkinson reported the Medical Center was a public institution that provides quality medical care to both paying and non-paying patients. He commended current and past Commissioners and Trustees for supporting and providing the leadership necessary to build a quality medical facility. He emphasized the importance of keeping the Board well informed and stated he would be glad to meet with the Commissioners at any time to discuss issues of concern. ADJOURNMENT Chairman Greer expressed appreciation to the Medical Center Board of Trustees and administrative staff for an excellent presentation. The meeting was adjourned at 11 :50 AM. Respectfully submitted, Lucie F. Harrell Clerk to the Board