FAQs regarding the hospital sales tax measure
Here are some of the discussions we’ve been having with folks as they seek to understand the measure and the situation at the hospital.
1. What does the measure propose? To allow the hospital to use future excess sales tax funds that are already in place for capital improvements, for ongoing maintenance and operating activities at the hospital.
2. Does this change the sales tax rate? Pass or fail, the rate stays the same.
3. Does the proposed sales tax expire? No, it is perpetual. Citizens may, however call for another election to repeal or change, after the debt obligation is fulfilled. The earliest this can be is 2023. The current payment schedule becomes fulfilled in 2029.
4. How much money does the hospital get from the sales tax? THIS WILL VARY. The amount changes monthly based on total sales tax collections for the city. In August 2013, sales tax collections for the hospital were approximately $134,000. The hospital projected $110,000 per month on average for the 2013-2014 fiscal year.
5. What is the debt payment and how much would be available for the hospital to use for ongoing maintenance and operating activities? The debt payment is approximately $53,000. The excess depends on the total amount of sales tax collected. In August, the excess was $81,000. The projected excess would be about $57,000 per month. THIS AMOUNT WILL VARY.
6. How much excess is there currently? About $500,000... Pass or fail, this amount may only be used for capital improvements since it was collected under the original resolution.
7. What has the hospital used the excess for up to this point? In short, the tax was designed to fund a $9.25 million hospital expansion and renovation. But the tax has funded approximately $11.25 million in capital projects. This includes construction and renovation overages, a CT Scanner, Ultrasound, and Electronic Health Record Servers. Other less expensive capital items have been funded as well, but these are the major items.
8. Some of the information says $13 million in hospital improvements, why the difference? Private donations have made up about $1.75 million in hospital improvements. $11.25M + $1.75M = $13.00M.
9. What does it cost to run the hospital? Approximately $820,000 per month is budgeted this fiscal year for operating expenses.
10. We hear that revenues are up and expenses are down. Why can't the hospital make it work? That has been true, most months if you follow our board meetings. But healthcare is complicated... The reason it doesn't work is because we have too many deductions from our revenue. We are bound by contract with the federal government, i.e. Medicare, the state government, i.e. Medicaid, and private insurance companies, i.e. Blue Cross, Aetna, etc. Using August as the example, Gross Patient Revenue was approximately $1,422,000 and Operating Expenses were approximately $850,000. In most businesses, that is a nice bottom line, but in healthcare, we have to write off a portion of our revenues for those insurances; in August that deduction was approximately $671,000. When you take the deductions into consideration, about $572,000 of positive income, becomes a $99,000 loss. (In August we had about $72,000 of additional “other” operating revenue [non-tax revenue] to put the net operating loss at $27,000.)
11. Why don't you negotiate better contracts with those insurance companies? Number one, the government doesn't negotiate, so Medicare and Medicaid are what they are. The private companies we do have some negotiating power, but not much... if they lose our business, they don't lose much, but if we lose theirs, we are sunk. Just think if we said, “Sorry Blue Cross, that's not enough, we won't accept your insurance.” How many patients would we lose? Blue Cross accounted for over 10% of our revenue deductions in August 2013.
12. Why do you need city taxpayers' money when the whole region uses the hospital? With a sales tax, you don't have to be from the city to pay the tax. Everyone who shops in our community pays for the hospital tax.
13. Besides taxes, what can the hospital do to offset their financial losses? There are revenue and expense strategies that have been undertaken; they are explained below.
Regarding revenue, the hospital is trying to increase services that are not heavily impacted by state or federal regulations or insurers. One example of this is a program in our physical therapy department called WorkSTEPS® - a physical demands testing process to determine if workers are in good enough condition to perform the jobs they’ve been hired to do. Another example is The Homestead. In both these cases, the positive revenues in these areas are not impacted by the afore-mentioned insurance deductions that are present for most of the medical center’s other service areas.
We continue to look for new opportunities to enhance our revenue cycle. We’ve purchased software and equipment that allow us to determine what services will or will not be covered by insurance and at what rate. This helps ensure we offer affordable options to patients and avoid insurance claim denials.
That also allows us to collect payments for services at the time of the service in most cases. It allows us to generate cash into the hospital before sending it to our third party billing company for collection. What a difference a year makes; SMC staff went from averaging about $3,000 per month in up-front collections to collecting no less than $28,000 and up to over $40,000 per month since May 2013. This isn’t popular with all our patients, but it has to be this way. (We cannot collect up-front for all services though; i.e., ability to pay does not factor into whether or not emergency care is rendered to patients.)
On top of that, drastic measures have been taken to improve our poor billing outcomes. Within the past several months we’ve had a massive reduction in the number of days it takes a bill to “drop”. Once over fifty days and up to one hundred days or more, SMC staff, now, consistently get bills out within five days of service.
Most significant to the revenue cycle, however, has been the successful attestation to the federal government for our implementation of the Electronic Health Record, stage one. This has cost over $2 million thus far, but about $1.3 million is recoverable from the federal government. Further, it ensures the hospital future operations are not plagued by additional penalties in reimbursement from Medicare, Medicaid, and other insurers. Additional stages of implementation are ahead, but moving forward, EHR at a hospital is like the wheels on a bus – without them, the vehicle is useless.
Regarding expense management, a long series of budget cuts, contract negotiations, wage and benefit reductions, and the discontinuance of some services have been occurring for the past several years. Since 2010, there has been about $1,000,000 in expense reductions.
Wage freezes began about five years ago; cost of living adjustments were halted; benefits like the retirement plan and wellness program were stopped; and the traditional employee health insurance plan was replaced with a high-deductible plan.
After that, staff were placed on hours reductions, like in a furlough scenario. And as attrition occurred, many of those positions were absorbed by existing personnel. Today, at the department manager and upper manager levels, about thirteen full time positions have been absorbed by existing managers, doing so without receiving a raise in pay.
Many contracts have been renegotiated or replaced for savings. One example is the purchasing group we joined when we became affiliated with St. Anthony Hospital. Affiliation with St. Anthony Hospital also brought about the end of a twenty-year management agreement with Tennessee based, Quorum Health Resources. Those management expenses were in excess of $500,000 per year and are now completely zeroed out.
We’ve discontinued services, like respiratory therapy and tasked our registered nurses with performing those functions (which is completely within their scope of practice). We sold our home health agency. We’ve scrutinized and continue to evaluate services based on the criteria of patient need (if we don’t do it, who will?), income/expense margins, and if the service operates at a loss, does it generate referrals to other more profitable service lines?
Every possible meaningful measure to manage the financial operations has been examined and acted upon accordingly.
14. How are other hospitals addressing these challenges? Generally speaking, they are making these same types of decisions. However, there are a couple opportunities that most have, but SMC currently doesn’t.
One is the very purpose of this election. Thirty-six Oklahoma hospitals receive county or local, property or sales tax revenue for hospital operations. Remember, ours is just for capital improvements, pending the outcome of this election.
The other is called “Critical Access Hospital” designation. The federal government declared these hospitals needed special consideration in order to stay open in their regions; acknowledging that hospital care is essential to the health of those regions. So, for all services to Medicare patients, these hospitals receive reimbursement of 101% of their costs to care for those patients. That helps to ensure, but does not guarantee, they are break-even.
In northwest Oklahoma, Share is the only hospital (25-beds or less) that has neither a critical access designation nor tax revenues for operations. We cannot become critical access as the government has stopped adding new hospitals to that program. And we hadn’t qualified previously because of our close proximity to Kiowa, Kansas, which also has a critical access hospital. The tax support though is an option, thus the election on November 12.
15. Will the hospital stay open if the measure passes? Will it close if this measure fails? Based on our current operations and what we know to anticipate in the future, current operations are not sustainable without additional revenue. If the measure fails, the hospital will not close right away. Eventually, the vendors who provide goods and services to the hospital, despite its inability to pay, will surely stop business with the hospital.
That said, given the current political environment surrounding healthcare, whether the measure passes or fails, we cannot guarantee the hospital will stay open or close. If the measure passes, it would secure much needed revenue to help weather one of the most turbulent times in the history of healthcare. The conclusion of the national healthcare debate appears to be far from over. The ultimate outcome of that debate will be a better indicator of the hospital’s future.
16. Why not seek a new tax for hospital operations instead of taking away from capital funds? Simply put, we do not need to raise taxes and we do not feel such a measure would pass. Why continue or increase capital spending if there isn’t enough revenue to keep the doors open?
17. If this passes, will it be used for employee raises? This is a very valid question, given the adjustments that have been made to curb expenses. First and foremost, the hospital has approximately $1,000,000 in its accounts payables at the moment; those need to be reigned in as a first priority. The measure does not forbid these funds for salaries and benefits, but there are no plans to use the tax as a means to enhance salaries and benefits.
At the present time, our employees are compensated within an acceptable proximity to the Oklahoma Hospital Association’s wage and salary benchmarks. The hospital will have to stay close to these benchmarks, but we don’t anticipate the state averages will increase significantly given the current challenges facing the industry for hospitals of all sizes. In the future, the hospital may need to restore furloughed hours in order to honor its service obligations or expand services.
The Alva Hospital Authority and Share Medical Center fall under all provisions of the Open Meetings and Open Records laws for the state of Oklahoma. If anyone has any questions, please call CEO, Kandice Allen at 580.430.3309 or 580.829.2400.