Rice Hospital's 2012 budget assumptions are optimistic
WILLMAR -- Rice Memorial Hospital has adopted a set of budget assumptions for 2012 that are optimistic yet cautious.
Although the city-owned hospital is seeing solid patient volume and a positive financial performance this year, there's considerable uncertainty surrounding health care, say hospital officials.
The state budget passed last month by the Minnesota Legislature contains a 10 percent reduction in reimbursement for Medicaid, the publicly funded health program for the poor.
"We do know what's coming ahead," said Mike Schramm, chief executive of Rice Hospital. "It is going to continually put pressure on our income statement."
Uncompensated care also is on the rise. Meanwhile, patient volume, which rebounded this year after several years of steady decline, could reverse as swiftly as it has gone up, Schramm said. "The trends have been so volatile. It's hard to say."
The budget assumptions, approved Friday by the finance committee of the hospital board, help lay the groundwork for the hospital's budget for 2012.
The process of putting together next year's budget is starting this month with a look at planned capital projects in 2012, said Bill Fenske, chief financial officer. The hospital board is slated to review and approve a full budget in November for next year.
Among the key assumptions: The census will average 33 inpatients.
This year's budget is based on a projected average daily inpatient census of 30, but the actual number has been around 37 -- a significant change from the decline the hospital has been experiencing in the past few years.
"There's a lot more activity in the house than there was a year ago," Fenske said.
He said hospital managers were comfortable with revising their expectations upwards -- but not too high -- for next year.
The budget assumptions also include a 2 to 3 percent increase next year in outpatient activity and a 3 percent rate increase. Another 3 to 5 percent in overall costs is being factored in for general inflation.
The hospital is aiming for a 3 percent profit margin next year, which is at the national benchmark for the hospital industry.
"This is our bogey here," Fenske said. "We're going to develop a budget that's realistic and yet is going to hit those targets."
If Rice can maintain its current financial performance for the rest of this year, the hospital is likely to start 2012 in a relatively strong position. As of June 30, Rice had posted a $2.9 million return on total operating revenue of $60.9 million. This is well ahead of projections and substantially better than a year ago.
Officials said Friday that it's due partly to higher patient volume but also to increased efficiencies in the hospital's cost structure. Despite providing more patient services, Rice has managed to keep its operating expenses essentially on budget, at $47.8 million.
"Our directors and management staff have worked very hard on the cost side of the equation," Schramm said. "Things are moving in the right direction."
But officials are still trying to assess the impact of the state budget agreement. They're also alert to what's happening on the federal level and the changes that will start becoming visible as the provisions of the Accountable Care Act take effect.
"We don't know what's coming around the corner," Schramm said.