Rice unveils revised 5-year financial plan
WILLMAR -- Patient admissions will continue to slowly decline and profits will stagnate, according to a newly revised set of financial assumptions for Rice Memorial Hospital over the next five years.
The five-year financial plan was reviewed Friday by the finance committee of the hospital board of directors. Committee members voted to recommend its approval when the full hospital board meets on Aug. 19.
Mike Schramm, the city-owned hospital's chief executive, said the assumptions are both conservative and realistic.
"Obviously it's out into the future and lots and lots of things can change, but I think it's going to project out," he said. "We would certainly hope to outperform this."
The five-year plan, which replaces an earlier five-year plan put together in 2007, makes projections about patient numbers, staffing ratios, cash flow, profit margins and other key indicators through 2015.
Bill Fenske, chief financial officer, sees it as a road map for the hospital's financial future.
"It does provide us a guide for what does our future look like and what do we have to keep doing every year to hit these targets," he said. "It gives us a tool to help with the what-ifs."
The most significant budget assumption is a $10 million addition and renovation in 2012 for the Rice Care Center, the nursing home owned by the hospital. The project is still in the planing stages and has yet to be discussed or voted on by the hospital board.
The bulk of the financial assumptions, however, call for no major changes to the hospital or its operations.
Hospital officials are assuming that patient admissions will fall by 1 percent each year and outpatient volume will grow by 2 percent annually for the next five years. They've also projected a 5 percent price increase each year.
According to the projections, Rice's profit margin will hover around 1 percent for the next two to three years, then dip down to the break-even point when the Rice Care Center project is built. The financial margin is expected to start improving again in 2015.
Rice still has some way to go before it reaches the industry benchmark of a 5.4 percent return, Fenske said.
"I don't see that Rice is going to get back up to those benchmarks until we can grow some of our service lines," he said.
Although adding and expanding hospital services is in Rice's strategic plan, it's not included in the five-year financial projections because hospital officials wanted to take a conservative approach.
Fenske pointed to the hospital's productivity ratio, which measures staffing levels against patient volume, as an example of how, with diligent effort, a specific financial target can be reached.
"This was a real concern three or four years ago. We've made a lot of conscious effort and we've made significant progress," he said. "It certainly gives us much more confidence that we'll be able to make those numbers work."