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Willmar, Minn., hospital reports 6% profit in '11 but seeing gains erode this year

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news Willmar, 56201
West Central Tribune
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Willmar Minnesota 2208 Trott Ave. SW / P.O. Box 839 56201

WILLMAR -- Rice Memorial Hospital had the best financial performance in 2011 in at least five years, earning a 6 percent overall return on total revenue of more than $100 million.

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That translates into a $6 million profit that can be plowed back into services, improvements and new initiatives.

It's also a cushion against more difficult times, which might not be far away. Prompted by a money-losing month during February, the hospital is considering opening a short-term line of credit to help it through an increasing crunch with its cash flow.

Hospital officials and the board of directors reviewed the 2011 audit Wednesday. The annual report outlines revenue, operating expenses, cash flow and key financial ratios that provide a picture of the hospital's fiscal health.

Rice had "a very clean set of books," said Darryn McGarvey of CliftonLarsonAllen, the firm that conducted the audit. "I think it's important for board members to hear that."

The hospital outperformed most similar hospitals among the firm's clients in the Upper Midwest, he said.

Among the highlights:

n Rice and its affiliated organizations -- Rice Care Center and Rice Home Medical -- posted a $4.6 million operating gain in 2011. Rice also earned $1.4 million in non-operating revenue, mainly income from investments.

n The hospital's net assets increased from $57.5 million at the beginning of 2011 to $63 million at the end of the year.

n The number of days of cash on hand, a measure of financial liquidity, has improved nearly three-fold since 2008.

n After a decline in 2010, patient volume grew last year. Inpatient admissions were up 5.7 percent. Outpatient volume also was up in several departments, including the emergency room, surgery, lab tests, medical imaging, medical oncology and ambulance runs.

n Bad debt remains low, accounting for just under 2 percent of net patient revenue. This is significantly better than the industry average, which hovers around 5.5 percent.

The positive financial performance was good news for the city-owned hospital, which has seen flat or declining profits and patient volume the past few years.

"You really turned things around financially," McGarvey said. "Your volumes picked up. You've done a lot of work in the last four or five years with your cost structure."

Some of the gains may be eroding this year, however, underscoring the uncertainty faced by many hospitals. Rice sustained a net operating loss of half a million dollars in February, wiping out the profit it earned in January.

Patient volume was down in almost every area, even in traditionally high-volume services such as the emergency room and the lab, said Bill Fenske, chief financial officer.

"We knew this was going to come sometime," he said. "We've got some work to do in front of us."

Along with lower volume, the installation in February of a new hospital-wide computer system that integrates clinical and billing information also has temporarily slowed the revenue cycle, leading to some issues with short-term cash flow, said Mike Schramm, chief executive officer.

Although hospital officials hope the situation will soon ease, they sought board approval Wednesday to establish a line of credit with a local bank for up to $5 million. The line of credit would only be established if it becomes necessary, Schramm said.

He and Fenske said the alternative is to tap into the hospital's reserve fund -- or, if cash flow problems continue, to sell off some of the hospital's investments.

Preliminary indications suggest March was a better month, Fenske said. The financial report for March will be available next week for review and analysis, he said. "We're going to have a ways to go to catch up."

WILLMAR -- Rice Memorial Hospital had the best financial performance in 2011 in at least five years, earning a 6 percent overall return on total revenue of more than $100 million.

That translates into a $6 million profit that can be plowed back into services, improvements and new initiatives.

It's also a cushion against more difficult times, which might not be far away. Prompted by a money-losing month during February, the hospital is considering opening a short-term line of credit to help it through an increasing crunch with its cash flow.

Hospital officials and the board of directors reviewed the 2011 audit Wednesday. The annual report outlines revenue, operating expenses, cash flow and key financial ratios that provide a picture of the hospital's fiscal health.

Rice had "a very clean set of books," said Darryn McGarvey of CliftonLarsonAllen, the firm that conducted the audit. "I think it's important for board members to hear that."

The hospital outperformed most similar hospitals among the firm's clients in the Upper Midwest, he said.

Among the highlights:

- Rice and its affiliated organizations -- Rice Care Center and Rice Home Medical -- posted a $4.6 million operating gain in 2011. Rice also earned $1.4 million in non-operating revenue, mainly income from investments.

- The hospital's net assets increased from $57.5 million at the beginning of 2011 to $63 million at the end of the year.

- The number of days of cash on hand, a measure of financial liquidity, has improved nearly three-fold since 2008.

- After a decline in 2010, patient volume grew last year. Inpatient admissions were up 5.7 percent. Outpatient volume also was up in several departments, including the emergency room, surgery, lab tests, medical imaging, medical oncology and ambulance runs.

- Bad debt remains low, accounting for just under 2 percent of net patient revenue. This is significantly better than the industry average, which hovers around 5.5 percent.

The positive financial performance was good news for the city-owned hospital, which has seen flat or declining profits and patient volume the past few years.

"You really turned things around financially," McGarvey said. "Your volumes picked up. You've done a lot of work in the last four or five years with your cost structure."

Some of the gains may be eroding this year, however, underscoring the uncertainty faced by many hospitals. Rice sustained a net operating loss of half a million dollars in February, wiping out the profit it earned in January.

Patient volume was down in almost every area, even in traditionally high-volume services such as the emergency room and the lab, said Bill Fenske, chief financial officer.

"We knew this was going to come sometime," he said. "We've got some work to do in front of us."

Along with lower volume, the installation in February of a new hospital-wide computer system that integrates clinical and billing information also has temporarily slowed the revenue cycle, leading to some issues with short-term cash flow, said Mike Schramm, chief executive officer.

Although hospital officials hope the situation will soon ease, they sought board approval Wednesday to establish a line of credit with a local bank for up to $5 million. The line of credit would only be established if it becomes necessary, Schramm said.

He and Fenske said the alternative is to tap into the hospital's reserve fund -- or, if cash flow problems continue, to sell off some of the hospital's investments.

Preliminary indications suggest March was a better month, Fenske said. The financial report for March will be available next week for review and analysis, he said. "We're going to have a ways to go to catch up."

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Anne Polta

Anne Polta covers health care, business/economic development and general assignment. Her HealthBeat blog can be found at http://healthbeat.areavoices.com. Follow her on Twitter at @AnnePolta.

(320) 235-1150
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