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Operating losses spur Rice Hospital to continue cost-containment efforts

WILLMAR — In the wake of red ink last year, Rice Memorial Hospital officials say they’ll continue to focus on paring down expenses.

According to preliminary figures, Rice sustained a $3.2 million loss on $119.2 million in total operating revenue in 2013, making it one of the hospital’s most difficult years.

The deficit includes a $2.8 million operating loss coupled with a $389,000 non-operating loss due at least partly to declines in cash and investments.

The losses came despite intensive efforts by the city-owned hospital to wring out costs and increase efficiency.

The fiscal environment is tough right now for the hospital industry and it’s unlikely to change in the near future, said Mike Schramm, Rice chief executive.

“That is what is expected to happen across the rest of 2014,” he told the hospital board of directors at a meeting this past week.

Several trends are pushing the numbers in a negative direction, hospital officials said.

One is that there simply are fewer patients coming in the door.

“Volumes are down, especially on the outpatient side. Surgeries are down,” said Bill Fenske, chief financial officer.

He said inpatient admissions, which declined significantly in recent years, appear to have hit a plateau. Now the decline seems to be happening in outpatient services — the emergency room, for instance, where volume soared during the recession and then dropped by 5.3 percent last year.

Rice also is seeing a shift in its mix of payers. Close to 70 percent now consists of Medicare and Medicaid, both government programs that typically pay less than commercial insurance.

Blue Cross and Blue Shield of Minnesota, traditionally the largest commercial payer at Rice, at one time accounted for about 25 percent of the hospital’s overall business. Now it has fallen to 17 percent of the total, Schramm said. “That’s a significant shift.”

Reliance on government payers will probably continue to grow, Fenske said. “Where it stops is anybody’s guess… A lot of hospitals are seeing this exact same trend and their profits are down as well.”

The bottom line for Rice is less money to sustain the current level of services.

The hospital was successful last year in lowering its operating costs. Less than the budgeted amount was spent on salaries and wages, and drug costs and purchased services were trimmed. Net operating costs fell by 1 percent, from $100 million to $99.3 million.

“We are continuing administratively to look at lowering costs,” Schramm said. “We’ll continue to be focused on cost structure and the cost side of the equation.”

Last year Rice began a “Surviving on Medicare” initiative designed to spark deeper discussion, ideas and suggestions for adapting to a future with less revenue. In January, the board also approved a master facility plan that calls for closing the intensive care unit and developing “acuity-adaptable” patient rooms to reduce costs and increase staffing efficiencies. The master facility plan also calls for adding beds in the behavioral health unit where demand for care remains strong.


Anne Polta

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

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