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Audit: Rice Hospital sees gains in cash flow, balance sheet

WILLMAR -- Rice Memorial Hospital fared slightly better than the financial break-even point last year, its best performance since 2007.

The gains weren't large. The city-owned hospital earned a 1.1 percent net return, which translates to a $1.6 million profit on net patient revenue of $78 million.

But Rice saw significant improvement in its balance sheet and cash flow, an accomplishment that hospital officials hope will position the organization for the coming impact of health care reform.

"We don't necessarily know all the details, but we know in one form or another that change is coming," said Mike Schramm, chief executive of Rice.

The annual audit, detailing the 2010 financial performance of Rice Hospital and its associated entities, was reviewed Friday by the hospital board's finance committee.

It's being forwarded for approval by the full board this coming week.

Throughout the industry, hospitals saw their net revenue remain mostly flat last year, said Darryn McGarvey of the Larson Allen consulting firm, which conducted the audit.

Health care organizations will be challenged to stay financially viable while dealing with new Medicare rules that will begin paying hospitals on the basis of value, starting in July. Hospitals will be under pressure to prevent complications such as patient readmissions or hospital-acquired infections, with the promise of higher incentive payments if they succeed. Those who fall short risk being penalized.

"It's going to be a complete mind shift," McGarvey said.

"It's really quality and cost control where we need to be focused," Schramm agreed. "Where we play the game is going to be focused on quality care and outcomes."

Rice has already begun working with the three local nursing homes on a strategy to reduce the likelihood that hospital patients who are discharged to the nursing home end up being rehospitalized, he said. "We're going to be docked for that in the future."

Overall, health care organizations are unlikely to see more money any time soon. When the federal health care reform bill was signed into law one year ago, it immediately resulted in a quarter-percent reduction in reimbursement to Rice Hospital, Schramm said.

A bill currently in play in the Minnesota Senate proposes to eliminate a Medicaid opt-in, which would have the effect of removing matching federal dollars from the table.

"What that really means, as the smoke clears, is less dollars for us," Schramm said.

All of this makes it critically important for Rice Hospital to have a strong balance sheet and to be able to tightly manage its expenses, hospital officials said.

The hospital saw its net assets grow by $8 million last year, from $49.5 million to $57.5 million. Some of this growth came when the nonprofit and formerly stand-alone Rice Health Foundation was folded into the hospital's operations this past year. But Rice saw increases in its investment income as well.

Rice's earnings before interest, depreciation and amortization, a measure of a facility's cash flow, actually outperformed its peers last year.

"That's going to help us as we go through some of these initiatives," said Bill Fenske, chief financial officer. "There's not more dollars coming into the system."

Rice had $93.8 million in total operating revenue last year and $94 million in expenses, including $41.9 million in salaries. The hospital also reported $1.8 million in non-operating revenue, primarily from investments and its share in Willmar Medical Services, a joint venture in medical imaging, ambulatory surgery and oncology with Affiliated Community Medical Centers.

The non-operating income helped boost the bottom line into the black. Without it, Rice sustained a $170,000 operating loss last year.

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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