WILLMAR -- A plan that outlines Rice Memorial Hospital's financial goals for the next five years was unanimously adopted Wednesday by the hospital board of directors.
The document, which was approved last week by the hospital board's finance committee, will help provide direction for the board and administrative team as they make decisions about programs, services and spending, said Bill Fenske, chief financial officer of the city-owned hospital.
"We want to try to set a road map," he said.
The plan, which will be updated at least once a year, is based on several key assumptions. For instance, it projects a 1 percent increase in patient volume each year for the next five years. It projects that the hospital will break even in 2007 and improve its margin in each year thereafter.
Hospital officials believe that if budgeting and financial targets can follow the new plan, the hospital will be able to lift itself out of the negative operating margin it had last year and is expected to experience again this year.
ADVERTISEMENT
Historically, the hospital has been able to earn a respectable return, Fenske said. "We should be able to get back to that 4 percent margin. That's where high-performing hospitals are."
The financial losses coincide with the completion of a four-year, $52 million project to expand and renovate the hospital. Hospital officials say, however, that building and depreciation costs only account for part of the loss.
A bigger reason, they contend, is that fewer patients are being hospitalized -- a trend that's being reported at other hospitals in Minnesota as well.
Ratios based on industry benchmarks make it clear that finances need to improve, Fenske said. With 40 days of cash on hand -- compared to an industry benchmark of 180 days -- Rice is "in a tenuous position," he said. "That's why it's just so critical in these next few years that we get back on track. Regardless of what our patient volume is, we still have to hit these ratios."
An improved financial margin will give the hospital a better cushion and enable it to reinvest in equipment and technology, he said. Building up the hospital's cash position also will enable it to rely less on debt to finance improvements.
The adoption of the five-year plan marks a new initiative by the hospital to take a more aggressive approach to financial performance.
Measures such as clinical excellence and patient satisfaction are already being tracked and reported, said Lorry Massa, CEO of Rice.
"We're telling staff that financial performance is the same thing," he said.
ADVERTISEMENT
Educating the hospital staff -- as well as city officials and the public -- will be important, Massa said.
"Our need to carry cash reserves is very different than the city proper," he said. "We're in a different business."
In the long run, Rice's identity as a stand-alone, city-owned hospital could be at stake, Fenske said. "We can't sustain negative margins. It's not sustainable. We're not a large enough organization."
One key ratio that is likely to be scrutinized with particular intensity is productivity -- the number of overall staff hours worked in relation to patient volume.
Rice uses more staff hours than any of its peer hospitals of similar size, Fenske said.
It's a number that needs to be lower, he said. "That is just an unacceptable level. We have to be pushing ourselves downward."
The five-year financial plan recommends doing so gradually, at a rate of 2 percent a year.
It's not clear why staff hours have risen while patient volume has not.
ADVERTISEMENT
Massa said the building project has necessitated more staff resources. "We had a lot of transition planning going on. We had to bulk up staff," he said.
Hospitals also can vary in how they decide to staff their programs, Fenske said. "All organizations have their own culture. They put emphasis on certain areas... We may never get to the benchmark. We may decide this is where we want to be."
The closer watch on productivity has already begun with the process of developing the hospital's 2007 budget.
"As we're working on the budget, those productivity numbers are being looked at," Massa said. "Our management folks are going to have to figure out ways to adjust them."
