WILLMAR -- Rice Memorial Hospital's board of directors has approved a $94 million budget for 2007 that has a 1.2 percent return as its key financial target.
The budget, which was adopted Wednesday, also lifts a wage freeze that was in effect this past year for the city-owned hospital's 700-some employees.
"We've got money in there for general increases. We also have money for market conditions," said Lorry Massa, CEO of the hospital.
The budget will be forwarded for final approval by the Willmar City Council on Nov. 27.
Bill Fenske, the hospital's chief financial officer, said the goal is to restore the hospital to a positive financial footing within the next year.
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"These are the ratios we've adopted and these are the ratios we're going to adhere to," he said. "That's how we're going to get ourselves back into a profitable situation -- sticking to our margins and making adjustments so we hit our targets."
Rice lost money last year for only the second time in its 70-year history. It is projected to break even this year with a net profit of $231,000.
Next year's goal of a 1.2 percent overall margin translates to a $1.18 million profit.
Hospital officials scrutinized several major factors, from revenue to patient volume to staffing levels, as they put together their budget for next year.
For the first time, key ratios that measure indicators such as productivity and financial margins are playing a much larger role in the budgeting process.
If the hospital can maintain these ratios, it should be able to generate a profit next year and continue to improve its finances in subsequent years, Fenske said.
"Regardless of where we're at, we're going to get to that margin. I think this is a better way to approach a budget, by not speculating," he said.
The 2007 budget assumes, for example, that patient volume will remain relatively flat next year and that the hospital will spend $5 million on capital improvements and new equipment.
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Officials also are eyeing productivity and staffing levels in relation to patient volume.
"It's important that we continue to improve on productivity," Fenske said.
Rather than laying off workers, however, hospital officials hope to accomplish this through attrition. Hospital staffing for next year will have 10 fewer full-time equivalents than this year.
Other highlights of the 2007 budget include:
- A 5 percent price increase.
- Nearly $94 million in net patient revenue. This figure includes revenue from the Rice Care Center and Rice Home Medical as well as hospital operations. The care center is the hospital-owned long-term care home; Rice Home Medical is a durable medical equipment company.
- Operating expenses of $93.8 million, a 3.5 percent increase from this year. Wages and benefits account for the largest share -- more than half -- of operating costs.
"We are still a very much people-driven business," Fenske said.
