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Willmar's Rice Hospital shows profit for 2016

WILLMAR -- Rice Memorial Hospital stayed in the black last year for the second year in a row, earning a net margin of $1.7 million on $108.2 million in total revenue. Despite ever-tightening reimbursement, the municipal hospital also managed to i...

Rice Memorial Hospital
Rice Memorial Hospital stayed in the black last year, earning a net margin of $1.7 million on $108.2 million in total revenue. The municipal hospital ended the year with $36 million in net assets and capital. (Briana Sanchez / Tribune file photo)

WILLMAR - Rice Memorial Hospital stayed in the black last year for the second year in a row, earning a net margin of $1.7 million on $108.2 million in total revenue.

Despite ever-tightening reimbursement, the municipal hospital also managed to improve its net position by $2 million last year, ending the year with $36 million in net assets and capital.

The annual audit report for 2016 was reviewed Thursday by the finance committee of the hospital board of directors. It is being forwarded to the full board with a recommendation for approval.

The audit results were good news for hospital officials, who have continually sought ways over the past few years to manage expenses and keep Rice financially healthy while delivering key services to patients.

"We are pleased with how the year went," said Mike Schramm, chief executive. "Our volumes were actually quite strong over this past year. We've continued to work on things to be more efficient and effective."

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One highlight of the year was the opening of the new $5 million Rice Rehabilitation Center, which brought all of Rice's outpatient rehab programs under one roof and created room for future growth. Since the new facility opened last July, it has seen a steady increase in business. Hospital officials reported this week that the number of rehab visits were up almost 25 percent for the first two months of 2017 compared to the same period a year ago.

Overall revenue for Rice and its associated entities, the Rice Care Center and Rice Home Medical, rose 9 percent last year, driven largely by increased patient volume. Expenses rose 8 percent.

The hospital also performed better than the industry benchmark on productivity, a measure of how well the level of staffing reflects ups and downs in patient volume.

Changes in how public employee pension fund liability is accounted for took a significant bite out of Rice's net position, however, prompting hospital management to formally register their disagreement with the approach.

Under a 2012 provision of the Governmental Accounting Standards Board, major changes have been implemented in how governments measure and report the long-term obligations and annual costs of their employee pension benefits. In most cases, it means pension expenses will be reported much sooner than in the past.

For Rice Hospital, whose employees are members of the Public Employees Retirement Association of Minnesota, the impact was a $30.7 million decrease in the hospital's net position in 2015 and an increase in net pension liability from $35.6 million in 2015 to $53.8 million in 2016.

It is a reflection of the newly implemented accounting standard rather than an actual loss, and it's not expected to hamper the hospital's financial standing or its future ability to borrow money.

But Rice management attached a statement to the audit expressing their disagreement with how the pension-associated costs are now reported and its impact on the bottom line.

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"It does not fairly state the financial statements of the organization," said Bill Fenske, chief financial officer.

Pension expenses also fluctuate from year to year, making the number a constantly moving target, he said.

The real issue is the chronic underfunding of most public pension funds, Fenske said.

"Where's the oversight here?" he said. "It's just really disconcerting to us."

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