Audit report presented to Hospital Board

The Adams County Hospital District No. 2 received the December 2017 and 2016 financial audit report, prepared by Dingus Zarecor and Associates, during the July 26 Board of Commissioners meeting. The report included internal control improvements for accounts receivable and material misstatements in patient refunds and accounts receivable.

DZA CPA Shaun Johnson presented the report to the Board, clarifying there were not any significant findings during the audit.

Johnson began the presentation with reports of the Districts’ assets, liabilities and net position. For the District’s assets, Johnson explained it is what the hospital is expecting to collect, as well as the accumulated depreciation of the District’s assets.

In regards to liabilities, he explained the District paid vendors quickly and had a cost report for Medicaid and State payments in both 2016 and 2017. In 2017, the capital accounts payable was $111,199 for the new ambulance while 2016 recorded an amount of $435,908, which included construction expenses, Johnson explained.

For 2017, the District recorded a total net position of $8,295,225, with total liabilities and net position amounting to $18,365,323.

In operations, the District recorded more than $500,000 reduction in net patient service revenue in 2017 from 2016. Johnson said the loss was affected primarily by the loss of the East Adams Care Center facility operations.

For the hospital, Johnson said there was an increase in revenue for swing bed, radiology and lab patients, and a reduction in the amount made through the physical therapy department.

The largest portion of operations included wages and salaries, which decreased from 2016 to 2017, also in relation to the loss of the EACC facility, Johnson explained. In 2017, operating revenues decreased by 3 percent, he added.

The change in net position for 2017, which is the actual revenue loss for the District, was $646,720.

Johnson provided a net patient service revenue detail sheet, highlighting the only category in the negative was Medicare contractual adjustments, which recorded a loss of $693,058.

The District did have one material weakness reported in account reconciliation. The report stated during the audit process, multiple journal entries were adjusted significantly to correct balances related to accounts payable, accounts receivable and the allowance for doubtful accounts.

The report stated management could not completely reconcile many of the discrepancies and to determine the correct adjustments. Supporting schedules showing invoice or system reports with the balances were also unable to be provided by management.

The cause of the weakness was attributed to reconciliation and review not being completed with the necessary precision for adjustments to be completed in a timely manner. All financial reports generated during this time did not present an accurate image of the District’s financial position.

The auditor’s provided a recommendation for all net position accounts to be reconciled and adjusted as necessary on a monthly basis.

The District had the same material weakness in the 2016 audit. The District also had a material weakness in manual journal entries, which has been resolved.

Johnson also presented financial indicator graphs to the Board, providing comparisons from the past three years at East Adams Rural Healthcare, and 2016 data from all Washington hospitals, critical access hospitals in the region, and all rural hospitals.

For the total margin, change in net position divided by total revenues, the District had an improvement from the previous year, but still recorded a 7.7 percent loss. The net loss for the District totaled $647,000.

Johnson said the goal for the District is to be between 3-4 percent each year, and the added income allows the District to reinvest in the facility and expand resources.

In operating margin, Johnson said the District did have an improvement from the previous year, but still recorded a $1.4 million loss. The goal for the District is to breakeven, he added, and the hospital does benefit from tax support to help meet the goal.

Days cash on hand shows how long the hospital could operate without income based on current expenses. The District currently has 101 days cash on hand, and Johnson explained it is still a negative trend.

The District has almost $1 million more cash on hand than most districts. Johnson said the auditor’s recommend 90 days cash on hand.

For the current ration, Johnson said the District is achieving their goal of staying between 3-4 percent, while maintaining a 3.1 percent.

The District is at 30 percent for equipment depreciation. Johnson explained 100 percent means district’s replace equipment at its exact depreciation. The recent construction at the hospital meant the District has newer equipment, which will average out to 100 over time, Johnson added.

The District recorded a 50.9 percent in long-term debt to net position, which is significantly higher than all other hospitals. Johnson explained while the District did not have any new debt, the District had an increased net position, of which the bond is a portion of.

Johnson said the most important graph for improvement for the District is the days in net patient accounts receivable. The District is currently at 149, and Johnson said it is recommended to be at 60 or below.

The accounts receivable are heavily influenced by self and third party payment, which is the majority waiting for collection. Johnson emphasized this is the one indicator that can put the hospital at risk.

Contractual adjustments track how much the District writes off throughout the year, and Johnson said there was an increase in Medicaid contractual adjustments.

EARH had a significant increase in bad debt percentage of revenue from previous years, rising to 14.5 percent. Johnson said there was a sizable increase in self pay and collection issues in 2017. The bad debt percentage of gross patient revenue is at 9.6 percent, but Johnson added lower is better.

For charity care percentage of revenue, the District has a low percentage for $50,000, which is a relatively insignificant amount. CEO/CFO Gary Bostrom said the amount will increase in 2018 because of the write off changes.

Johnson said the District has room for improvement in net patient service revenue per full time employee. The District currently has $125,000 in revenue, but he said the District’s goal should be between $140-150,000 because of the rural health clinic.

The full audit report is available through the State Auditor’s website at http://www.sao.wa.gov.