Audit report offers encouraging news for EARH

A recent 2018 financial audit by a public accounting firm based out of Spokane Valley provided mostly good news for East Adams Rural Healthcare in regards to improvements over the 2017 fiscal year.

The audit was performed by Dingus, Zarecor & Associates PLLC, an accounting firm that specializes in servicing critical access hospitals, nonprofit healthcare agencies and public sector organizations. EARH has used DZA in previous years, as well.

EARH paid around $25,000 for the report. "This is the best money I think the board spends all year," said Adams County Public Hospital District No. 2 Commissioner John Kragt.

DZA's Shaun Johnson was on hand at the Aug. 22 commissioners meeting to walk the commissioners and hospital staff through the audit's findings. The result covers the end of the 2018 fiscal year.

For 2018, Johnson said that EARH had a pretty good year in regards to collections, which doubled the cash the hospital had in comparison to the end of 2017. EARH also had a better year revenue-wise in 2018 than 2017, thanks to an increase in in-patient patient days, lower contractual allowance and a better collection rate.

Expense-wise, EARH paid salaries to what is the equivalent of 54 full-time employees in 2018, compared to 55 full-time employees in 2017. Employee benefits made up 11% of total salaries in 2018, up 1% compared to 2017.

Johnson noted that the biggest driver of the increase was, unsurprisingly, health insurance. He said that EARH's 10-11% share of benefits in terms of total salaries is on the low side, with the average being about 15-16% and the high being around 20%. Some of the hospitals that Johnson also provides services for are "getting killed" due to rising health insurance costs, he added.

Overall, operating revenues at EARH were up 15% in 2018 compared to 2017, while operating expenses were up just 7%. Johnson said it's good that operating expenses didn't increase at the same rate as the operating revenues, which is why EARH's operating loss was less in 2018 than it was in 2017.

EARH's total net loss was $145,000, which is "quite a bit better" than it was in 2017, when the total net loss was $646,000. The audit does rely on some estimates, but Johnson said it is using the best information it has at the time.

Johnson also touched on the cash-flow statements in the report. In 2018 the operating activities-which is the net total of cash EARH brought in from patient care minus the cash that went out to pay employees and other expenses-had a positive cash-flow, compared to a negative cash-flow in 2017 that represented a roughly $1 million improvement in that section, Johnson said. Overall, EARH had a positive increase in cash of almost $800,000 compared to 2017.

How EARH's numbers stack up

The second part of DZA's report focused on showing how EARH's 2018 fiscal year stacked up to previous years, as well as to other hospitals in the state and country.

In regards to operating margins (which measures operating revenues versus operating expenses, as discussed above), Johnson said there has been improvement for EARH over the past three years. He said EARH's goal should be to try and get the margin as close to breakeven as possible, which would allow non-operating revenues, such as taxes, to provide a positive total margin of around a few percent. He also added that all critical access hospitals have a negative operating margin.

"Your mission is not to generate a profit, but it's still important to have a positive bottom line that you could use to reinvest back into the facilities, standard services or new equipment or whatever you might need," Johnson told the board. "You have had improvement over the last three years here, but I think there's still a little bit more to go."

One area that Johnson said EARH has been doing great in over the last three years is days cash-on-hand, with EARH currently at 127 days. The days cash-on-hand shows how many days EARH could remain open-without collecting cash-before running out of money.

DZA typically recommends that hospitals have at least 90 days cash-on-hand, and then after that it depends on what the hospital's goals are as an organization. Johnson said that some hospitals in Washington have as few as a week's worth-or less-of days cash-on-hand.

In 2018, EARH wrote off about 5.1% of its gross revenue to bad debt. Bad debt is a situation where someone could in theory pay their bill, but don't. The 5.1% from 2018 is lower than it was in 2017, when EARH's bad debt jumped quite a bit.

One data point where EARH is trailing other critical access hospitals is in charity care. About 0.5% of patients qualified under EARH's charity care policy, which Johnson said may give EARH an opportunity to look at whether some of the patients who are being written off for bad debt may qualify under the hospital's charity care policy. At critical access hospitals, Johnson said he usually sees the charity care percentage around 1-3%.

"[Charity care] is a positive benefit," said Johnson. "You're giving free care to those who need it. So that might be an opportunity for you guys."

Chief financial officer Gary Bostrom said that EARH is telling all patients at admission that they offer charity care, and that the hospital is following state guidelines.

"There's really no excuse for somebody not to apply for charity care, because we're notifying them at admission," Bostrom said. He added that he expected the charity care percentage to increase in 2019.

Johnson agreed with Adams County Public Hospital District No. 2 Chairman Eric Walker that EARH is, especially when compared to peers, "in a pretty good position and we're moving from that position to a better position."

"I definitely would agree with that," said Johnson. "If you looked at the areas in which you do have room for improvement, which is on the revenue cycle and accounts receivable being the biggest area, it's that over the last three years you have improved in that area. I still think there's a little more ways to go, but you're going in the right direction."

Board changes monthly meeting dates

The Adams County Public Hospital District No. 2 Board of Commissioners unanimously agreed at the Aug. 22 meeting to change what day of the week the Finance Committee meeting and regular board meeting would take place.

The Finance Committee meeting will now be held on the third Wednesday of each month. Prior to the change, the meeting was held on the third Thursday of each month. The meeting begins at 12:30 p.m.

The regular board meeting will now be held on the fourth Wednesday of each month, rather than the fourth Thursday. The meeting is still scheduled to begin at 5:30 p.m. This month's board meeting is set for Sept. 25.