For a second year in a row, Redwood
Area Hospital (RAH) has achieved the Gold Standard designation as
one of the country’s top 35 hospitals for financial performance
among small, rural facilities.
RAH was notified mid-January that recent analysis by the audit firm
LarsonAllen, LLP, qualified the hospital for the auditors’ Gold
Standard category of critical access hospitals for 2007. RAH first
achieved Gold Standard designation for 2006. It takes up to a year,
or more, for the data to be reported and analyzed for all eligible
hospitals.
“Gold Standard” is a recognition given by LarsonAllen
to the top 35 critical access hospitals in the nation, from an analysis
of over 1,100 hospital reports. Critical Access Hospital designation
is extended by Medicare to hospitals with 25, or fewer, beds that
are reimbursed on the basis of an annual cost report.
Hospital officials were pleased at achieving Gold Standard status
again for 2007, because the hospital was deep into the first full
year of construction and remodeling projects. But volume of patient
activity did not drop as much as expected during the disruptions of
remodeling.
According to those hospital officials, the audit firm’s analysis
is based on numerous balance sheet and income statement ratios that
try to assess each hospital’s performance and current financial
viability. It is not solely based on a one-year “bottom line”
performance.
Hospital Chief Executive Officer Jim Schulte points out that the
positive financial performance at RAH is a result of conservatism
and a highly productive hospital staff. By its general nature, hospital
care is expensive because it requires the constant availability
of well-trained staff 24 hours a day, seven days a week, 365 days
per year. Hospital care is very labor-intensive. About 60% of the
hospital budget is related to personnel costs. This does not include
the independent physicians who care for their patients at the hospital.
In contrast, even with the newly completed remodeling and expansion,
only about 10% of the operating budget goes to providing the equipment
and building that staff needs to do their work.
“But, RAH works very hard at holding down cost the best it
can, while also working hard to provide high-quality patient care,”
says Schulte. “That is another reason the hospital has achieved
Gold Standard status.”
Like a family that sets up a savings plan, RAH sets aside funds
for current and future capital improvements, according to Hospital
Commission Chairman Pete Smith. Residents in some communities pay
property taxes to support their local hospital. “Conversely,
this city-owned hospital has been able to make contributions to
the community that help reduce tax burden,” says Smith.
Like other hospitals built in the 1950s and 1960s, RAH recently
completed needed upgrades to its building complex. Past financial
performance and the funds set aside for improvements help the hospital
absorb the increased depreciation and interest costs associated
with the remodeling, without placing it in financial jeopardy.
It perhaps would have been more convenient and faster to replace
the facility with a new building, but it would have cost substantially
more. With the current state of the economy, city and hospital officials
say they are glad they chose the more conservative approach to remodel.
According to hospital Chief Financial Officer John Peyerl, positive
financial results in 2006 and 2007 also helped prepare the hospital
for the changes in the economy. Like other segments of the economy,
RAH saw its financial performance decline in 2008. The continued
general decline in the economy and the state’s struggles to
eliminate a budget deficit will further challenge hospital officials.
But, having several years of strong financial performance, as the
hospital started and worked through the remodeling, has helped the
hospital maintain a solid financial position. 2009 will undoubtedly
bring its own set of challenges. “Having a strong balance
sheet is very important anytime. It is especially helpful during
times of economic uncertainty,” says Peyerl.
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