Singing River Health System dropped from a Level 2 to a Level 3 trauma rating when it cut back on neurological services, and the hospital system is no longer majority owner of its two outpatient surgical centers.
But Chief Financial Officer Brian Argo told Jackson County elected officials on Monday that the health system is cutting costs and is continuing toward financial recovery with a profitable year.
Argo went over the annual independent audit, this year by Dixon Hughes Goodman, which confirms the county hospital system ended the fiscal year on Sept. 30 with a positive bottom line of $5.1 million.
It has also improved the number of days of cash on hand and reduced operating expenses in an effort to meet its covenant with companies that hold its $80 million bond debt, a debt that is backed by the county.
Days of cash on hand improved from 51 days at the beginning of fiscal year 2016 to 79 on Sept. 30, he said.
Three years ago, it cost $1 million a day to run the county health system and now it’s $860,000 a day.
Argo met with the Jackson County Board of Supervisors to go over the audit and answer questions.
“We’re pretty much on budget, except for the pension expenses,” he said. He said expenses were up $3 million because of the liability for the failed employee pension plan.
Argo explained to supervisors that SRHS divested itself of certain service lines because it could no longer afford them. For example, he said, “We no longer offer neurosurgery.”
When Jackson County Supervisor Ken Taylor asked Argo “if business decisions are dictating practice?” Argo, said, “Yes.”
This is the first financial year without neurosurgery, Argo said. “And we dropped from a 2 to a 3 in trauma coverage,” he said. But SRHS has a helicopter at Ocean Springs Hospital ready to transport patients with head trauma to Ochsner Medical Center in New Orleans.
He explained the helicopter can be on the scene of a wreck within minutes to transport patients to specialty units at other hospitals, for example a burn unit in Mobile or Ochsner’s for major head injuries.
In order to offer full neurological services, it takes at least two neurosurgeons, and the hospital system can’t afford that any more, he said.
“With the volume of cases, it just didn’t work,” he said. “It doesn’t mean we won’t do it again ... We’ve looked at partnering with Ochsner’s for that service.”
He said the possibility might be for New Orleans to send a surgeon to Jackson County one or two times a week.
Fixing what’s worn out
The big concern is capital needs for the two-hospital system that includes Singing River in Pascagoula and Ocean Springs Hospital.
He said the former leadership team of SRHS failed to invest back into the system.
He said that as the hospitals move forward, any “free cash flow” will go to making needed repairs and maintenance.
Argo said that during the three years he has held the CFO position, the county hospital system has renegotiated 90 percent of its contracts, both with commercial health insurance and vendors.
“Breaking even is not acceptable,” he told the board.
Expenses are cut
Supervisors Ken Taylor, Randy Bosarge and Troy Ross asked the most questions.
Taylor was concerned that adult admissions to SRHS were down 5 percent. But Argo said overall surgeries are up.
Revenue is down and some of that is by design, Argo explained to supervisors as they asked about low numbers in the audit. Expenses have also been reduced in connection with services that had driven that revenue.
Professional expenses have gone from $11 million to $5.7 million, he said. They are able to make that reduction, for one example, because the “Emergency Room group now does its own billing.”
Absorbing pension costs
Argo said the hospital system has a plan to absorb what could be up to $2 million in legal fees it amassed in fighting retirees over the failed pension plan. It has racked up $3 million in costs, but its insurance company recently won a decision in federal court that coverage stopped at $1 million. Argo said SRHS is appealing the decision.
In a quick update on the pension plan, he told supervisors the SRHS pension liability increased from $304 million last fiscal year to $333 million because of changes in investment returns, administrative expenses and a lack of payments into the system. Administrative costs have increased from roughly $350,000 to $700,000.
The system’s pension funds are now in the hands of a court-appointed special fiduciary, with a settlement pending. SRHS has committed to add approximately $150 million to the fund over the next 35 years for current and future retirees.
Relying on federal programs
That accounts receivables are relying more heavily on Medicare and Medicaid payments is a little concerning, Chancery Clerk Josh Eldridge told Argo.
Argo agreed that if the trend continued it could be a concern.
In a press release to the public, CEO Kevin Holland calls this year’s report a $40 million turnaround in just two years, going from $35 million in the red to $5.1 million in the black.
Holland said the entire industry faces challenges.