Hospital district still afflicted with financial ills
March 10, 2014
GRANBY/KREMMLING—As the Kremmling Memorial Hospital District continues to wade through a mire of money troubles, it’s looking at major overhauls to get back on track.
Rising health care costs and inefficient systems have pushed the hospital district down a rocky road of sliding cash flows and debt payments potholes. The hospital district board, which oversees both the hospital in Kremmling and Middle Park Medical Center in Granby, is considering a major overhaul in management to help smooth things over.
Much of its financial trouble came to light soon after the Middle Park Medical Center opened in Granby in January 2012. To finance construction of the facility, the hospital district issued a hospital revenue bond. These types of bonds are tax-free municipal debt, usually backed by the revenue the hospital is able to generate. The hospital district makes payments on the bond twice each year.
The official statement describing the details and requirements of the bond is a long, complicated, 223-page document. But it contains a “liquidity covenant” that specifically requires the hospital district keep 50 days of cash on hand for the fiscal year ending in December 2013, and 60 days cash on hand for the fiscal year ending December 2014.
Minutes from the hospital district’s board of directors meeting, however, note that the district had only 12.5 days cash on hand in November and only seven days cash on hand at the end of December.
According to the district’s finance director, Brendan Gale, that “seven days cash on hand” did not include the bond reserve. He stated that with the bond reserve, district actually had 24 days cash on hand by the end of December 2013, and by January the figure had improved to 27 days cash on hand. Still, those figures fall short of the bond’s requirement.
The district’s financial troubles have also been recently reflected in their ability to make debt payments. Although the district makes payments on the bond twice a year, the district is required to set aside monthly base rental payments. These payments should accumulate every six months, adding up to an amount sufficient enough to make the semi-annual bond payments.
But last December, the district drew upon its reserve fund to make the full $940,000 interest and principal payment, which means these monthly payments likely weren’t being met. Gale confirmed the district hasn’t been able to make monthly payments in 2013 or 2014.
The bond official statement also gives the district just six months to replenish the nearly $1 million it took from its reserve fund to make the bond payment.
“We have not yet replenished the reserve fund,” Gale said. “We are working to do this as soon as possible with guidance from the bond trustee.”
In light of the district’s financial turmoil, meeting minutes on Feb. 26 noted hospital staff worried about layoffs.
On March 4, Middle Park Medical Center, the business side of the hospital district, issued a press release responding to concerns over the hospital’s financial constraints. It noted the district is reevaluating its business strategies.
The district’s board of directors will be meeting with the bond holders this month “to tour MPMC’s facilities and assure (them) that we are able to comply with the bond covenants,” the press release said.
To cut costs, district administrators have implemented a spending freeze on non-essential expenditures.
According to the press release, the district is now considering a management agreement with a larger health system as well.
Centura Health will likely be the one providing direction. The district already signed an affiliation agreement with Centura Health in August 2011 to help expand its health care system. Under a management agreement, Centura Health would provide management and leadership under the direction of its own chief executive officer, who would be employed and appointed by Centura Health and approved by the Kremmling Memorial Hospital District’s board of directors. The board of directors would still retain authority over the district.
What this new management agreement would mean for current CEO Cole White or other management staff remains unclear.
“The terms of the contract are being negotiated,” Gale said. “Details of contract negotiation cannot be disclosed.”
According to the press release, the board of directors expect to sign the management agreement at their March 26 meeting.
Other future cost-saving measures could include staff adjustments, moratorium on staff overtime, service line revisions and a service price increase.
A statement from White noted that the financial challenges facing the hospital district are not unique.
“Rural hospitals throughout the nation are facing looming challenges,” White said. “Health care has been on an unsustainable track … reduced reimbursement rates and demands for proof of performance mean that we have to improve our efficiency and operation effectiveness every year just to stand our ground.”
Leia Larsen can be reached at 970-887-3334 ext. 19603.