News

Pardee outlines recovery from $13M loss

By Bill Moss, Published: August 31, 2016

A trend that has led more patients to choose high-deductible insurance plans, a four-month training period for a major new computer system and $8 million worth of operating improvements plunged Pardee Hospital to a $13.5 million loss so far this fiscal year, the Board of Directors was told Wednesday.

The revenue loss in June and July, amounting to a fiscal year to date operating margin loss of 8 percent, probably can't be overcome with just two more months in the fiscal year, Pardee CEO Jay Kirby told the board. But he assured the board that one-time expenses are now behind the county-owned facility and the trend looks brighter for longterm recovery.
The loss in June and July came even as Pardee logged a 15 percent increase in gross revenues in year over year figures through May.
Kirby and the board expressed optimism that the hospital would turn the numbers around through expense reductions, accelerated bill collecting and greater productivity now that the new comprehensive electronic health record system is in place.
“Investments are being made in the short-term that will pay dividends for years to come,” Kirby said. “The unfortunate part of this though is we find ourselves with a $13½ million loss,” Kirby said. “With only two months left in the fiscal year I believe we will not be able to recover by year-end and bring it back to break-even.”
Guiding the board through the financials through July, Kirby described the three major reasons for the expense increase and revenue decline:

• Installation of a new health care records system. The Epic system, which required intense training that took doctors and nurses away from the operating room and in-patient floors, reduced revenue more than expected. “Following the Epic go-live we anticipated a drop (in volume),” Kirby said. “We knew that physicians could not operate at the same levels that they had in May so we dropped their productivity target down to 25 percent to help them train and to ensure that the transition was worthwhile while we had extensive on-site training.” At the same time the hospital during the Epic transition over four months banned time off and had to pay more overtime. (Revenue dropped to $39.1 million in June and $38.4 million in July, down from $44.1 million a month through May.) “In the meantime, our volumes were the lowest they’ve been in the last two years,” Kirby said. “So that played a part in our financials in June and July.”
• One-time cost of Carolina Values and Epic plus service line expansions in surgery, pulmonology, cardiology, radiation oncology and anesthesiology. The hospital this year invested $3 million in the Carolina Values partnership with UNC Health Care and $5 million in Epic. It also has brought on new physicians and practices. While those are expected to provide a positive return over time, the one-time expense hurt the bottom line.
• A trend of high deductible health plans. “More and more businesses are offering high deductible health plans and more and more folks are choosing to accept those type plans, which increases the pressure on Pardee and other hospitals to accept that co-pay on the front end,” Kirby said. “It puts the hospital and the patient in a scenario where the hospital needs to collect upfront dollars in a different manner than we have in the past. At the same time it’s compounded by Obamacare. Many of the exchange programs people sign up for have high deductible health plans.”

The monthly financial report for the first 10 months of the fiscal year showed that revenue short of budget by $16.7 million, to $156 million. Expenses, at $169 million, were $4.2 million less than budgeted. The overall deficit of $13.35 million compared to a budgeted loss of $906,000. One year ago, Pardee was $4 million ahead of budget. August has propelled Pardee onto a recovery track, Kirby said, with expected revenue of $59 million.
“Unfortunately that is a bit of catch-up as it relates to June and July,” he said. “The benefits of Epic are already beginning to show just in the first 90 days.”
Expanding service, adding the Epic records system and separately adding financial management system, called Lawson, should strengthen Pardee over the long term , the CEO said.
“You might recall that many years ago there was much discussion in this community about whether we needed 10 ORs,” Kirby told the board. “I’m here to tell you, those 10 ORs are operating every day and without them we couldn’t experience this volume or this level of revenue growth. Investment of that kind paved the way for the benefits and the fruits that we enjoy today.”
Carolina Values, he added, is starting to pay off.
“We’ve collected $1 million already but we expect much more,” Kirby said. “We expect to double the cost of the investment from Carolina Values over the next 12 to 18 months.”
Epic, which cost $5 million, also represented a one-time hit in the current fiscal year. “Just like Carolina Values, we didn’t have it last year. We’re not going to have it next year. These are one-time investments in strengthening our relationship with UNC but also investing in Pardee to make us stronger down the road,” he said. “June and July was particular hard on us because all three of these things came to bear.”
Kirby assured the board that plans are under way to accelerate collections in the new environment of high cash payments required of patients with those plans.
“They chose a $5,000 deductible plan for a reason,” he said. “It is our duty as an organization to have them conform to the requirements of the health insurance product they chose.”
Trimming expenses is also a part of the plans going forward. The cost reductions are not expected to include layoffs.
Although the cost of Epic was budgeted, the degree of lost productivity was not.
“We knew we were going to take a hit,” said Board Chair Bill Medina. “We took a bigger hit than we thought. But I think there’s rational basis for optimism.”