Central Peninsula General Hospital got its first bad report card in seven years.
Thursday night, the CPGH Inc. board of directors accepted the bad news as it listened to the details of a 14 percent operational loss for fiscal year 2002.
CPGH Inc., the nonprofit organization that manages the Kenai Peninsula Borough-owned hospital, received an annual financial report that reflected operating expenses exceeding total operating revenues by more than $2.4 million as of June 30. Revenues were set at more than $35.3 million and the fiscal year closed showing expenses in excess of $37.7 million.
Operating expenses rose by more than $5 million from $32.7 million in 2001 to $37.7 million. The last time the hospital showed a loss from operating revenues was 1995, when it reported $394,752 over budget.
"It hurts to have one like this," said Bill Coghill, the certified public accountant for the independent accounting firm Mikunda, Cottrell and Co., that conducted the audit.
"Things have been rosy at the hospital. Hopefully, this is a bump in the road."
The most significant factors contributing to the 2002 losses were employee salaries and benefits, bad debt and professional fees. There was a $1.02 million increase in benefits and a $1.4 million increase in salaries. The hospital recorded $3.7 million in provisions for bad debt, an increase of $889,372, and a jump of $908,600 from about $2 million in professional services in 2001 to $2.9 million in 2002.
Hospital Chief Financial Officer Ed Burke said the hospital revenues fell short and expenses were not budgeted to compensate.
"We were spending beyond our means last year," Burke said. "Management did not put enough attention to monitoring and controlling expenses during that period."
He attributed the high employee benefits to external factors, most notably a national trend in increased health insurance. The hospital recruited administrators -- including Burke, who started in July -- and physicians during that period, which accounts for the salary spike.
Burke said professional fees applied, in some cases, to temporarily hired nurses from Outside to fill vacancies or to fill in for full-time nurses taking vacation or time off.
"Some was because of too much spending on contracted positions and outside consultants," he said. "Collection agency fees were also provisions of professional fees."
Diana Zirul, CPGH Inc. board president, said the professional fees were not budgeted because they were not planned for by the board.
"Some of the consulting fees were without board authorization," she said.
The hospital had contracted an interim hospital administrator, among other positions, through Quorum Health Resources, before hiring Burke and Chief Executive Officer David Gilbreath last month. Zirul said the hospital's contract with Quorum ends Dec. 31, and the board does not intend to continue the contract.
Burke said the nearly $900,000 in patient receivables the hospital had to write off accounted for a large sum of the loss. Zirul said some of the issues from accounts receivable came when the hospital changed over the housewide computer system that was used for billing.
"When we did transition, there were some problems," Zirul said. "They were identified early on, but it took the last year and a half to get them in order. Until Ed came on board, it had never been resolved to the satisfaction of the board."
Burke and his team have implemented several recommendations that have pulled the hospital's finances back in order. Primary of these focuses was addressing "discharged, but not billed" patients and making certain bills were generated within five days of a patient leaving the facility.
The board voted in July to outsource collection services for self-pay and small-dollar accounts until the quantity of accounts decreased and until automated systems and better training were available.
As of Oct. 31, expenses for employee benefits had fallen 5.67 percent under budget and salaries are less than half a percent under, although accounts receivables are 1.7 percent over the projected budget and professional fees are 12.18 percent over. Burke said this is an improvement from the same period a year ago.
"Year-to-date, we have a loss on operations," he said. "But it's half the loss that it was this time last year."
According to hospital records, by Oct. 31, 2001, the hospital was 31.37 percent over budget in benefits, 11.83 percent in salaries, 24.06 percent in professional fees, and 2.44 percent in bad debt.
"We've cut negative spending rates in half, but there's still work to be done," Burke said. "This time next year, I think we'll be in the black."
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