Spending money to make money: NRMC's financial picture

Thursday, February 17, 2011

With all of the talk about right-sizing the hospital staff to meet the patient demands there has been a lot of scrutiny around hospital spending. In 2010, Nevada Regional Medical Center purchased the commercial building at 345 S. Barrett Street in Nevada and did some other moving and reconstructing around the hospital. The community has been buzzing with questions about the purchase of the building, remodeling and the hiring of new doctors. NRMC strives to be a transparent organization and with that, willingly shares financial plans for their future.

Financials are a difficult subject in any industry, but they are particularly volatile in healthcare. There is a delicate balance between spending money and making money according to Cindy Buck, Chief Financial Officer at NRMC. "This is a simpler task at NRMC than the previous hospitals I've worked for because we are a not-for-profit business. We don't have to cut jobs or budgets to exceed a failing bottom line. We simply have to remain neutral or better. This gives us the ability to retain more staff in hard times," she said.

Buck explains the financials of the hospital in an easy-to-understand analogy, "there are really two buckets of money. One bucket is our Operating Income, the money we bring in. The other bucket is our cash savings or the Capital bucket." Operating income in healthcare is the money made from services rendered. When there is no demand for specific services, there is a need to cut the expenses related to that service such as staff and supplies. Capital savings is money kept by the organization and used to reinvest into what is necessary to grow the Operating Income. "We use our cash to develop new services and to reinvest in the company to ensure we are able to continue. We reinvest in technology to ensure we are both compliant and competitive in our industry. We reinvest in physicians and new services lines to offset failing service lines. When we are profitable, we reinvest in our workforce by giving raises or by increasing staff. Without profitability on the operational side, we are very limited as to what we can reinvest in on the capital side," stated Buck.

An example of reinvesting is the hospital's 2010 purchase of the "Clinical Services Building" in Nevada. NRMC purchased this foreclosed building at 345 S. Barrett Street and relocated their outpatient therapy department to one-half of that building. The other half of the building is home to a new service called the NowCare Clinic. This walk-in medical clinic has met a stated demand in the community.

"We added the NowCare Clinic because we had a clear need in the community for improved access to primary care. Patients often complained of the time it took to get into their busy primary care physicians. This resulted in more trips to the Emergency Room. ER care is very expensive to both the patient and the hospital. The walk-in clinic at NowCare is actually reducing ER visits, saving the hospital money and creating better access for individuals and families," Buck said. The hospital moved outpatient rehab services to the Clinical Service Building due to limited space within the hospital. Access to enter the hospital, parking and physical space for rehabilitation activities was very limited for a growing service. "Simply put, we had to have a place to go with our rehab program. The demand for those services outgrew the space we had," Buck said. No doctor is recruited nor service opened without a proven medical need in the community. Prior to any expenditure of capital purchases, extensive research is done to consider the profitability. Physician recruitment begins with studies that show which services the community travels outside of Nevada to receive.

"So, the community will continue to see us recruiting doctors, remodeling parts of the hospital to accommodate new service lines and replacing outdated equipment even when we are reducing staff, reducing hours and cutting back on expenses," Judy Feuquay, President and Chief Executive Officer at NRMC said. "These are necessary investments for the future of the hospital."

In the summer of 2011, NRMC will add Geriatric Psychiatry to New Beginnings Behavioral Health. This will consist of eight new beds on the third floor of the hospital. Currently, the Behavioral Health Unit at NRMC operates at nearly maximum capacity on a daily basis. "The service we offer now is not for elderly patients. We need a completely separate space to provide these services. Each day, we have to turn away calls and referrals for geriatric patients. The research shows that we can easily support the need for this type of care," Carol Roberts, R.H.I.A., Director of the Behavioral Health Department at NRMC said.

"The new Geri-Psych Unit is an example of reinvestment," Buck said. "Our service line analysis showed that adding this service could bring an additional 1.4 million dollars in revenue to the hospital annually. That doesn't include the downstream revenue the unit would create for other departments in the hospital such as the lab or radiology. The impact could create more jobs as well." Recent legislation is already reshaping the healthcare industry. Healthcare providers are feeling the effects and preparing for new compliance regulations. Eventually, more people will have insurance coverage. Increased coverage will cause an increase in demand for primary care. Today, primary care physician practices are declining. As more patients have insurance, access to primary care will decline as well.

With primary care physician graduates declining and the demand for their services increasing, physician recruitment will become more critical to the financial success of hospitals. Recruitment will also become more expensive and significantly more difficult. So Feuquay says now is the time to find physicians. "Enticing doctors and their families to move to a rural community isn't an easy task. Those who choose Nevada generally have family ties here or a strong desire to live in a rural environment," Feuquay said, adding, "Without doctors, we have no orders and without orders, we have no hospital. Nobody wants to have to travel 30 minutes or more in an emergency. We must position this hospital to exist in the future. We'll do that by spending our resources and capital even when times are tough."

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