Regional Medical Center trustees have approved a strategic plan designed to strengthen hospital finances, in part, by drawing in more patients and recruiting more doctors.
Trustees agreed unanimously last week to implement a nine-point strategy to help the hospital receive the highest return on investments and strengthen its finances and credit rating.
Illinois-based health care financial consulting firm KaufmanHall representative Mark Grube told trustees the key to the hospital’s future success is:
- Increasing market share by reducing the level of out- migration by focusing on the health needs in the hospital’s core and eastern markets.
- Focusing on physician recruitment, particularly for general surgeons, orthopedists and cardiovascular doctors.
- Improving its outreach to commercial and Medicare patients.”Growth is absolutely critical for this organization’s future success,” Grube said. He said the latest census statistics reveal that the hospital’s core and eastern market service areas are projected to see a decline in population over the next five years.
“That (growth) is not going to come without some strategic investments from Medicare, investing in physician recruitment and marketing. We believe the volumes are achievable,” Grube said.
The plan entails the hiring of a chief medical officer to help implement a doctor recruitment and retention effort, enhancing hospital staffing levels, enhancing disease management and marketing campaigns.
Grube said the hospital needs to improve its profitability, a “weakness” on the hospital’s financial statement. The hospital’s operating margin year-to-date is 0.7 percent.
“It is marginal,” he said. “The profitability stats are below the levels of Moody’s and S&P.”
Standard and Poor’s credit rating agency looks for hospitals to have a 3 percent operating margin to be in an A- credit-rating category. Hospitals typically strive to receive an A bond rating.
Meeting either an A or AA standard demonstrates a hospital’s financial strength and its borrowing capabilities. The better the bond rating, the cheaper it is for the hospital to borrow money.
Grube said the RMC’s current S&P and Fitch rating is A-, but he said the hospital’s 2006 profitability operating margin could be improved.
He said the hospital’s plans to borrow come at a good time.
The hospital wants to borrow about $22 million, with half the money going to reimburse the hospital for expenses it has already paid with cash, to give it more cash on hand. The money was used for the hospital’s breast center and vascular lab, and the addition of medical imaging equipment and facility improvements.
The hospital wants to use the other $11 million for future projects, including new facilities, computer systems and medical equipment.
Trustee Danny Covington said that while he is not against the borrowing, he wants to ensure the hospital will not be hurt in the end.
“I want to see what that $22 million will bring back,” he said. “If it is a minus, I don’t want to take it down as a minus. I want to be sure I am going to have a return on that money.”
Grube said, “When you don’t invest in the hospital, you become less competitive, doctors don’t want to practice there and patients don’t want to go to a hospital that has old facilities and equipment.”
The hospital’s borrowing plans have not been without scrutiny.
Orangeburg County Council has not yet approved the borrowing package, while Calhoun County Council has come out in favor of the borrowing. The hospital is owned by Orangeburg and Calhoun counties.
Covington said it is crucial the board monitor the strategic and financial plan to ensure the hospital is meeting its goals.
RMC President Tom Dandridge said the strategic plan is flexible going into the future.
“What this gives us is a basic slide path of what we will pursue,” he said. “We are not lock step with this if we are not making these strategies.”
In related matters, the Board voted to reinvest the $25.4 million placed into the Edisto Health Foundation in equity-link contracts or government-stipulated entities.
In a 6-to-5 vote, trustees voted to use $10 million to buy a three-year equity link contract based on a bond issued by World Bank in May, another $10 million for a five-year equity link contract based on a bond issued by World Bank in July and another $5 million for a five-year equity link contract based on a bond issued by Credit Suisse First Boston in August.
The equity link contract will enable the hospital to receive the principal back, as well as any index appreciation received on the stock market.
The remaining $400,000 will be invested in short-term certificates of deposit.
The EHF was created in January 2006 to allow the hospital to make investments it otherwise couldn’t make as a government entity. The foundation was given $25.4 million of the hospital’s money to invest.
Orangeburg County officials said the money was illegally invested. The hospital defended the legality of the investment, but agreed to return the principal to the hospital. The $3.4 million the hospital has gained in interest will remain with the foundation, to be handled according to government investment guidelines.
Dandridge said the decision to invest in equities provides a diversified portfolio while maintaining a protected principal.
Dandridge, reiterating a presentation by David Yon, principal of Yon-Drake & Associates Inc., noted that diversification of the portfolio with bonds and stocks reduces the risk and yet increases the return.
Yon presented a historical overview of portfolio allocation, saying that a 50 percent bond/stock allocation is no more risky than a 100 percent bond portfolio.
“It is worth the effort to do it. It is new and exotic, but it is in the best interests of the hospital,” Yon said.
“That is what we are banking on,” Dandridge said of the higher returns.
Covington, who expressed his opposition to the equity link contract, said he would rather invest the money into certificates of deposit, where the hospital would receive the principal and a guaranteed return.
Covington estimated placing the money into a CD would guarantee interest with projected gain of about $2 million.
“Are we being responsible for tying this money down for that time?” Covington asked. “You are risking losing $2 million and hope to get an additional $400,000.”
Covington said when looking at historical statistics, the hospital has not fared as well as it has bargained for with previous equity link investments.
“Fool me once, shame on you. Fool me twice, shame on me,” Covington said.
T&D Staff Writer Gene Zaleski can be reached by e-mail at gzaleski@timesanddemocrat.com or by phone at 803-533-5551. Discuss this and other stories at TheTandD.com.
