SEBASTOPOL -- Palm Drive Hospital directors Monday unanimously approved the district's 2014 operating budget that shows improved financials at the 37-bed hospital while identifying specific goals to increase revenues.
Total revenues have improved steadily over the year at the hospital, overseen by the Palm Drive Healthcare District, but a shortfall of about $3 million is expected in the 2014 budget, although hospital officials attribute much of that to the cost for implementing electronic heath records.
In fiscal 2012, Palm Drive had $28.1 million in revenue. By the end of fiscal 2013, Palm Drive projects revenues of $29.6 million and by fiscal 2014 it projects total revenues to reach about $31 million, an increase of nearly 5 percent.
The total proposed expense budget for 2014 is just north of $34.3 million.
While calling the cash flows "tenuous," Chief Financial Officer Rick Reid said the 2014 budget is a conservative projection that shows incremental improvements, including a net income of $277,260.
"I think we're getting there and moving in the right direction," Mr. Reid said, adding that further efforts in 2013 and 2014 could generate new revenues that have not yet been budgeted.
"It's a conservative budget. It's based on no volume growth but has expense growth through inflation," he added.
One major element of the next budget is accounting for the implementation of electronic health records compliant with "meaningful use" criteria established by the Centers for Medicare and Medicaid that will ultimately result in increased reimbursement rates.
Between 2013 and 2014, the hospital's operating loss increased by $95,000, or by 3 percent. Included in the operating loss are costs of $935,677 related to the implementation of the district’s new computer system, Mr. Reid said. Without the ongoing cost of implementing EHRs, the operating loss would have decreased by approximately $840,000.
"This demonstrates that the hospital is operating in very a cost-conscious manner," Mr. Reid wrote in his presentation to the board.
The hospital will earn about $3.2 million in total from meeting the meaningful use criteria, including about $900,000 in 2014 that is not counted in the budget.
With the federal incentives to install EHRs, the national norm for IT costs has risen significantly from 3 percent of total operating costs to between 5 and 7 percent. At Palm Drive, 2014 budgeted IT costs as a percentage of operating costs is nearly 6 percent, more than double what it was before the American Recovery and Reinvestment Act of 2009.
Despite the improved yet seemingly precarious finances, Palm Drive has a number of strategies that will likely result in improved patient volume and revenues, Mr. Reid said. The hospital sees potential in growing its surgery offerings, particularly in spine and joint replacement.
Additionally, total budgeted revenues increased by nearly $1.4 million in the proposed 2014 budget as a result of contract revisions, pricing changes and improved reimbursements from Medicare.
Palm Drive also said it will continue to consolidate back-end operations with Sonoma Valley Hospital, the result of striking an alignment with Marin General Hospital and Sonoma Valley in an effort to create economies of scale. A joint-marketing effort between Sonoma Valley and Palm Drive is being developed, and IT and finance functions have been consolidated at the larger Sonoma Valley Hospital campus.
Another potential revenue source is the arrival of HMO Western Health Advantage, which Palm Drive hopes to offer its own employees to create additional volume. Currently, a large number of Palm Drive's employees have Kaiser Permanente insurance and therefore cannot receive non-emergency care at their own hospital.