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Council questions hospital's finances

April 13, 2004|by GREGORY T. SIMMONS

gregs@herald-mail.com

HAGERSTOWN - Is Washington County Hospital's plan to move financially feasible?

In light of two years of hospital operating losses totaling more than $6 million, that is a question the Hagerstown mayor and City Council members have been asking for months in connection with the hospital's proposed move from East Antietam Street to a site near Robinwood Medical Center.

Officials said the question remains unanswered.

City Councilwoman Carol N. Moller said Monday she believed the $165 million price tag cited by hospital representatives for a new hospital is low.

"I'm just going to say, that's probably the beginning of it," Moller said. She said she hasn't heard how hospital officials would pay for things such as road improvements and parking.

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Administrators for Washington County Health System, the nonprofit organization that owns and manages the hospital, said their financial plan is valid.

"We've worked on this for three years, so we're feeling pretty good about these estimates," said Raymond Grahe, the health system's vice president of finance.

Last June, hospital officials filed with the Maryland Health Care Commission an application for a certificate of need to relocate the hospital.

The following month, city officials hired legal and health experts to battle the application and its accompanying financing proposals. Through February, the city spent $284,735 on the fight.

The dispute over finances continued last week, when Hagerstown Finance Director Alfred Martin read from a memo between the two state agencies considering the hospital's proposals.

"Clearly ... (the memo) raised questions over the funding proposal," City Administrator Bruce Zimmerman said Monday.

The March 26 memo, from Maryland Health Services Cost Review Commission Executive Director Robert Murray to Robert Nicolay, the commissioner of the Maryland Health Care Commission, provided detailed answers to several of Nicolay's questions about the project. Murray's commission is considering the financial aspect of the hospital's plans.

On Monday, Murray said hospital staff members may have misstated the severity of its caseload or cases may have been handled inefficiently, either of which could lead to financial losses.

He also said findings are preliminary because the hospital will resubmit rate proposals later this year.

According to audited financial reports Murray provided, the hospital lost $6 million in operating revenue in the fiscal year that ended June 30, 2003. It lost $85,000 the previous year.

Grahe said the 2003 figure was largely due to a one-time problem with the way the state sets health-care prices. The cost review commission factors in the severity of the average case when setting the prices.

Grahe said that in fiscal year 2003, the severity of Washington County Hospital's case mix increased, but the cost review commission didn't allow an increase in prices until July.

After a policy change last year, Grahe said, the commission now readjusts the prices charged to patients monthly in relation to caseload severity.

Murray said in the memo that management missteps likely led to the operating losses, but the hospital's financial outlook appeared to be improving.

Grahe said the hospital's numbers support Murray's findings. He said there is an operating surplus this year so far of $1.7 million, which reflects several changes the hospital took to improve its revenues.

Another portion of Murray's memo discussed how the hospital would pay for its construction.

The hospital had proposed two options. One is an approximate 5.9 percent rate increase that would begin upon completion of the project. The second is a staggered increase. Hospital administrators would raise prices 3 percent at the beginning of the project and another 2 percent upon project completion.

Grahe said the second plan would save the hospital about $62 million in interest payments. In addition, he said, it would save $47 million in costs to patients over the 30 years it will take to repay the loans.

Right now, state policy doesn't permit the second plan, although Murray said he expects hospital administrators to request a policy change later this year to allow it.

Grahe said either financing plan could work.

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