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Hospital figures appear to add up

January 22, 2006|By BOB MAGINNIS

No matter what J. Michael Nye does, the Washington County Hospital is committed to moving to the Robinwood area.

If Nye files an appeal that takes years to settle, that won't kill the project, just delay it, according to James Hamill, the hospital's CEO.

Hamill's statement came during a Jan. 16 meeting between the two men, a meeting that I suggested in a column that appeared Nov. 27.

Nye, a resident of nearby Black Rock Estates, opposes the project on a number of grounds, including the zoning, the inadequacy of the roads to handle more traffic and the finances.

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Based on his readings of filings of hospital financial statements and other filings, Nye said that he is convinced that the new Robinwood facility will be much more expensive than hospital officials are saying.

I suggested a meeting because if Nye filed an appeal based in part on a misunderstanding of the numbers, that would be unfortunate for him and the community.

In a two-hour session, Hamill and Raymond A. Grahe, the Washington Health System's vice president of finance, fielded Nye's questions and tried to explain to us how financing of the project will work.

The talk did not delve into whether it would be cheaper to renovate the current facility or to use another site, such as the Freedom Technology Park site off Interstate 70. Hamill and Grahe did explain how they hope to finance the Robinwood facility.

The Maryland Health Care Commission approved a Certificate of Need for a new hospital that would cost $233.2 million. The debt service - principal and interest - on that will be $13 million and change per year.

A decision by the Maryland Health Services Cost Review Commission gave the hospital a rate increase that will cover about $7 million per year. Given that the hospital lost money in 2002 and 2003, Nye calculated that the system would be millions short of what would be needed to cover its obligations.

Not so, said Hamill and Grahe. The hospital made a $5.8 million profit last year. With profits at that level and a $2 million annual contribution from the Washington County Hospital Endowment Fund, Inc., there will be enough to cover the debt service, they said.

Nye said he had heard the total project cost was now up to $257 million, due to changes in building codes that required architects to go back and redo many of their designs.

That review isn't done, Hamill said.

"We won't get a hard number until spring or summer," he said, adding that if the cost changes significantly, it will be looked at again by bond rating houses such as Moody's and Standard & Poor's.

Hamill said that hospital officials have been in touch with the major financial players in New York City since 2004. Those people have agreed that it's a lot of debt to take on, Hamill said, but based on the fact that this is a growing market, the debt is justified.

"Everybody thinks we're credit-worthy," Grahe said.

As for the 2003 loss in investment income, Hamill said that was a one-time experience based on the hospital's cost for getting out of a partnership involved in creating the Village at Robinwood.

When Grahe said the trend of losses had been reversed, Nye asked what happened to change the trend.

Hamill said that "our people were afraid to document costs accurately," which meant the hospital was absorbing costs that should have been billed to others. Hamill said an outside firm was brought in and, working with legal counsel, came up with ways to more accurately document and bill.

The numbers for this project, based on what I heard and a reading of the documents by nonhospital people (not Nye) knowledgeable in banking and finance, leave me confident that, assuming steel doesn't quadruple in price, this project will be affordable.

And you need not take my word for it - the New York bond houses will look at all these numbers and if they don't add up, the project won't be financed.

Toward the end of the session, Nye ask Hamill what would happen if a group of citizens exercised their right under law to appeal Board of Zoning Appeals (BZA) ruling that gave the hospital the exception it needs to go to Robinwood.

Hamill said that even if that appeal takes four or five years, the hospital is still committed to going to Robinwood.

Hamill said that unlike Cumberland, where a planned new hospital will have to include x-ray suites and labs, the new hospital need not duplicate what already exists at Robinwood Medical Center.

"Look at what has been invested in Robinwood so far and the synergy that is possible there. This facility will go to Robinwood," he said.

It is easier to believe that the financing plan makes sense than it is to believe that roads will be adequate for the added traffic the hospital will bring. If county officials have a master plan for the area, that's only because they've relabeled the file marked "wish list."

It can't all be blamed on the current county board, but since the early 1970s, when zoning was first enacted, Robinwood has been designated a "new community" area. But when you look at what's been done to improve the roads for all the development that's been allowed, the answer is: Not much.

Yes, I believe the numbers, based on my limited understanding of high finance and my trust that the bond houses will make sure they're accurate. What I don't believe is the location will work well unless county government quickly does a whole lot of catch-up. I hope I'm wrong.

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