Aspen Valley Hospital showed financial health in 2007 after struggling for several years with billing problems that first developed in 2003.
“We cleaned up the receivables,” said AVH CEO Dave Ressler, who has been leading the 25-bed community hospital since September 2004.
The hospital’s recently completed financial audit showed $10 million in net income for 2007, although an accounting clarification makes the income figure look better by $4 million.
The hospital had previously budgeted for $4 million in bad debts which it instead eventually managed to collect. As a result, bad debt from several prior years was brought forward as income on the 2007 financial statement.
“In past years, we overestimated what our bad debt expense would be,” said CFO Terry Collins. “It is a one-time catch up.”
The $10 million in net income also includes $400,000 in revenue from the hospital’s Midvalley Ambulatory Surgery Center and from its 20 percent ownership stake in the slopeside medical clinic in Snowmass Village.
Better billing and collections, or what the hospital industry calls “revenue cycle management,” has been key to the hospital’s financial recovery.
“The decrease in Net Patient Accounts Receivable and the increase in Cash and Cash Equivalents during 2007 resulted from the improved revenue cycle management by First Consulting Group and MedAssist, two outside billing specialists,” according to the management report in the audit.
The audit was conducted by the Grant Thornton company out of Wichita, Kan.
In 2007, Aspen Valley Hospital had total operating revenues of $54 million against its projected budget of $50 million. Total operating expenses were $48 million against a budget of $47.8 million.
“Our budgets were pretty much right on the money,” said Ressler.
The hospital took a turn for the worse in 2003 and 2004 with billing and collection issues that led to poor financial statements in the second half of 2005 and the first half of 2006.
Three years ago, Ressler and Collins tweaked the business side of the hospital. They outsourced medical records, information technology, admissions and the business office. After a year, they re-evaluated and brought everything back in house but the business office, which includes billing and is now being handled by MedAssist out of St. Louis, Mo. (In those moves, the hospital didn’t lay off and rehire employees, but it did shift the source of their paycheck back and forth.) The outsourcing of billing, and the establishment of an informational billing help line for patients, has reduced bad debts at the hospital.
Bad debts in 2007 were $284,000 compared to $3.3 million in 2006.
“In many instances, people weren’t paying their bill because they didn’t understand their bill,” said Ginny Dyche, communications director for the hospital. “That helped with our collections probably more than we realized it would.”
Also now under control are receivables, or the amount that the hospital is owed at any one time. At the end of 2007, the hospital had $7 million in “net patient accounts receivable.” At the end of 2005, it had $15 million.
“On average, we are collecting a bill in 50 days and it used to take 150 days,” Collins said.
Ressler added that 50 days is considered best practice.
“You won’t find a lot of hospitals that are at that level of performance,” he said.
Improved collections have led to an improved balance sheet as the hospital now has $31 million in cash on hand, up from $23 million.
“It is a direct result of our ability to collect old accounts plus a successful operating year,” Collins said.
Both Collins and Ressler see that cash on hand is critical to not only funding ongoing capital projects at the hospital but to maintaining a solid credit rating so the hospital can finance its proposed $100 million expansion plan (see related story). The credit rating agencies prefer that hospitals have enough cash on hand for 180 days of operation, which in the case of AVH, would require $27 million.
That leaves just $4 million for bricks and mortar in the cash account, but the cushion helps maintain the hospital’s bond rating of Baa3 from Moody’s Investor Service.
“For a small hospital, that’s a very good rating,” said Collins, who is proud the rating is “up significantly from where it was a couple of years ago.”
Moody’s also looks at the community when it sets the hospital’s bond rating.
The hospital depends on both residents and visitors for its revenue, but the business from residents is relatively easy to predict, as is revenue from property taxes levied by the hospital district, which amounted to $3.1 million last year.
The variable for the hospital’s bottom line, like for so many other local businesses, is tourism.
“What really drives our volumes up or down are the number of visitors to the community,” Ressler said. “The rating agencies are astutely aware that we are vulnerable in that respect.”
When visitors to the valley fall off their bikes or get hurt on the ski slope, those accidents ultimately bring in budgeted revenue. And more visitors means more hospital admissions.
“If I want to know how we’re doing, I’ll go out to the Patient Care Unit, or ‘the floor,’ and see how many patients are there,” Ressler said. “Or I’ll ask how many surgeries we did that day and how many patients came into the ER. Those three things give you a pretty good sense of how we’re doing.”
The financial audit for 2007 showed the hospital was doing well indeed. And Ressler said that the community will ultimately reap the benefits.
“We don’t pay profits to shareholders or anybody else and it all stays in this hospital,” he said. “Every nickel that we make gets reinvested back in this community.”
bgs@aspendailynews.com
