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Hospital out of red

Eben Harrell

Put away the defibrillator and tell the ER to stand down – this patient looks like it’s going to make it.In perhaps one of the most extraordinary recoveries in its history, and certainly the most important, Aspen Valley Hospital will make money next year, the hospital announced this week.After a projected $1.4 million loss in 2004, and a $5.5 million loss in 2003, the hospital is optimistic it will pull itself out of the red in 2005. Next year’s budget, approved by the hospital board on Monday, anticipates a $260,455 profit.”With a nearly $50 million budget, $260,000 is essentially breaking even,” hospital CEO David Ressler said on Monday. “But that’s quite a change from where the hospital was a year ago.”The hospital anticipates spending $48.8 million In 2005 and receiving $46.1 million in operating revenue. Throw in nearly $3 million from the hospital’s dedicated property tax and AVH will have a balanced budget.Ressler said savings from last April’s reduction in force, cuts in subsidies to local physicians and a drop in consulting and legal fees will help make the difference.The largest savings will come from an approximately $2.8 million drop in consulting fees. While AVH was going through its financial crisis, it spent $2.9 million contracting various lawyers and industry experts for advice. Thanks to recent financial improvements, that number is expected to drop to $160,000.”It was a painful and expensive process,” Ressler said. “But it was necessary. We won’t need as much outside help next year.”The biggest new expenditure, Ressler said, will be a contract with California-based First Consulting Group (FCG) to handle the hospital’s billing and collection. But the $2.7 million that AVH will pay FCG next year will essentially be a wash, because FCG plans to hire around 30 people currently employed by AVH.”This outsourcing move is not an effort to save money right away, but it will greatly improve our efficiency, which will help us in the long run,” Ressler said.There are no major changes to funding for individual departments. The hospital will also maintain the number of employees it settled on after it laid off around 10 percent of its work force last April. The severance payments for 34 laid-off employees were included in last year’s budget.Improvements in the hospital’s billing and collection departments – the epicenter of the recent financial crisis – may not change overall spending patterns but will likely increase the hospital’s cash reserves. In its budget, the hospital anticipates that 24 percent of its bills will be uncollectable – either because a patient is uninsured or due to contracts with insurance carriers. Because AVH typically serves a wealthy, privately insured population, this number is well below industry standards, which range from 50 to 60 percent.Newly appointed Chief Financial Officer Terry Collins said it’s impossible to say what percent of the hospital’s bills went uncollected over the last few years – attempts to recoup them are still under way. But next year’s bills will be sent out faster and will be more accurate, which means they will be more easily collected.”We are making a conservative guess that we’ll collect 76 percent of our bills,” Collins said. “But we’re optimistic that number may be 1 or 2 percent higher.”A hospital’s cash level is an important indicator of billing and collection efficiency and overall financial health. It is also a key factor in its bond ratings and ability to borrow and spend money.Eben Harrell’s e-mail address is eharrell@aspentimes.com