By Margie Holmgren
Compared to the last Kittson Memorial Hospital Association meeting, this meeting had plenty of room for more attendees.
With about 25 people in the audience, Board President Richard Mortenson read a statement regarding the purpose of the meeting.
“This is not a formal meeting of the association,” Mortenson explained. There would be no items to be voted upon.
“At the association meeting last November,” he said, “we promised we would present the audited financial statements to the association as soon as they were available and tonight we will do so, but due to the advice of our attorney we will not answer any questions related to the previous management or the past. Tonight we are going to concentrate on moving forward.”
Jeni Schwenzfeier, who was hired as chief financial officer on April 15, was introduced and provided an overview of the financials.
She went through a slide presentation, which included numbers from CliftonLarsonAllen (CLA) who conducts the audits for the hospital.
Schwenzfeier pointed out the cash or cash equivalents as of Sept. 30, 2018, showed $2,020,525 and accounts re-ceivable showed $1,504,979. Restricted assets, which she explained are basically restricted cash funds for funded depreciation or funds restricted by donations and grants, had a value of $1,246,226 and the property and equipment including the building had a balance of $3,508,256.
Accounts payable had a balance of $398,600 and long term debt, which she stated was mostly with the USDA, was at $2,678,335.
Schwenzfeier shared some charts showing where Kittson Healthcare is compared with other critical access hospitals and with other CLA clients.
The days cash on hand, which measures the number of days of average cash expenses that the facility maintains in cash and amounts reserved for capital improvements was 85 for 2017 and showed 66 for 2018. For other critical access hospitals the number was 127 in 2017 and for other CLA clients it was 156.
“A high value usually implies a greater ability to meet both short-term and long-term capital replacement needs,” she explained. “So one of our goals going forward is to be more in line with the industry average.”
The next slide showed the net days-in-accounts receivable or the time that receivables are outstanding.
Kittson Healthcare was at 40 in 2017, other critical access hospitals were at 51 and CLA clients were at 49. In 2018, Kittson dropped to 37.
“This means we are current with our billings, we are timely and cash is coming in the door quickly,” Schwenzfeier explained, “so a good trend there.”
The average age of plant, which refers to the organization’s fixed assets of the entire facility, slide shows the approximate age of an organization’s fixed assets. A low value is considered to be desirable as it indicates a new facility. Kittson Healthcare was at 13.3 in 2017 and up to 17.7 in 2018.
“We made a lot of capital investment 20 years ago and all of those assets or investments are fully depreciated,” Schwenzfeier stated. “Other facilities have brand new hospitals so their numbers are lower at 11.1 for other critical access hospitals. We are still very reasonable. We have opportunities to continue to invest and expand services.”
The debt to capitalization ratio for Kittson Healthcare was at 39 percent for 2017 and at 38 percent for 2018.
These numbers defined the proportion of long-term debt divided by long-term debt plus total net assets. Higher values for this implies a greater reliance on debt financing and may imply reduced ability to carry additional debt. Other hospitals were at 48 percent.
“We aren’t mortgaged too much,” stated Schwenzfeier, “we have some room to invest.”
The Sept. 30, 2018, audit showed an operating loss of $371,485 and a negative decrease in net assets of $189,680. The operating margin for 2017 was .2 and -2.5 in 2018. This ratio is operating income as a percentage of net patient service revenue plus other operating revenues.
In her summary, Schwenzfeier reported that they have a strong debt-to-capitalization ratio with margin to borrow funds for capital/growth projects and their days-in-accounts receivable is far below the industry average. The 2019/20 goals are to build cash, capital investments and to improve the operating margin.
Interim Chief Executive Officer Everett Butler then gave the attendees a look at the future.
He stated they expect a significant loss, projected at close to $1 million, for fiscal year 2019. He explained that one of the reasons was the hiring of Eide Bailly to construct financials for the board from November through March.
“In a review, we came across the fact the 2017 cost report was filed with unaudited funds as there are deadlines with Medicaid and Medicare and if you don’t meet the deadlines, they stop your payments,” Everett stated. “It’s not unusual but the final audit has to be submitted as well and it was not done.”
Eide Bailly had to go back and file the final audit cost report for 2017 and so that put them behind for 2018. Both 2017 and 2018 have been filed now, Butler told the meeting attendees.
“It cost the facility about $200,000 to get caught up,” he stated. “Eide Bailly stayed with through March and Jeni started the 15th of April.”
“It is hard for the board to make decisions if you don’t know where you are financially,” he added. “I basically ran off cash in the bank so all my decisions were primarily in tune with where the cash was at.”
He further explained several internal controls have been put in place. He and Schwenzfeier have met with each of the department managers primarily to identify areas where they can continue to reduce expenses. They also discussed if there are any revenue sources the facility could capitalize on.
“Each department receives a financial for their department,” he concluded.
They also evaluated the wages scales and implemented new wages for those who had not received an increase in 2018 or prior. The governing board asked Butler to look at the wages of housekeeping and other staff that did not receive an increase and compare to other facilities in the area. The raises were given and works out to an annual increase of about $128,000.
Butler then discussed the people using the facility. Because the number of inpatients in the hospital are down, revenue is down in that area by $438,000. The same is true for ancillary services which is down $189,000.
He also discussed the opening of the pharmacy in August, and explained that although it was not finalized they are working with Harold Anderson on purchasing his inventory from Anderson Pharmacy.
There will be expenses for the opening of the pharmacy, including inventory and software, but the income will not come until fiscal year 2020.
The cost of opening the pharmacy included the need for a $125,000 loan. Butler explained the bank would be willing to give him a loan at 6 percent.
“I am happy to announce that we are going to borrow from the hospital foundation at 3 percent,” Butler explained. “It’s a win-win as the foundation will get more interest for their money and the hospital will save on the amount of interest they have to pay.”
The meeting was opened up for questions.
Lee Pemberton, of Hallock, asked about the amount of depreciation for the year, which is at $650,000. He also asked about how much the clinic revenue is down. Schwenzfeier stated it is down about 13 percent.
Someone asked about the vacant board member seat, previous held by Marlene Pearson.
Board Member Bob Jaszczak stated the board is looking for someone in the Karlstad or Halma area. They would like representation from there as Kittson Healthcare has a clinic in Karlstad. So far they haven’t been able to fill the spot.
Mortenson thanked the entire staff and stated the next meeting will be in January of 2020.
By Margie Holmgren