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Hospital to take big tax hit

June 28, 2012

    It was a case of the proverbial good news vs. bad news delivered to members of the Adams Health Network Board of Trustees at their monthly meeting on Wednesday night.
    In discussing the financial situation of the hospital, Chief Financial Officer Dane Wheeler gave board members the good news first: Hospital officials recently completed a cost settlement report for Medicare which should net the hospital approximately $759,000 in Medicare money. But it is not known when the dollars will be deposited in AHN coffers.
    "Maybe in August sometime," Wheeler offered. "We'll know for sure when it's here."
    The bad news also dealt with money and comes as a result of what Wheeler and AHN Chief Executive Officer/President Tom Nordwick called "essentially a tax on Medicaid procedures done at hospitals."
    The tax came about during the recent session of the Indiana General Assembly after the federal government made it allowable for states to do so. The catch is that the tax revenues will help some Indiana hospitals, particularly the larger ones throughout the state, while it will hinder smaller health care establishments such as Adams Memorial Hospital (AMH).
    Wheeler said the tax is based on in-patient and out-patient services rendered at the hospital.  The state of Indiana sliced $80 million off the top of the funds collected and Wheeler estimated AMH will receive about $639,000 less in Medicaid payments than what was expected. This is a vast turnaround from last year when the hospital received nearly an extra half-million in Medicaid reimbursements.
    The cut in funds will come back in the form of lower reimbursement rates over the future, prompting Wheeler to note, "This will certainly have an effect on the bottom line."
    Bigger hospitals in Indiana such as Parkview, Lutheran, St. Joseph, and hospitals in Indianapolis will reap an increase in funds this year because they see a larger Medicaid base of patients than does AMH. Wheeler said the local hospital base is made up of approximately 5 to 10 percent Medicaid reimbursement.
    Hospital officials are hoping that a review of the AMH financial status by the Bradley and Associates accounting firm may change the Medicaid reimbursement figures and cut the loss somewhat.
    That financial news was delivered on top of the current money picture of the hospital which showed a slight loss of $69,636 last month. Wheeler said ancillary services and administrative costs alone were $219,350 higher than budgeted but the hospital for the year still is running in the black with a balance of $129,107.
    Preliminary budget estimates of income for the first five months are down nearly $1.5 million but overall expenses are also about $850,000 less than expected. Year-to-date the hospital has received operating income of $17,042,727 while expenses have totaled $17,486,673. Interest income, rental fees, and other money has added $573,052 to offset the deficit created by expenses over income.
    One area that the hospital board is expected to act on at its July meeting that should have an impact on the financial situation is a proposal to refinance its existing debt on the hospital.
    Wheeler said in 2003, the hospital borrowed $40 million for the new hospital and that loan from the Indiana Bond Bank will mature in 2033. He estimated that about $35 million is left on the principal owed, but by refinancing that amount given the significantly lower interest rates (and not extending the length of the loan), it is believed between $2 million to $3 million "in today's dollars," could be saved over the life of the loan.
    Bond issues such as the one AHN has for the new hospital are considered good solid investments today.
    "With the situation in Europe and other places, people are looking for security and tax-exempt government bonds are a good buy," Wheeler said.

 

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