FY 2013 BUDGET NARRATIVE Overview of Copley Hospital Financial Goals and Objectives Budget Assumptions Other Disclosures OVERVIEW OF COPLEY HOSPITAL Copley Hospital is the critical access-designated community hospital serving greater Lamoille County and north central Vermont. Now celebrating our 80 th anniversary, Copley enjoys strong philanthropic community support and is one of the area s largest employers. Like all Vermont community hospitals, we focus on providing a mix of services based on our community s health care needs. These core services include: diagnostic testing and imaging, women s services (OB/GYN/Birthing Center), 24-hour emergency care, and surgery. Like other community hospitals, we employ or contract with specialists needed by our community. Specialists include a cardiologist, urologist, orthopedic surgeons and an oncology nurse practitioner. This mix of services helps ensure we meet community need and are financially sustainable. While compiling our FY2013 budget, along with articulating our goals, objectives and assumptions, it became clear that we also needed to provide you with a better understanding of Copley. Here are a few specifics regarding Copley s unique opportunities and challenges. Specialists Choose To Work at Copley Rather Than Leave the State According to the 2010 Vermont Department of Health Physician Survey statistical report, five percent (5%) of the orthopedic specialists in the state choose to practice at Copley Hospital. A nationallyrenowned shoulder expert currently practicing at another Vermont hospital and partially at Copley has expressed interest in leaving his private practice to join Copley s Mansfield Orthopaedics in 2013. Our specialists are attracted to our reputation for patient-centered care, the hospital s low infection rate and seasoned OR and Rehab staff. Copley s Specialists Are Young: They Are the Future of Vermont s Healthcare System Sixteen percent of the state s orthopedic specialists have indicated they plan to retire or leave Vermont within five years while another 10% plan to reduce their hours. (VDH Physician Survey) Copley s orthopedic specialists are some of the youngest in the state. Eight percent of Vermont s 24 urologists plan to retire in five years; with an additional 13% reducing their hours. (VDH Physician Survey) Copley s young urologist sees patients locally 3 days a week and, in a collaborative arrangement, sees patients at Northwestern Medical Center on her fourth day. Our young cardiologist sees patients 4 days a week and provides coverage at Fletcher Allen Healthcare one day a week. All of these young specialists prefer employment with Copley and support our collaborative philosophy with other hospitals to ensure access to care. Copley Has 2nd Lowest Debt Ratio of All Vermont Hospitals While Successfully Addressing Needs of An Aging Facility Copley Hospital has the oldest facility and the second lowest debt ratio of all Vermont hospitals according to BISHCA s 2011Actual Financial & Statistical Trends Report. We have inadequate Emergency Department space, operating rooms that are small by best practices standards, and generally, have outgrown our space. We are successfully addressing these issues by prudently managing small renovation projects and financing the projects via philanthropic donations. Our recent upgrades to better meet patients needs were done without contracting more debt. A long-needed renovation of our Emergency Department is scheduled to begin in July, cost $1.8 million, and is being paid for by private donations.
This prudent approach, emphasizing careful management of funds and community support, is technically at odds with the FY2013 cap on the capital budget. We respectfully advise the Green Mountain Care Board to be careful when reviewing our capital budget to avoid any unintended consequences that may occur due to the cap. Copley Collaborates Extensively, Doing What Is Right for the Patient and the System Some of the services Copley provides result in a negative financial impact but all contribute to fulfilling our mission. The community, the state and the state s tertiary care hospitals benefit from the services Copley provides close to home. Examples include: Our inpatient program alleviates pressure on tertiary hospitals, already often at capacity, so that they may concentrate appropriately on tertiary care. For years, Copley Hospital has subsidized women s health services provided by Community Health Services of Lamoille Valley (CHSLV), our area s Federally Qualified Health Care Center. In FY2013, we are transferring the practice to Copley Hospital to ensure these services remain available in our community in a budget neutral move for the system. The hospital will incur start up costs for newly recruited OB/GYNs to replace existing practitioners that left the community or significantly reduced their practice. In addition, Copley has expanded our hospitalist program resulting in expanded access to officebased primary care physicians in our community. By relieving primary care physicians of their inpatient responsibilities, they have more time to provide community-based access. An additional cost to the hospital, it is a necessary program to sustain primary care in the community. Copley worked with Fletcher Allen Health Care (FAHC) to develop the stemi heart attack protocol which allows a defined cardiac patient population who need immediate access to a cath lab to bypass Copley s emergency room and to be transported directly to FAHC. We were the first hospital in the state to institute it even though it reduced our reimbursement. We worked with both primary care physicians and FAHC to determine their diagnostic testing needs and refined our processes and upgraded equipment so that physicians could view Copley s diagnostic images and lab results electronically. This increased productivity and helped reduce the need for additional studies for patients that are transferred, for a higher level of care, from Copley to FAHC. Copley regularly maximizes our vendor contracts with a goal of reducing costs. Most recently we worked with our largest orthopaedic supplier to substantially reduce our contracted costs regardless of the fact that these costs are reimbursable by Medicare. We currently have a variety of collaborative agreements actively underway with Fletcher Allen Health Care, North Country Hospital, Northwestern Medical Center, Gifford Medical Center, and Porter Medical Center. In addition, we are active with the Blueprint for Health program, building an integrated health services approach with community primary care physicians, home health, long term care, mental health clinicians, elderly services, the family center, and a variety of community social services, to create a seamless transition of care and an intertwined safety net for our community. Copley s balancing act requires a mix of services, some more revenue-generating than others, to ensure the community s health needs are met. Profitable services subsidize essential service lines that lose money. At the same time, Copley limits the types of services offered to that which can be safely and effectively done at a hospital of our size. Further reducing the service mix that can be performed at Copley will destroy our balance sheet. This seems at odds with Vermonters very vocal commitment to keeping care close to home as that is what is best for patients and their families. Page 2 of 5
Copley Has A Good Relationship with Our Nurses Union In 2010 we were able to open our contract early and negotiate a reduced cost of living wage increase. We continue to have positive, frank discussions regarding cost containment and improved productivity with union leadership in preparation for our upcoming contract negotiations in May 2013. In Summary Provider choice, patient choice, service quality and a commitment to do what is right for our patients and our community has made Copley preferred among patients and physicians. FINANCIAL GOALS AND OBJECTIVES: Copley s overall budget goal is to provide the financial resources necessary to provide quality patient care to aid in improving the health of the local community. Some specific objectives include retention of staff and physicians, securing access to medical services vital to our community, and maintaining positive cash and working capital positions to meet operating and capital needs in a financially efficient manner. BUDGET ASSUMPTIONS: Consistent with prior years, Copley has carefully considered the BISHCA/GMCB guidelines in preparing our budget. This narrative summarizes our budget assumptions and reconciles any variances that warrant explanation. Utilization: FY13 volume was projected based on six months of actual volume statistics as of March 31, 2012, adjusted based on historical seasonality trending. Budgeted FY13 volume was based on a historical statistical analysis. A budget to budget volume comparison for selected key services follows: Budget Budget Var Bud to Bud FY12 FY13 Amount % Admissions 1,885 2,105 225 13.6% Patient days 5,590 6,165 575 10.3% Surgical cases 2,010 2,235 225 11.2% Outpatient clinic visits 7,530 13,850 6,320 83.9% Orthopedic practice visits 9,290 12,170 2,880 31.0% Emergency room visits 12,860 13,275 415 3.2% Imaging services 31,108 31,990 882 2.8% Laboratory procedures 342,390 339,620-2,770-0.8% Rehabilitation quarter hours 53,840 53,730-110 0.0% According to the volcost calculation, Copley s overall measured volume increase was 14.1%, of which 1.5% related to the service mix and 12.6% related to units of service. Much of this volume increase is due to the acquisition of a women s health services clinic (from CHSLV, See pg. 2) and a satellite orthopedics practice (specialist currently in private practice, See pg. 1). The assumed impact of absorbing these existing practices into Copley Hospital is disclosed separately in each pertinent section of this narrative and in the expense reconciliation of submission. Gross Revenue: FY13 gross revenue was calculated based on projected volume and a rate increase of 3.0%. After computing the reimbursement impact of a 3.0% rate increase, we believe this rate increase is necessary to keep pace with inflation and reimbursement pressures. This rate increase will not be applied across the board, but will be applied to various service areas based on an analysis of cost and reimbursement impact. A summary of how each service area will be impacted by this rate increase is located in the RATE schedule of the submission. Page 3 of 5
Reimbursement: The payor mix for FY13 is expected to be consistent with the FY12 payor mix. Medicare reimbursement was estimated using a CAH-specific reimbursement model based on projected allowable costs and calculated in accordance with legislated payment rules currently in effect. Medicaid reimbursement estimates reflect level funding and a slight increase in the DSH payment. Commercial reimbursement was estimated based on current reimbursement trends and contractual arrangements. Total bad debt and charity care write-offs as a percentage of gross revenue have been budgeted to remain consistent with Budget FY12 per BISHCA/GMCB guidelines. Copley continues to offer 100% free care for eligible patients with annual income up to 225% of the federal poverty level. Partial financial assistance continues to be provided to eligible patients with annual income up to 300% of the federal poverty level. Net Patient Revenue: FY13 net patient revenue is budgeted to increase $5,646,173 or 11.1%. This increase includes net patient revenue related to the satellite Orthopedic Practice as well as the Women s Health Clinic, which was absorbed by the Hospital to secure the continued provision of these vital services in our community. The following table is a reconciliation our net patient revenue increase that accounts for the impact of certain regulatory requirements and requested exclusions from the BISHCA/GMCB guideline of 3.75% for the practices to be absorbed by the Hospital. FY13 Budgeted Net Patient Revenue $ 56,720,005 FY12 Budgeted Net Patient Revenue 51,073,832 Increase in Net Patient Revenue $ 5,646,173 Allowed 3.75% Net Patient Revenue Increase $ 1,915,269 Satellite Orthopedic Practice (9 months impact) 2,229,032 Women s Health Clinic 940,059 Net Revenue to offset Increase in Provider Tax 177,241 Over (under) allowed Net Patient Revenue 384,572 Increase in Net Patient Revenue $ 5,646,173 Expenses & Staffing: Total expenses are budgeted to increase $5,471,255 or 10.9%. This increase reflects the additional costs associated absorbing the Women s Health Clinic and the satellite Orthopedic Practice. Following is a summary of Copley s budget-to-budget expenses, including the impact of these acquisitions. For more details, please refer to the reconciliation schedule of the submission. FY13 Total operating expense budget $ 55,650,290 FY12 Total operating expense budget 50,179,035 Increase in Operating Expenses $ 5,471,255 Utilization allowance per volcost $ 2,910,252 Inflation allowance of 2.9% 1,310,547 Women s Health Clinic, net of subsidy 1,144,797 Satellite Orthopedic Practice (9 months impact) 994,147 Provider tax increase 177,241 Cost containment and avoidance (1,021,778) Other increases (decreases), see RECON tab (43,951) Increase in Operating Expenses $ 5,471,255 Page 4 of 5
Total FTEs, including MDs, are budgeted to increase by 31.4 FTEs, including 5.7 FTEs to staff the satellite Orthopedic Practice for 9 months of FY13, and 11.6 FTEs within the Women s Health Clinic absorbed by the Hospital. The remaining 14.1 FTE increase is necessary to keep pace with increased utilization and the desire to staff clinical positions internally in order to rely less on travelers. Margin: Copley s operating margin for FY13 is budgeted at $1,722,894 or 3.0%. The total margin for FY13 is budgeted at $2,461,894 or 4.2%. This margin is necessary in order to maintain positive cash and working capital positions to meet our operating and capital needs. Capital spending: Capital spending for FY13 is budgeted at $4,646,602, which includes $425,000 related to the acquisition of the satellite Orthopedic Practice. This level of capital spending is necessary to address Copley s increasing age of plant and will be funded through operations and philanthropic efforts, as discussed above on page 1. Copley is not anticipating requesting Certificate of Need for FY13 at this time. OTHER DISCLOSURES: Technical Disclosures: o Statistical Basis Change: On the OPSTAT tab, the Ancillary Inpatient and Outpatient stat for Rehabilitative Services has been restated starting with Budget FY12 going forward to reflect the number of treatments, previously reported in quarter hours. Comments noting this change have been inserted in the corresponding cells. o VOLCOST formula revisions: On the VOLCOST tab, cells L32 & M32 were overridden with a value of 0 to remove the All Outpatient Visits stat as there is no corresponding revenue pulled in to compare against this stat. Comments noting this change have been inserted in the corresponding cells. o Remaining Edits: It is noted that edits remain on the EDITS and EDITSB tabs related to the reclassification of bad debt as an expense by BISHCA/GMCB staff. Potential Subsequent Events: Copley Hospital is currently negotiating a contract with the Vermont State Hospital for services to provide care to their patients located in our community. The impact of providing these services has not been incorporated into this FY13 budget submission. Should an agreement be reached between Copley Hospital and the Vermont State Hospital, Copley may submit a request for a budget revision. Page 5 of 5