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The audit was presented to and approved by the hospital district's board of directors at a special meeting on Monday, Jan. 10. The audit was conducted by McGladrey & Pullen, a certified public accounting firm from Minneapolis.

PAHCS's 2004 fiscal year ran from Oct. 1, 2003, to Sept. 30, 2004. PAHCS had $26.55 million in revenue during that span and incurred operating expenses of $25.12 million, yielding a profit of $1.43 million.

PAHCS's profitable fiscal year came on the heels of two years of running in the red. The switch into the black in 2004 was primarily the result of PAHCS's change to being a critical-access hospital, which improved its reimbursement for Medicare patients. Basically, PAHCS switched from being reimbursed on a per-patient basis to being reimbursed on its actual costs.

In 2004, PAHCS's net patient revenue increased 19 percent, from $21.7 million to $25.8 million largely as a result of this switch to critical-access designation. This increase was despite a drop in net patient days in the hospital in 2004.

The audited profit was $300,000 greater than its final year-end estimation. PAHCS had estimated a profit of $1.13 million in its 2004 fiscal year, but greater Medicare reimbursement led to an audited profit of $1.43 million in 2004.

The profitable year also helped the system's cash flow, which ran in the red for much of the year, forcing PAHCS to rely on a line of credit for operations. PAHCS had a year-end cash flow in September 2004 of $220,000, after running in the red for the past two years.

PAHCS has budgeted a profit of $1 million in 2005, and through the end of November, its unaudited financial statements showed a profit of $150,000 through two months.

PAHCS's fiscal improvement in 2004 was also reflected in a number of financial ratios. Its current ratio -Êjudging how much profit PAHCS generates to cover its debt payments - went from 1.1 (meaning barely covering debt payments) in 2003 to 2.1 in 2004, approaching the state average for similar-sized facility of 2.2.

PAHCS still carries a large amount of debt, the result of its recent construction projects and business expansions. The state average for facilities the size of PAHCS is to have 50¢ of debt for every $1 in equity. PAHCS now has $2.20 in debt for every dollar in equity - $13.02 million in long-term debt to $5.94 million in net assets - but this is down from having $2.80 in debt for every dollar in equity in 2003.

This improvement comes from PAHCS's net assets increasing by $1.43 million in 2004, as its long-term debt also increased in 2003 (from $12.71 million to $13.02 million) as a result of refinancing. PAHCS refinanced its long-term debt in 2004 to help its cash flow, lowering its current debt payments but increasing slightly its long-term obligations.

As usual, PAHCS rated above the state average in age of plant. Because of PAHCS's expansion, renovation, and construction, its facility is, on average, two years newer than facilities of similar size. PAHCS also saw its days of cash on hand increase in 2004, and its operating profit margin was above the state average for similar-sized facilities.

The annual audit also gave PAHCS a positive report about administrative action to rectify a number of management issues from last year's audit and noted only three minor items for management to review from 2004.