PAHCS budgets $1 million profit for 2005

The Paynesville Area Hospital District Board of Directors - the governing body for the hospital district that operates as the Paynesville Area Health Care System (PAHCS) - unanimously approved the 2005 budget at its meeting last week. (PAHCS's financial year runs from Sept. 30 to Oct. 1, meaning its 2004 fiscal year ended on Thursday, Sept. 30, 2004, and its 2005 fiscal year started on Friday, Oct. 1, 2004.)

After 2003, in which PAHCS operated at a $446,000 loss, PAHCS faced a $1 million deficit in cash, prompting it to use a line of credit to cover its operating needs.

In 2004, though, PAHCS operated at a projected $1.135 million profit, in large part due to a switch to critical-access designation, which increases PAHCS's reimbursement for Medicare patients in the hospital. (Roughly 50 percent of the patients at the Paynesville Area Hospital are covered by Medicare.) PAHCS also refinanced its debt in 2004, lowering its debt payments, which has helped PAHCS's cash position, too. PAHCS now projects to have $1 million in cash at the end of its 2004 fiscal year.

PAHCS expects its patient revenue to grow to $39.5 million in 2005 (including an average price increase of seven percent in the hospital and clinics and a two percent volume increase in the hospital and clinics.) Of that patient revenue, over $12 million will go uncollected (due to Medicare allowances or insurance discounts), yielding a projected $27.3 million in total net revenue.

Expenses for PAHCS are expected to increase from $24.9 million in 2004 to $26.3 million in 2005 (including an average 3.5 percent salary increase, not across the board, but based on the market.)

Taking the $27.3 million in expected net revenue and paying the $26.3 million in expected expenses yields a projected profit of $1 million for 2005.

PAHCS plans to rebuild its reserves, putting nearly $1 million into its reserves in 2005. And PAHCS plans to spend $1 million on capital expenditures (new equipment, etc). This capital budget, the highest ever for PAHCS, is good to see, said board chairman Don Thomes.

The capital budget started with $3 million in requests from department managers that was prioritized to give a $1 million final list. PAHCS still needs to make a schedule for its capital expenditures for 2005, said CEO Steve Moburg, breaking the purchases into quarters. The capital expenditures are the product of PAHCS's improved financial position, added Moburg.

Major capital expenditures for 2005 are $240,000 for a new main server; $175,000 for an automated drug dispensor (of which $100,000 will be covered by a grant); and $67,000 for a monitoring/telemetry system, which PAHCS currently rents for $48,000 per year.

For the first time, PAHCS completed its budget internally, without help from an external consultant. Packets were sent to department managers in June, department managers submitted their budgets in July, accounting and executive council work was done in July and August, the finance committee reviewed the budget in August, and the hospital board approved the budget in September.

Chief financial officer (CFO) Kirk Johnson said he hoped the projected profits for 2004 were conservative - the final numbers will not be known until after PAHCS's annual audit - and that the 2005 budget was conservative, too, meaning he hopes PAHCS will be more profitable over the next year than budgeted.