By Mary Alice Murphy

During the Chief Financial Officer's report at the Gila Regional Medical Center Board of Trustees meeting on March 30, 2018, CFO Richard Stokes presented statistics from February 2018, the eighth month of the fiscal year. "I'm presenting a slightly different form of a report giving relevant and important information at a high level. GRMC had $8.7 million in net proceeds for the month with operating expenses of $5.3 million, leaving a surplus of $3,060,345. The $3 million gain compares to a budget of $2.11 million and a $6.584 million loss last year. GRMC has narrowed its year-to-date loss to $1.158 million."

"The obvious question is: 'what happened in February?'" Stokes asked and answered. "We received a letter from the Department of Health detailing adjustment to the New Mexico 1115 waiver. We had no foreknowledge of the letter, so (Controller) Alfredo (Pacheco) and (Chief Executive Officer) Taffy Arias and I did some due diligence."

He said the letter addressed the uncompensated care program and the Medicaid quality improvement initiative that the hospital participated in during calendar year 2016 and 2017. As a result of audits completed by the State of New Mexico, it was determined that Gila Regional was underpaid by $3.8 million. "We have recognized $1.9 million in February for the uncompensated care program in 2016. The reason we only recognized that amount is because the state has to recoup the money from those hospitals in New Mexico who were overpaid. As they do that, they will start sending the dollars to Gila Regional. Those that were overpaid have until July 1 to pay the money back or make arrangements to pay it back. I wanted to be conservative, although I think we will receive most of it."

Trustee Tony Trujillo asked who holds the funds. Stokes surmised that it would be the Department of Finance.

The quality improvement initiative that Gila Regional participated in during 2017 has been settled by the state. "The state will send or wire into our account $285,711. We should receive it in mid-April."

The third and final component addressed by the State is related to the 2018 uncompensated care allocation. "The state did its math, and they will be sending us in this calendar year, $8,633,709. So, this is what the state estimates we will accrue for uncompensated care this year. Alfredo and (Interim CFO) JoBeth (Vance), Taffy and I have decided to be conservative. It was more than we expected, so in the August time frame we will make sure we are earning the $8.6 million. Stokes said that “during the month of August we will perform an internal analysis, with confirmation of our calculations by an outside CPA firm, to confirm that we are, in fact, earning the interim uncompensated care payments. If it doesn't look like we will, we will ask the State to adjust their payment to GRMC.” If the state says they cannot adjust the payments, “we will put it aside in a separate bank account. GRMC will take this step because in 2020, the program will be audited again, and we want to have the money available if we have to pay it back. We want to be very sure how we're managing this issue."

Trujillo said it sounded good, "but make sure you don't have to repay anything."

"I contacted a CPA firm and sent them the letter and our journal entries to them," Stokes said. "By the time December arrives, we expect to have $1 million in deferred revenue. In 2020, when the State audits the 2018 uncompensated program, I don't want a shock to the financial statements. If we defer recognizing a portion of the payments, it will smooth it out."

Trujillo said: "You're being conservative. It's better to have surprises like this than shocks."

"I don't care for shocks," Stokes agreed. He said all hospitals put in estimates each year for how much they expect in uncompensated care. The state has a cap on uncompensated care funding. Some hospitals over-estimate uncompensated costs and get a large amount of money during the year. Upon audit, they have to repay the State. "I prefer not to have to pay any back."

Trustee Dr. Victor Nwachuku said he understands it, because Gila Regional has gone through it before. He said some hospitals take the money, but don't spend it. "What is your projection for us to be in the black?"

"We are heading in the right direction," Stokes said. "At this point, I would estimate close to a break-even year. Remember we still have to make up the $1.1 million loss. Summer months can be a little uncertain for hospitals."

Trustee Mike Morones said those hospitals who take more money can improve their days in cash and look better. "I prefer steadying the cash flow. I don't want to see our days in cash go down again."

"Alfredo, JoBeth and I put our heads together when we got the letter," Stokes said. "We thought about it for about a day to make sure it was legitimate. We got with the CEO and talked about the issue. She said: 'Let's do what is reasonable, so in two years, we don't look bad.” Stokes stressed that administration tries to look ahead to anticipate issues.

Trustee Jeannie Miller asked if this was the 2016 windfall, "will we get another windfall for 2017?"

"We need to spend time making sure the 2017 allocation is correct," Stokes said. "It's under audit right now. This is not patient revenue, it's reductions to contractual allowances. As way of explanation, to arrive at net patient revenue, you take the gross patient revenue, subtract out the allowances to get to net."

Miller confirmed that it is a receivable and not cash. Stokes said the cash would start coming in next month (April).

Trustee Joel Schram said if you took out the $1.9 million from the patient revenue net, the extra would still be $360,000. "February was a 28-day month, so we are still moving in the right direction."

"Incrementally, we are moving in the right direction," Stokes agreed.

He then gave the regular statistics. The hospital in February had 181 admissions, which was down six from last year. "We have 461 patient days, which was also down, but is a good thing. It means we are managing the patients better. The average daily census was 16. Oncology visits for February were 332. We are seeing a growth curve as we ramp the service back up. As we get radiology and chemotherapy going, I expect to see the curve go up more steeply. In a key performance indicator, we collected $4.9 million this year compared to $4.7 last year. We have 43 days of cash on hand. Days in accounts receivable are up, amounting to almost a month of revenue. We have to address that. Our daily expenses are $16,000 less than last year. Our daily revenue is up $15,000, so with the expenses going down and the revenue up, we have a $30,000 spread from last year. Overtime, for the month, we are at $3.6 million versus $3.1 million last year. Speaking of incurred overtime, Stokes said “When I first saw that number I thought it wasn't good. The fact of the matter is our staff is pulling a lot of overtime. I prefer paying our local caregivers overtime, rather than bringing in someone from St. Louis, who stays for six weeks and then goes back. I've backed off from the clinical area, but in the non-clinical, I still ask them to explain what is going on. In my opinion, it should not be occurring as much as in the non-clinical areas."

He said on the last page of his report, he has shown the AR (accounts receivable) by payer to see trends. "We still have too much in AR. We'll work on it." The AR is just what is in the hospital Meditech system and does not include the clinical practices.

Miller asked why Medicaid had zero revenue. Stokes explained that Medicaid patients are managed through contracts with managed care organizations. "It's the same thing with Medicare. MCOs are very aggressive at not paying."

Trustee Jeremiah Garcia, who was attending by phone said: "Look at a year ago. We had a $6 million loss. Now we have a $1.1 million loss. It shows the hard work that has been done by our administrative team. They should be recognized. I want to thank JoBeth for finding us the right CFO. I think our financial team is doing an outstanding job."

The next article will address the rest of the regular meeting and will be followed by a short article on the outcome of the executive session.