Mt. Ascutney Projects Break-Even for 2016 Budget
Windsor — After two straight years of losing money in its health care operations, Mt. Ascutney Hospital and Health Center is projecting that in its upcoming fiscal year it will break even in its core business — but only just barely.
In a July 1 letter and budget projections for the fiscal year that will begin Oct. 1 that were filed with Vermont’s Green Mountain Care Board, Mt. Ascutney said that it expected to post a miniscule but “manageable” 0.1 percent operating margin in fiscal year 2016.
In fiscal 2014, Mt. Ascutney posted a $346,000 operating loss and a decline in net assets of $602,000. The hospital expects to post another operating loss in its current fiscal year, which ends Sept. 30, according to the letter, which was signed by Chief Financial Officer David Sanville.
The current financial squeeze “reflects the reality of the community services we provide as part of our mission, the healthcare environment we function in (and) the communities we serve,” according to Sanville’s letter.
Sanville also pointed to the financial impact of the business strategy being pursued by Mt. Ascutney as part of its affiliation with Dartmouth-Hitchcock, the large Lebanon-based hospital and clinic operator. That hookup became official in July 2014, and the relationship is now noted on Mt. Ascutney’s official letterhead. During fiscal 2014, Mt. Ascutney paid Dartmouth-Hitchcock Clinic $2.5 million for management and other services, and Mt. Ascutney Chief Executive Kevin Donovan is a D-H employee.
Due to its relationship with Dartmouth-Hitchcock, Mt. Ascutney has “purposefully moved away from low volume, but high-margin services,” Sanville’s letter said.
High-margin services are care-related activities that are profitable because they generate revenue that exceeds costs by a wide margin. For example, the orthopedic surgeons from D-H who work part-time at Mt. Ascutney do fewer elaborate orthopedic surgeries in Windsor than in the past and instead do such operations at D-H, Donovan said. Instead, Mt. Ascutney focuses on lower-margin services such as primary care or post-acute care including inpatient rehabilitation, he said.
In an emailed statement, D-H spokesman Mike Barwell said that the larger hospital “has, for some time, used Mt. Ascutney for acute rehabilitation” and noted the opening last month of a new inpatient rehabilitation center at Mt. Ascutney with 10 private rooms.
Barwell said that the smaller hospital’s emphasis on less profitable services, or what he termed Mt. Ascutney’s “move away from low-volume services,” jibed with D-H’s “philosophy of population health and was a direction the (Mt. Ascutney) board had initiated prior to the affiliation with” Dartmouth-Hitchcock.
That reorientation reflected a strategy adopted by Mt. Ascutney’s board in 2011 and further developed since its formal affiliation with D-H, Donovan said.
Dartmouth-Hitchcock itself has been struggling to boost its operating margin above the 4 percent expected by lenders and credit raters, but with limited success. In the nine-month period that ended March 31, D-H posted an operating loss of $3.5 million. In the last quarter in that period, D-H posted a small gain from operations but with a margin of only 1.6 percent.
D-H has made a number of moves in recent months to reshape its operating profile. In June, D-H hired an outside contractor to operate its day care center. In May, it signed a deal with a unit of Tenet Healthcare Corp., a large Dallas hospital operator, to outsource 340 back-office financial jobs.
Barwell said that “Dartmouth-Hitchcock’s use of Mt. Ascutney’s rehabilitation services is unrelated to any outsourcing decisions.”
Earlier this month, the Green Mountain Care Board released budget narratives, or letters, from Mt. Ascutney and Vermont’s 13 other acute care hospitals and Gov. Peter Shumlin issued a news release hailing a projected “historically low growth rate” of 3.6 percent in net patient revenue. Net patient revenue is the money that the hospital collects from private and government insurers and patients in exchange for providing health care services.
Shumlin described this result as part of a trend that showed “the hard work of the Green Mountain Care Board and Vermont hospitals … to control health care costs.”
Mt. Ascutney was a leading contributor to that trend, with net patient revenue predicted to decline 1 percent in fiscal 2016. The hospital views operating margins in the 1 percent range as adequate, especially with the financial backing available from its affiliation with D-H, Donovan said.
Gifford Medical Center in Randolph was the only other Vermont hospital that projected a fiscal 2016 decline in net patient revenue — and that should probably have come with an asterisk. That’s because the 2.7 percent drop in projected revenue, from $57.9 million this year to $56.2 million in fiscal 2016, resulted in part from the exclusion in the latter year of revenue for care provided at a new off-site nursing home. Without that exclusion, net patient revenue at Gifford would rise 2.9 percent, according to the hospital’s budget narrative.
Jeff Hebert, Gifford’s vice president for finance, who signed the hospital’s recent budget filing, did not respond to a telephone message seeking comment.
Springfield Hospital is the only other Upper Valley hospital west of the Connecticut River. Its unsigned budget narrative for fiscal 2016 projected a 2.9 percent increase in net patient revenue and a 2 percent operating margin.
Despite its recent red ink from operations, Mt. Ascutney remained in a strong financial position at the end of September 2014, when its balance sheet showed $3.8 million in cash and short-term investments (down from $4.5 million a year earlier) and $15.1 million in assets whose use is restricted by the board or donors (up from $13.9 million a year earlier).
Large commitments on the books included $8.7 million in long-term debt and $5.1 million in employee retirement obligations.
Mt. Ascutney finished that year with $750,000 drawn from a $2 million line of credit from a bank, down from $1.3 million a year earlier.
In October, the Green Mountain Care Board approved Mt. Ascutney’s plan to spend $7 million on capital improvements that, in addition to the rehabilitation center in Mt. Ascutney’s former nursing home in Windsor, will create outpatient treatment space, make all patient rooms private, upgrade office and pharmacy facilities and renovate and modernize a Woodstock clinic.
Over the past nine months Mt. Ascutney has raised nearly $2 million in donations, which was, according to Donovan, “the fastest that we’ve ever raised money in our history.”
Vermont’s Green Mountain Care Board “has the authority to approve hospital budgets (and) major health care capital investments,” according to its website. Hospitals file audited financial statements with the board. The board provided copies of those statements to the Valley News.
New Hampshire hospitals are required to obtain certificates of need prior to making major investments but do not require regulatory green lights on their budgets. While hospitals submit audited financial statements to state regulators, the state Health and Human Services Department does not make those documents available for public review.
Rick Jurgens can be reached at rjurgens@vnews.com or 603-727-3229.
