Improved Financial Situation Has NOCH Looking Ahead

May 21, 2002
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GRAND HAVEN — Restored financial health will enable North Ottawa Community Health System to start putting more emphasis on expanding medical services and further improving its operations.

The health system posted a 2 percent operating margin, or $989,206, on revenues of $43.7 million for the fiscal year that ended June 30. That’s far better than the $3 million loss North Ottawa experienced just three years ago that led to the elimination of 19 percent of the health system’s workforce.

North Ottawa recorded a slim margin of just $41,000 on revenues of $39.8 million during the previous fiscal year, which came on the heels of a $1 million loss in FY 1999 on revenues of $37.2 million.

North Ottawa has targeted further financial improvements for the future.

“As important as anything on the financial end is the trend that’s been established. We have every expectation that trend will continue,” board Chairman Ted Poulton said during the health system’s Dec. 10 annual public meeting.

North Ottawa President and CEO Michael Funk attributed the improving financial picture for FY 2001 to aggressive cost cutting and increased utilization of hospital services, the latter of which was helped along by stepping up marketing efforts that contributed to a 10 percent revenue increase from the previous year.

The health system will use the excess revenues over expenditures to invest in new equipment and technology needed to expand medical services, Funk said.

Since the financial crisis of 1998, North Ottawa has put most of its focus on cutting costs and turning around its finances. With the improvements of the past fiscal year, the health system will now concentrate more on expanding services where there’s market demand.

“For the last three of four years, we’ve been in more of a survival and healing mode,” Funk said. “Now we have to start looking at what we have to do to be successful in the future. We are now at a point where we need to look forward to what are the things we need to do to meet the needs of the community?”

First on the agenda is proceeding with a planned renovation of the hospital’s first floor that will enable North Ottawa to expand its cancer treatment, emergency department, women’s health services and outpatient surgery.

Funk estimates the project, originally pegged at about $4.9 million, will cost upwards of $7 million. Detailed cost estimates still need refining and North Ottawa expects to proceed with a formal Certificate of Need application to the state early next year, he said.

North Ottawa is also preparing to initiate new services, such as plastic, cosmetic and reconstructive surgery that it hopes to begin in July 2002. Administrators will weigh additional medical services and procedures on whether they “make sense” for the small, community-based health system, Funk said.

“We’re not going to get into any new super-sophisticated services,” Funk said. “What we are going to do is do things very well that we should be doing.”

For the first time in years, the health system saw all of its affiliates, including the 81-bed acute-care hospital, finish in the black.

While the health system has regained its financial health, it needs to continue aggressive efforts to control costs and push for further financial improvements. Though the 2 percent margin for FY 2001 compares favorably with peer hospitals and health systems, North Ottawa hopes to do better.

“We have a ways to go, no question,” Poulton said. “Our financial health only permits us to do more things for the community and provide the quality of care.”

North Ottawa has budgeted an operating margin of 2.5 percent for the 2002 fiscal year, Funk said. He eventually wants to see that rise to 3 percent to 4 percent, a difficult task given the constantly shrinking Medicare and Medicaid reimbursements from the state and federal governments.

The Michigan Health and Hospital Association, in fact, stated in its annual hospital report last April that hospitals will “face an increasingly difficult challenge to achieve adequate margins” due to Medicare and Medicaid cuts, plus “skyrocketing” pharmaceutical costs, that force health systems and hospitals to consistently look for ways to cut costs and generate efficiencies.

“It will be a challenge, but I think it’s doable,” Funk said of the margin target. “We’re looking everywhere we can for better, less expensive ways to do things.”

The 144 hospitals across Michigan recorded an average 1.4 percent operating margin in the 2000 calendar year, up from the state average of 0.7 percent in 1999, but well below the 6 percent many health care experts say is what’s needed for a hospital to adequately maintain its facilities and equipment, Health and Hospital Association spokesman Patrick Foley said.

In addition, to the improve financial performance, North Ottawa received a $1 million one-time gain in the 2001 fiscal year through the reconciliation of Medicare payment from 1995, 1996 and 1999.            BJX

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