the financial forecast

2010 Small and Rural Hospital Summit

Hospital Replacement – “A Reliable Path to Successful Rebuilding” Mistakes to Avoid and Models to Follow…

Reaction?

“I wouldn’t take my dog there”

“Two physicians called and asked if they could

be part of the organization”

Implicit Association• Implicit biases are pervasive. • People are often unaware of their implicit biases.• Implicit biases predict behavior. • People differ in levels of implicit bias.

» Source: www.projectimplicit.net» Video: www.researchchannel.org, search for “Blink”

• The Psychology of Blink: Understanding How Our Minds Work Unconsciously , Anthony Greenwald, Ph.D., University of Washington

It does not have to be a gamble

Failures…

“Hospital construction likely NOT to begin in 2010 (project approved in 2008; contracted with Hammes)”

“Price of hospital keeps fluctuating, started at $36m, went to over $40m, back to $35m”

(Libby, MT)

“Wanted to break ground in 1Q10—did not happen; need to have construction finished by June 15, 2011”

“Looking for a financial partner—Plan A was county issue bonds, Plan B was HUD financing”

(Morgan County, GA)

“Tri Valley Health System sets Sept 13th for new hospital facility in Cambridge” (Cambridge, NE)

Successes…

“New hospital is first of its kind to benefit from loan program” (Rio Grande, CO)

“Melissa Memorial hospital opens doors to expanded healthcare” (Holyoke, CO)

“Coquille will see hospital grow” (Coquille, OR)

Service area Market needs Market share Outmigration Strategy for growth Financial forecasts Debt capacity Financing methodology Space needs Departmental adjacencies Total project budget Timeline

A comprehensive & diverse perspective

A Strategic Facilities Planning Approach

Strategic & collaborative planning approach

Stakeholder EngagementSupportive AnalysisStrategic ClarificationOptions Development

Seek points of connection

Discover solutionStakeholder Buy-InClear RecommendationImplementation Plan

Wide Range of IssuesIndividual PerspectivesMany “Fixes”Little Consensus

Comprehensiveperspective

Operations Finance

Community

• Charles Ervin, Senior Vice President, Dougherty Mortgage, Bozeman, Montana

• John Downes, Consultant, Stroudwater Associates, Portland, Maine

• Michael Curtis, Vice President, The Neenan Company, Denver, Colorado

Presenters

First a financial assessment

Dougherty Neenan

Stroudwater

Historical financial performance assessment2009 2008 2007 Three Year

Average

Revenue:Operating Revenues 13,868,703$ 12,569,832$ 11,258,815$ 12,565,783$ Other Operating Revenues (including taxes) 964,997 885,581 847,986 899,521

Total Operating Revenue 14,833,700 13,455,413 12,106,801 13,465,305

Expense:Operating Expenses 12,645,001 11,317,463 10,604,750 11,522,405 Depreciation & Amortization 673,588 651,428 499,134 608,050 Interest Expense 104,328 113,865 91,022 103,072

Total Operating Expense 13,422,917 12,082,756 11,194,906 12,233,526

Operating Income 1,410,783$ 1,372,657$ 911,895$ 1,231,778$

Operating Margin 9.51% 10.20% 7.53% 9.15%

Operating Margin

Financial ratios

2010 2011 2012 2013 2014 2015Profitability

Operating Margin 8.3% 7.4% -1.8% 0.5% 2.5% 4.1%Total Margin 9.4% 8.6% 2.4% 1.7% 3.8% 5.4%

Capital StructureDebt Service Coverage Ratio 6.9 7.8 1.7 1.8 2.0 2.3Debt Service as % of Operating Revenue 2.0% 1.7% 11.2% 10.4% 9.6% 9.1%Equity Financing Ratio 79.8% 81.9% 41.1% 41.9% 43.4% 45.4%Long Term Debt to Capitalization 10.4% 8.6% 56.4% 55.4% 53.8% 51.6%

LiquidityWorking Capital as % of Total Assets 61.1% 64.9% 30.0% 33.0% 36.8% 41.1%Current Ratio 7.1 7.7 6.5 6.8 7.3 7.9Days Cash on Hand 245 272 211 222 243 270Days in Accounts Receivable 91.0 91.0 91.0 91.0 91.0 91.0

COQUILLE VALLEY HOSPITALKEY FINANCIAL RATIOS

Projected 2010 - 2015

Next service area, demographics & need

Dougherty Neenan

Stroudwater

Service area

2014 Population Projections     

Zip Code Name 00-17 18-44 45-64 65+ Total %of Total97458 Myrtle Point 895 1,352 1,350 1,081 4,678 38%

97466 Powers 152 257 244 222 875 7%97423 Coquille (eastern) 1,200 2,059 1,931 1,601 6,791 55%

  Total Service Area 2,247 3,668 3,525 2,904 12,344  

  Service Area 18% 30% 29% 24% 100%  

  Oregon 22% 35% 27% 15% 100%  

  United States 24% 35% 26% 14% 100%  

The 65+ age group in theservice area is expected to

increase by almost 10% in the next five years

--Other than the 65+ age cohort,

there is not a significant populationchange projected for the service area

24%29%

30%

18%

0%

10%

20%

30%

40%

00-17 18-44 45-64 65+

Service Area

Oregon

United States

Inpatient service trendsInpatient Market Share by Service Line

2007 Calendar Year Inpatient Days, Excluding Services Not Provided by CVH

37% 43%

18%

43% 39% 38%26%

63%

46%46%

69%34% 40% 43%

41%

31%

0%

20%

40%

60%

80%

100%

Gra

nd T

otal

Gen

eral

Med

icin

e

Wom

en's

& B

abie

s

Sur

gery

Hea

rt

Neu

ro-

scie

nces

Orth

o&

Spi

ne

Can

cer C

are

CVH Bay Area Sacred Heart All Other

Physician ratios

• 0.9 -0.9 1.0 -1.0

• 3.3 -1.8 3.4 -1.9

• Physician FTEs • Area • Area • Surplus • Area • Surplus• Total• 1 • Need• 2 • (Shortage) • Need• 2 • (Shortage)

• Primary care specialties• Family practice • 7.0 • 8.2 • -1.2 • 9.0 • -2.0

• General internal medicine • 0.0 • 3.0 • -3.0 • 3.1 • -3.1• General pediatrics • 0.0 • 1.3 • -1.3 • 1.4 • -1.4

• Primary care total • 7.0 • 12.5 • -5.5 • 13.4 • -6.4• Rural primary care benchmark• 3 • 7.0 • 9.3 • -2.3 • 9.5 • -2.5

• Medical subspecialties• Cardiology • 0.0 • 0.4 • -0.4 • 0.4 • -0.4

• Gastroenterology • 0.0 • 0.3 • -0.3 • 0.3 • -0.3• Hematology/oncology • 0.0 • 0.2 • -0.2 • 0.3 • -0.3

• Medical subspecialty total • 0.0• Surgical specialties

• General and other surgery • 1.0 • 0.8 • 0.2 • 0.8 • 0.2• Obstetrics/gynecology • 0.0 • 1.0 • -1.0 • 1.1 • -1.1

• Ophthalmology • 0.0 • 0.4 • -0.4 • 0.4 • -0.4• Orthopedics • 0.5 • 0.6 • -0.1 • 0.6 • -0.1

• Otolaryngology • 0.0 • 0.2 • -0.2 • 0.2 • -0.2• Urology • 0.0 • 0.3 • -0.3 • 0.3 • -0.3

• Surgical specialty total • 1.5

• Physician: Population Ratios• 2005 Population • 2015 Population

• 12,230 • 12,555

Current market share

Inpatient Days OP Surgery OP Imaging OP Lab Emergency-20%

20%

60%

100%

46%

26%

65% 71% 68%

Facilitated collaborative planning

Dougherty Neenan

Stroudwater

Utilizing experiential gaming

Involving• Executive leadership• Board members• Physicians• Department heads

Opportunities and risks

Strategic operating principles

Facility

Operational

Operational• Recruit a general surgeon • Recruit primary care doctors• Add Physical Therapy• Expand swing bed program• Balance facility investment with working capital needs

for medical equipment, physician recruitment & EMR

Facility• Grow surgery with a 2nd room & functional pre/post op-area• Expand imaging, improve adjacency to ED & in-house MRI• Common nurse station for Med-Surg, ICU and OB• Expand ER w/walk-in entry & triage• Private patient rooms• Improved access & parking

Market share capture Market Share by Key Service Lines

2009 Actual (blue) and 2015 Targeted (red)

46%

26%

65%71% 68%

54%

32%

77% 77% 82%

-20%

20%

60%

100%

Inpatient Days OP Surgery OP Imaging OP Lab Emergency

+9%

+6%

+12% +6%+14%

Financial forecast

CompetencyReliabilitySincerity

Involvement

Collaboration builds trust

Can we secure financing?

Dougherty Neenan

Stroudwater

Financing alternatives

• FHA 242 & 232 mortgage insurance program

• Non-rated, bank qualified, fixed rate bonds

• USDA direct & guaranteed loan program

• Variable rate bonds: FHLB enhanced letter of credit

Compare for most favorable method

Tax-Exempt Bonds

Taxable GNMA BABs/GNMA USDA*

Coupon Rate (Bonds/GNMA) 5.50% 6.63% 6.50% 6.53%Federal Subsidy - - (2.28%) -HUD/GNMA Fees 0.75% 0.75% 0.75% -

Total Cost of Funds 6.25% 7.38% 4.98% 6.53%• * USDA assumes a mix of 25% direct loan at 4.50% and 75% of Guaranteed Loan at 7.00% and 9.00% for the unguaranteed portion

Align on a borrowing amount

• Executive leadership• Board members• Physicians• Department heads

Size the facility to serve the strategic plan

Dougherty Neenan

Stroudwater

Departmental space needs

2098

5394

4547

2252

8529

6356

8475

4280

0 5000 10000

New Facility45,363 sfCurrent Facility21,794 sf

Administration

Emergency & Diagnostics

Clinical Areas &Interventional

Patient Rooms

SupportServices

AncillaryServices

7287

7469

21722967Lobby/

Common Area 785

4546

Balance facility with strategy & borrowing

Project budget

Use of Funds: low range mid range high rangeOperational Planning $151,107 $151,107 $151,107Design and Construction $15,956,349 $16,796,157 $17,635,965Financing $2,547,225 $2,660,875 $2,774,525Medical Equipment, FF&E $2,107,297 $2,209,661 $2,237,025Contingency $1,092,736 $1,148,305 $1,203,875Total Uses $21,854,714 $22,966,105 $24,002,497

Sources of FundsLoan $19,000,000 $20,000,000 $21,000,000Hospital Reserves $2,854,714 $2,966,105 $3,002,497Total Sources of Funds $21,854,714 $22,966,105 $24,002,497

Departmental adjacencies

• MRI

• ED ENTRANCE

• CT

• LDRP

• N• N

• N

• Respiratory & Physical Therapy

• LAB

• M• US

• XRAY

• DEXA

• TECH• OR

• TRAUMA AND OBSERVATION BAYS• PATIENT ROOMS

• PATIENT ROOMS

• OR

Recalibrate financial forecasts

Dougherty Neenan

Stroudwater

Balance borrowing with strategy & facility

Conceptual design delivers strategy within $

Dougherty Neenan

Stroudwater

Site plan

Building image

Collective recommendation

Dougherty Neenan

Stroudwater

Aligned board, physicians, staff and admin

• Builds trust• Makes for job security• Supports financial sustainability• Enhances physician & staff retention & recruitment • Improves patient access • Drives efficiency & quality• Improves moral

Replacement study

• Increase in CAHs replacements • Volumes generally beyond

expectations• Staffing increased as a result• Evidence of reductions to unit costs • Facility as physician recruitment• Recruit and retain staff in an

increasingly competitive environment• Direct and indirect economic impacts

Your team - practiced players or all stars?

VS

Questions?

• Charles Ervin, Senior Vice President, Dougherty Mortgage, Bozeman, Montana: cervin@doughertymarkets.com; 406-586-5131

• John Downes, Consultant, Stroudwater Associates, Portland, Maine: JDownes@stroudwaterassociates.com; 207-221-8275

• Michael Curtis, Vice President, The Neenan Company, Denver, Colorado: michael.curtis@neenan.com; 303-710-1873

Contact Information