Minutes May 01, 198797
CITY COUNCIL MINUTES
MAY 1, 1987
The Council convened into a joint session of the City Council
and the Dent6n County Commissioners Court on Friday, May 1,
1987 at 3:00 p.m. in the Council Chambers.
PRESENT:
Mayor Stephens; Mayor Pro Tem McAdams; Council
Members Alexander, Ayer, and Boyd. For the
County - Judge Vic Burgess, Commissioners Tansey,
Walker and Hill.
ABSENT:
Council Members Gorton and Hopkins. For the
County, Commissioner Jacobs
1. The Council ana the Commissioners received a report on
Flow Memorial Hospital from Deloitte, Haskins and Sells and
held a discussion on such.
Mayor Stephens called the Council to order and asked Judge
Burgess to preside over the meeting.
Burgess called the County Commissioners to order.
Judge Burgess introduced Mr. Mark Delane and Mr. Randy Luckey,
representatives of Deloitte, Haskins and Sells who were to
present the report on Flow.
Mayor Stephens left the meeting.
Mark Delane reviewed some of the background information
concerning the study. The original request for the study came
from the City of Denton concerning funding for Flow Hospital.
The concern was for the amount of funding needed for the future
in order to keep Flow open and the timing for such funding.
Deloitte, Haskins and Sells prepared forecasted financial
statements for Flow looking two to three years in the future
and then determined the amount of funding needed. The other
important factor was that the City and the County needed a
quick response.
Randy Luckey presente~ the key assumptions that the study was
based on. He stated that in order to project financial
statements of a hospital, it was necessary to go back to the
demand for service for that hospital. The utilization, demands
for patient days, x-rays, lab tests, etc. Utilization
projections were focused in three areas (1) the medical staff -
specialities, history of admissions, and the ages of the
doctors; (2) the geographical area that the hospital served -
what was happening to the population in that geographical area;
(3) the facility - history of admissions, lab tests, x-rays,
average length of stay, etc.
City of Denton City Council Minutes
May 1, 1987
Page 2
Luckey stated that the backbone of any hospital medical staff
was the famil~ practice/internal medicine physicians. Flow had
a good compliment of family practitioners and a good range of
specialities. There were no specialities missing that a
hospital of Flow's size should have.
Mayor Stephens returned to the meeting.
Luckey presented the year-to-date admissions of Flow from
January 1-March 13, 1987. He stated that there was a 32%
decline from 1986 to 1987. The declines were most prominent in
general/vascular surgery, obstetrics, and pediatrics.
Admissions were on the increase in the chemical dependency
area. The top 20% of the physicians of the Hospital had a
fairly consistent percentage of total admissions of around
59%. Luckey stated that deterioration of the medical staff,
the number that had left the hospital, had a serious effect on
Flow.
Luckey continued that the primary service area of the Hospital,
the area from which the Hospital drew 60-70% of its patients,
was the City of Denton. The secondary service area, the area
from which the Hospital drew 80-90% of its patients, was Denton
County. He continued that there appeared to be no seasonality
trends with the Hospital.
Luckey then presented the critical assumptions that underlined
the forecast. (1) There would be no further significant losses
of current medical staff, (2) the doctors currently involved
with Flow would continue with Flow for the next several years,
(3) the Hospital would continue to attract from the primary and
secondary areas and the market would remain the same, (4) the
financial payor mix would not significantly change, (5) the
length of stay per patient would not decline below current
levels. If these five assumptions did not hold up, then the
forecast would be significantly affected.
Mark Delane presented the income statement and the projected
City and County contributions. The critical numbers were a
decline in the revenue from patient services and a decline in
operating expenses. He stated that they had made an operating
assessment that would be necessary to keep a cash balance of
approximately $500,000 to maintain the ~ospi~al's viability.
On that basis for fiscal year 1988, approximately $200,000 a
month would be needed.
Judge Burgess asked if this was a worse case projection for
fiscal year 1988 rather than a case where contributions could
be smaller.
City of Denton City Council Minutes
May 1, 1987
Page 3
Delane replied that it was a function of the critical
assumptions that had been presented. Some positive signs had
been seen in ~he last five months and those had been factored
into the projections but some deterioration had also already
taken place. He felt that only if there were a major defection
of the remaining doctors or if a major program were cancelled,
would the numbers presented significantly change.
Council Member Boyd stated that the assumptions were based on
the fact that there would be no influx of physicians added to
the staff.
Luckey replied that it was based on status quo on the medical
staff.
Boyd asked if there were any capital improvements that could be
made to help the income of the Hospital.
Luckey replied that it was assumed that there would be a
capital expenditure of ~17,000 per month on equipment. The
Hospital. had cut back considerably on preventative maintenance
service contracts.
Boyd asked about converting rooms at the Hospital to offices
for doctors - what type of effect would that have on the
Hospital.
Luckey replied that that was beyond what they had been asked to
do.
Mayor Stephens asked if a follow-up had been done as to why
particular admitting physicians were no longer at Flow, in
particular medical versus non-medical reasons.
Luckey replied that several physicians were interviewed who
were no longer on staff or who had significantly decreased the
number of patients they admitted. He stated that a variety of
reasons were given for no longer using Flow. Among them were
the other facilities in town were newer, brighter, cleaner, and
more efficient. The fact that AMI had medical offices
contiguous with the Hospital was a convenience factor.
Mayor Stephens asked what the cash balance presently was.
Luckey replied that it was approximately $350,000.
Council Member Alexander asked Luckey to compare the level of
self-pay at Flow to other comparable public hospitals in the
area.
100
City of Denton City Council Minutes
May 1, 1987
Page 4
Luckey replied that the level of self-pay was not atypical.
The amount of self-pay revenue that was written off as bad
debts was at a much higher percentage at Flow than typically
seen at other hospitals.
Mayor Pro Tem McAdams asked that at other institutions were
those debts paid or charged off to charity.
Luckey stated that it was paid or if the income guidelines were
higher, it was charged against charity.
McAdams asked how the City's income guidelines compared to
others in the area.
Luckey stated that the guidelines for the income levels were
quite low. If the income levels were higher, more of the
self-pay would be considered charity rather than bad debts.
Commissioner Tansey asked about the expected contributions.
Knowing that the County had budgeted $450,000 for this year and
the City budgeted no money, how was the figure arrived at for
non-operating revenue contributions. Was it figured on what
was needed to operate.
Delane replied yes. The figure was backed into rather than
being based on historical data.
Tansey asked if the new institution being built was figured
into the chemical dependency area and how it might affect
Flow's program.
Luckey replied that yes the PIA facility was taken into account.
Tansey asked what percentage was used.
Luckey replied that it was not foreseen that the new facility
would have a significant impact on the program at Flow. PIA
facilities had a tendency to target a different type of patient
than was currently being admitted at Flow.
Tansey asked for a clarification on "60.6% of the hospital
patients during 1981-82 "
.... , was that the only year used for
comparison.
Luckey replied no, that that was the Harwood K. Smith firm that
did a study for the Hospital in early 1985.
Tansey asked when the figure 84.3% was used for County figures,
w~r~ tho~¢ ~igure~ reflected on people residing in Denton
County including those people in the City of Denton. 15.7% of
the people served at Flow came from another County.
City of Denton City Council Minutes
May 1, 1987
Page 5
Luckey replied yes.
Tansey asked {f Luckey thought enough had been factored in for
Denton Community Hospital's now having been certified for
Medicare.
Luckey replied that it was anticipated that the Hospital would
receive certification for Medicare.
Tansey asked if a trend was seem for the self-pay to increase
or decrease.
Luckey replied that the payor mix had been fairly constant with
only slight variations from month to month.
Commissioner Walker stated that it appeared to her that the
biggest problem was that the doctors were gone and were not
admitting patients like they were. Would it be proper to
consider taking some of the empty rooms at the Haspital,
redoing them and making them office structures as part of the
Hospital and then leasing the offices to the doctors.
Delane replied that the numbers indicated that the Hospital was
not being used to the fullest. He stated that cost would have
to be taken into consideration along with the physical
structure of the building.
Judge Burgess stated that he had been on a walking tour of the
Hospital. Other areas were already being targeted like the
chemical dependency/alcohol unit. The physical layout of the
Hospital was a problem.
Commissioner Hill asked if the $500,000 cash balance was cash
in the bank at the end of the month.
Luckey stated that it would be the amount of money in the bank
on a daily basis.
Hill asked if were any provisions for reimbursement of charity
care in the total net operating revenue.
Luckey replied that with operating revenues, charity care would
be included in the in-patient and out-patient revenue figures.
That amount would be backed out under the line item "less
contractual adjustments, allowances and provision for doubtful
accounts".
101
Hill asked that in the financial analysis, how far back
historically did the study go.
102
City of Denton City Council Minutes
May 1, 1987
Page 6
Luckey stated that several years were taken into
consideration. Only 1985 was shown for a base year to hook
the forecast ~nto.
Hill asked that in looking at the audited financial statements
for the last two years, was there any evidence that those
statements were not according to GAP standards.
Delane stated that the purpose of the study was not to do an
audit. The purpose was to do a financial projection. They
were not looking for that and did not find any evidence of it.
Hill replied that the study was based on the assumptions that
the financial statements were according to GAP.
Delane asked if he ment were the financial statements
forecasted consistent with GAP, then the answer was yes.
Hill asked if in the analysis were there any reasons to believe
over the last two or three years that a great deal of the
problems dealing with the loss was due to bad management
decisions.
Delane replied that they coula not comment on what was a good
or bad decision because they did not have the facts to be able
to go back to see what the rationale was behind some of the
decisions. The effects of certain financial decisions that
were made in the past flow through the financial statements.
It was not the intent of the study to look for blame and they
could not comment on that aspect.
Council Member Ayer stated that nation-wide there was a trend
for increased out-patient activity and that at Flow this was
not happening primarily due to the physical layout. He asked
for an elaboration in that area and the possibilities for that
type of development at Flow.
Luckey stated that the trend nation-wide was for inexpensive
out-patient treatment. Flow was not able to do that because of
the physical layout of the hospital. It would take a great
deal of money to redo the layout to make the out-patient area
feasible.
Judge Burgess then read a statement prepared by Commissioner
Jacobs who was not able to attend the meeting. The letter
stated that Jacobs felt that Flow's financial problems were
past the point of no return. Her position was that the
majority of Denton County taxpayers would benefit by selling
Flow Hospital and then establish a minimum of two hospital
locations to provide indigent care.
City of Denton City Council Minutes
May 1, 1987
Page 7
Elinor Hughes, Ad Hoc Committee, stated that the results of the
study confirmed the feelings of the Committee. The first
essential ste~ for the Hospital was an infusion of money as
outlined in the report beginning immediately and continuing
until the Hospital's financial situation was stable. Unless
the owners responded to the short term financial need, all
other planning for the Hospital was irrelevant. By June 1, the
Hospital reserves would be exhausted. It was urgent that the
budget planning process in both the City and County take into
account that even if a successful hospital district election
was held in August, revenues would not be collected in any
appreciable amount before January and therefore projected
budgets for fiscal year 1987-88 should address the Hospital's
needs. By July 1, the Ad Hoc Committee with the assistance of
Charles Linton and the resources of HMP would prepare a
strategic plan projecting anticipated new services designed to
meet community needs as well as to strengthen health care
services and would provide a plan for addressing the problem of
the impact of indigent care on physician load and the whole
area of physician recruitment. Long term funding and
governance would be most difficult. The committee recommended
putting the control of the Hospital under a single entity -
either the County or a hospital district. The Committee was in
general agreement that a hospital district was the most
feasible, long-term option for both funding and governance.
Genieve Scott, League of Women Voters, stated that the League
supported the existence of a non-profit hospital, such as Flow,
in Denton County. They felt that this would be the best and
most economical way of assuring the citizens of Denton County
that everyone, indigent as well as those who could pay, would
have access to needed hospital care. In case of a deficit, the
loss would be spread throughout the taxpayers rather than
raising the fees of paying patients. This would be
accomplished by either a hospital district or a small increase
in taxes.
Charles Linton, Hospital Administrator, stated that the
Hospital felt that the figures presented in the study were
realistic for what was happening at the time. March looked
better due to two factors, the self-pay percentage was down 3%
and the number of psychiatric patients had doubled. He
encouraged the City and County to make some quick decisions on
some interim funds.
Council Member Boyd staten that he felt that the assumptions
were based on the fact that the outpatient income would not
increase and that there would not be an increase in the medical
staff. He asked Mr. Linton if the picture for Flow would be
better if those assumptions were wrong.
103
104
City of Denton City Council Minutes
May 1, 1987
Page 8
Linton replied that 14% of Flow's revenue came ~ from
outpatients. Typically, this amount was 25-30%!i?~for
outpatient. ~here was a problem with the facility in makih9 it
easy access for outpatients - not only the location withiln the
building but also the parking. Pricing outpatient care on a
set fee for a procedure was also being looked at. Remodeling
and parking for outpatient care would have some success but due
to the present financial situation, neither could be done at
the present time.
A representative of the Denton County Taxpayers Association
stated that the Association was not in favor of a hospital
district tax at this time because the taxpayers of Denton
County were already taxed too much.
Judge Burgess thanked everyone for attending the meeting. He
felt that some good progress had been made toward finding a
solution to the problem of Flow.
With no further business, the meeting was adjourned.
CITY OF DENTON, TEXAS
CITY O~DENTON, TEXAS
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