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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 0643k --