Pillar 3.

We have a sound plan to pay for the new hospital

Pillar 1 helped to explain that our valley is growing and we need a larger, modern hospital to meet our health care needs now and into the future…

Pillar 2 detailed how remodeling our current hospital will cost $12 million more than building a new facility…

As a reminder, a new hospital for our community will cost $44.5 million. This is how that cost is distributed amongst the community:

  • $20 million from a voter-approved bond
  • $22.5 million from the Lake Chelan Community Hospital
  • $2 million from grants and the hospital foundation

So, we know we need more space and we know how much it will cost.

How do we pay for it?

As a public hospital district, the community is the owner of the hospital and it’s our privilege and responsibility to support its needs so that it can take care of us in return. Previous generations had the foresight to build a hospital in our valley to help us birth our babies and take care of the sick, and we in turn must have the will and the vision to continue to provide healthcare locally for ourselves.

The total cost of the new hospital has been estimated at $44.5 million, and will be split between property tax support from the community and a loan to the hospital from the federal government. This is a partnership, an investment in our future and community; it supports a vision for locally provided quality healthcare and leaves a legacy for all who follow us.

The cost to each of us in the community is relatively small in comparison to other costs. For a home with an assessed value of $300,000, it would cost them an additional $9.50/month.  As a percentage of your total property tax, the Chelan property owner would pay 3.2% of their tax for the new hospital, and the Manson property owner would pay 9%. This compares the 4% both communities pay to support the library.

The Hospitals financials show healthy vital signs

Lastly, many people wonder about how financially stable the hospital is right now.  Allegations have been made that the hospital performs poorly financially, but this is not based on facts or evidence.

  • LCCH has been profitable with net positive income in 6 of the last 7 years, even while purchasing the Lake Chelan Clinic which has required financial rehabilitation.
  • LCCH has averaged an annual profit of $483,000 over the last 10 years.
  • LCCH has 53 days of cash on hand, or millions of dollars in the bank for a rainy day – helping to build cash reserves.
  • 70% of LCCH’s revenue stems from outpatient services, which have been steadily increasing and jumping by over $1,000,000 in 2016 alone.

With a new facility, we are poised to continue to grow our outpatient service departments and see a continuation of those trends. Without a new facility and the much needed additional space that it brings, we cannot expand our services and in fact may be forced to start slimming down services. Not only does this do a disservice to the community, but it is financially unfortunate as well.

A new facility also tends to bring in a greater than expected number of new patients for the first few years, and this phenomenon is known as the “halo effect”, further enhancing patient volumes over the first three years.  The accountants and financial analysts created models of high, medium, and low patient traffic based off historical performance of the hospital and found that LCCH will prevail financially under all scenarios.

The Health Care Environment

There has been much press coverage lately about the House of Representative’s attempts at “repealing and replacing” the Affordable Care Act (ACA or Obamacare) with the American Health Care Act (AHCA).  It’s unclear at this time how successful or unsuccessful that effort may be. But it must be understood that the ACA was mostly about improving the uninsured’s access to health care by increasing Medicaid programming. Not Medicare. And LCCH only saw a 4% increase in Medicaid patients since the passage of the ACA. The CAH cost-based reimbursement program is a Medicare designation and there have been no conversations about changing the structure of reimbursements for CAHs.

The reality is that healthcare is extremely expensive in the US. In 2015, U.S. health care spending increased 5.8 percent to reach $3.2 trillion, or $9,990 per person. The overall share of the U.S. economy devoted to health care spending was 17.8 percent in 2015, up from 17.4 percent in 2014. [1]  The government will continue to look for ways to limit spending, decrease healthcare costs, and save money while improving health quality from now until forever.  There will never be a point at which it’s “over” and then we should think about building a new hospital.  The time for the new hospital is now. Financial conditions for a new hospital for the Chelan Valley will never improve, but they could get worse, now is most definitely the time to act.

Conclusions

It’s time for the community and the hospital to pull together as future generations have done to invest in local health care services for the community by supporting a new hospital.  Our predecessors have supplied us with a great old building that’s lasted almost 50 years, but we need to provide our children and grandchildren with a modern healthcare infrastructure that can care for us and them for many years to come. The new tax assessment represents a very small percentage of your overall property tax. The hospital will shoulder its share. This is the best decision financially, and the wisest investment of the community’s resources. Without a replacement hospital, quality care and fiscal responsibility become more and more challenging.  It’s time to pay it forward for ourselves and those that come after us. Let’s leave a great legacy for them.

To learn more about Why Now? And how we can’t afford to wait – please read Pillar 4.

Appendix:  Diving into the Details

Why do you need $20 million in Community Support?

Some people have questioned why the community should be taxed at all to help support a new hospital.  Public hospital districts were authorized by the Washington State legislature in 1945 to deliver any service that would help people stay healthy.  The Lake Chelan Community Hospital was voted into existence in 1948, with a plan to contribute to maintenance and operations of the hospital through an ongoing property tax levy.

Hospital districts play a vital role in helping many rural areas offer healthcare services in their own communities. Because they are governed by their citizens, public hospital districts tailor their services to fit the needs of the communities they serve and they are financially supported, by usually no more than 2-3% by their communities.[2]

In 2006, a $33 million hospital remodel levy failed to pass in our hospital district. This levy would have funded the expansion of the current hospital to 74,000 square feet. Outreach surveys following the vote revealed a community desire to build a new hospital and NOT remodel the existing facility.  Since that community feedback, hospital administrators and board members have been searching for ways to fulfill this healthcare vision of the community.

A new hospital is needed, but the hospital cannot afford to borrow the whole $42.5 million.  The administrators and the Board of Commissioners feel strongly that they should borrow the maximum amount they can safely afford to borrow in order to defray the expenses to the community.  It would be a smarter financial decision to ask the community to bear a larger percentage of the expense of the new hospital, but also a less moral one.  So, they are asking the community to buy a house with them. We’re essentially partners buying a house together, each with our share of the mortgage. But this is a house of healing for our community members, and a desperately needed one.

The estimate is that property owners within the hospital district would be asked for an additional $0.38 per $1,000 of assessed value.   So if you’re home’s assessed value is $400,000 (making it a $500,000 house on the real estate market), you’ll be asked to pay:

  • $12.67/mo or $152/year.
  • That’s about 42 cents/day.
  • Or, as a percentage – it’s 3.2% of your total property tax bill if you live in Chelan. (6.4% if you include EMS)
  • In comparison, that’s approximately the same percentage you pay to support the library (4.3%). Numbers are similar for Manson.

There is a calculator available at www.newhospitalnow.com to help you determine exactly how much your property tax would increase. Take a quick look – It’s probably a much smaller amount than you think.

Another important point is the $20 million is the maximum amount of the bond, total. If your home valuation increases, your tax percentage DECREASES. If more homes are built in the hospital district, your tax assessment DECREASES. And there are over 400 new building permits in review right now. This bond will sunset in 30 years, so the increase in your tax assessment has a shelf life.

How is the hospital going to pay for the other $22.5 million?

The hospital is pre-approved for a USDA loan for the other $22.5 million over 35 years.

LCCH is a Critical Access Hospital (CAH). It’s a special type of rural hospital with a special kind of reimbursement structure.  In many parts of medicine, hospitals and physicians are reimbursed in a Fee-For-Service (FFS) manner.  As FFS payments have been shrinking in recent years, it has created a large financial strain on the organizations that are reimbursed within that structure.  In fact, it’s caused a financial failure among rural hospitals that serve in areas with a higher percentage of poor and elderly patients, declining populations, economically challenged communities, and aging facilities.

CAHs however, enjoy a cost based reimbursement structure, rather than a FFS one. This is the essential difference between success and failure for our community. A cost-based reimbursement means that the hospital is paid based upon the cost of the resources consumed to provide the care. And, as a CAH we are paid at 101% of that cost. So if a service cost $1,000, we are paid back $1,010.  This is a slim margin to be sure, but it is a stable revenue stream on over 60% of the hospital’s business.  The CAH program is designed to encourage reinvestment in new facilities. Since it began, over 80% of the CAHs in the US have upgraded their facilities.

Operating a new hospital can be considered part of the care provided to the patient.  Thus it becomes part of the cost of care. More specifically, once the new hospital is built, it will begin to depreciate. All material things do. But that depreciation is also a cost the facility bears to provide care and can be reimbursed.  The interest on the loan can also be included. So, when you take all this into account, as the hospitals accountants have done, it becomes clear that these additions to the cost report translate into paying 93% of the debt payment in 2020, and 99% of the debt payment in 2022.  In other words, the vast majority of the debt payment is paid for by the depreciation of the building itself.

[1] https://www.cms.gov/research-statistics-data-and-systems/statistics-trends-and-reports/nationalhealthexpenddata/downloads/highlights.pdf

[2] Association of Washington Public Health Districts, http://awphd.org/About/about_whatare.aspx

Dr. Megan Guffey in Conversion with Jay Weatherby on KOZI 2nd Cup

Dr, Megan Guffey MD is a Family Practice doctor here in Chelan and Kelly Ardino of the Accounting firm Wifly in discussion with Jay Weatherby KOZI answering the question: “Can we really afford a new hospital”? If you want to know your cost you can calculate it for yourself at www.newhospitalnow.com . The 100% cost of the new hospital will be included in the cost of running the hospital and therefore reimbursable under the Medicare reimbursable program. The reality is that the Government will pay for a significant part of the new hospital.