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