More on the commotion surrounding Indian River Medical Center

NEWS ANALYSIS

THOMAS HARDY 

Thomas Hardy
Thomas Hardy

“At the Hospital District Trustee meeting on August 7, Trustees indicated they anticipate IRMC will not cure their default by the deadline of August 11 and unanimously agreed they will continue to move in the direction of arbitration. Trustee Alma Lee Loy said, “We have to get this settled immediately.” A formal vote to do so will be taken at the Trustee’s meeting on August 21.”

 “…in its Consolidated Financial Statements, IRMC received $ 2,348,111 in operating income from the Indian River Hospital Foundation. Without this additional contribution from the Foundation, in combined with the Indigent Care reimbursement of $ 6,194,000, the operating loss would have been $ 10,046,466.”

Three entities are involved in the Indian River Medical Center

By way of background, there are three entities involved in the Indian River Medical Center. There is the Indian River Hospital District, the Indian River Medical Center Foundation and the Indian River Memorial Hospital, Inc., doing business as the “Indian River Medical Center.”

The Indian River Hospital District, established in 1959 by the Florida Legislature, has two main legal agreements with the IRMC. The Hospital District owns and leases the hospital to IRMC and reimburses the IRMC for costs to treat indigent patients.

The Indian River Medical Center Foundation, according to its Facebook page, “is a not-for-profit, philanthropic organization whose primary mission is to generate contributions to supplement the capital requirements of IRMC…it supports the capital needs and special projects of IRMC through philanthropy.”

The Hospital District has no direct connection with the IRMC Foundation.

Although a separate organization, the IRMC Foundation is “affiliated” with the IRMC, meaning it has a close association with it, to support it.

Trustees of the Hospital District sit on six of the eleven committees of IRMC. According to their websites, two directors of IRMC’s board are members of the IRMC Foundation’s Board. No trustees of the Hospital District are members of the Foundation’s Board.

As a public entity established by the Legislature, Hospital District trustees are subject to Florida Government in the Sunshine Law and Public Records act.   According to the Office of the Attorney General of Florida, the Sunshine Law prohibits “two or more members of the same board to discuss some matter which will foreseeably come before the board for action…members of the board are not prohibited…from meeting socially provided that matters which may come before the board are not discussed at such gatherings.” The important thing to consider is that the Sunshine Law requires that meetings of public boards…”be open to the public at all times.”

Although the Medical Center is not a public entity subject to the Sunshine Law, in its Master Lease with the Hospital District (Page 9, Paragraph 11) the Sunshine Law and the Public Records Act “shall govern…the Patient Care, Compliance, Audit and Strategic Planning Committees. As such, these four committees shall “be open to the public at all times.” Of these four committees, Hospital District Trustees only sit on the Patient Care and Strategic Planning Committees. Of the remaining Committees, Hospital District Trustees sit on the Nominating, Finance, Investment and Governance Committees, while the Executive, Compensation, and Chief Executive Search Committees are reserved for IRMC Board Members exclusively. This must mean that the Executive, Compensation and Chief Executive Search Committees committees, reserved for Medical Center Board Members are not “open to the public at all times.”

The role of the Indian River Medical Center Foundation

The Indian River Hospital Foundation, initially chartered in the 1940s, was reestablished in 1959. Since then, through its mission to “fulfill philanthropy,” it has been responsible for a myriad of new programs, projects and technologies to support the growth of the Medical Center through Restricted and Unrestricted gifts.

Since 2004, major capital campaigns have been devoted to IRMC’s Emergency Services Pavillion, ($15 million), The Heart Center ($ 15 million), The Sheridan Intensive Care Unit, Waxlax Recovery Room & Patient Pavillion ($ 21 million) and The Excellence in Cancer Center ($ 48+ million). Over the last 10 years the Foundation has received philanthropic support totaling over $ 100 million.

The Foundation’s mission is to provide for IRMC improvements in the areas of “Facilities, Programs and Equipment.” As reported by the Foundation, its “funds are not used for (Medical Center) operations for Emergency Room, Intensive Care and Post Anesthesia Unit or Heart Center” operations. “From time-to-time it helps fund the start-up of new programs.” It “provides ongoing support for our patient advocate program,” however, “patient generated revenues support the (Medical Center’s) operational expenses.”

Update on the Hospital District

Trevor Smith

Following the tragic loss of Hospital District trustee, Trevor Smith, on August 6, Florida’s Governor Rick Scott signed Executive Order 14-228 indicating that he “by virtue of the authority vested in me by the Constitution and laws of the State of Florida, declare that due to the death of Trevor Smith, a vacancy exists on the Hospital District Board of Trustees, which I will fill in compliance with the law.” Governor Scott has 45 days from August 6 to make such an appointment.

Indigent Care Agreement

On July 10, Hospital District Trustees unanimously voted to notify IRMC it is in default of the Indigent Care Agreement between the two parties for failure to execute a reasonable, equitable and fair agreement pertaining to renegotiation of the current agreement. A letter to this effect was delivered to IRMC on July 11. In response to the letter, representatives of IRMC did not acknowledged they are in default but approached Hospital District Trustees to indicate they want to meet and talk. The Hospital District’s position is simply that they notified IRMC by letter they are in default and must provide a written proposal to cure by August 11. The district does not want any more meetings, having been in discussions with IRMC about the Indigent Care Agreement since January 20.

At the Hospital District Trustee meeting on August 7, Trustees indicated they anticipate IRMC will not cure their default by the deadline of August 11 and unanimously agreed they will continue to move in the direction of arbitration. Trustee Alma Lee Loy said, “We have to get this settled immediately.” A formal vote to do so will be taken at the Trustee’s meeting on August 21.

Present at the meeting were representatives of the law firms Balch and Bingham, LLC of Atlanta and Glen J. Torcivia & Associates, PA of West Palm Beach. These two firms were selected to serve as co-councils in their efforts to pursue arbitration on behalf of the District. Their engagement will also be voted on at the Trustees meeting on August 21.

Update on the Indian River Medical Center

Health and Wellness Center

On July 1, 2014 at a Finance Committee meeting of IRMC, detailed plans were approved resizing the Health and Wellness Center from 133,000 sq. ft. to 64,800 sq. ft., as well as changing the business model from a Joint Venture with a developer and private physicians to a Medical Center owned facility. Additionally, the facility will be relocated to IRMC owned property.

With the Medical Center’s recent acquisition of Vero Radiology, IRMC is able to downsize the Heath and Wellness center by eliminating redundant equipment. Still, at the scaled down level, the IRMC’s projected cost for the facility is $ 20 million, to be financed by a fixed-rate mortgage at 4.5%. Annual principle and interest was estimated at $ 1.5 million, although IRMC estimated it would save $ 13.3 million in principle and interest payments over the prior business model.

This begs the question: as an IRMC owned facility on IRMC owned property, will the Health and Wellness Center fall with the IRMC’s lease with the Hospital District, entitling it to reimbursement for indigent medical care, which would pose an additional financial burden on IRMC.

On the heels of the IRMC’s $ 23 million acquisition of Vero Radiology Medical Center, in addition to the projected cost of $ 20 million for the Health and Wellness Center, at the July 1 IRMC Finance Committee meeting, the late Trevor Smith, a Hospital District trustee and Medical Center Finance and Investment Committee member, wearily expressed concern over the multi-million dollar expenses the Medical Center has agreed to take on. “That’s $43 million dollars in debt incurred by the hospital at a time when the hospital is telling the Hospital District that we can’t reduce indigent care funding, because we will hurt the hospital’s mission,” said Smith.

Medical Center Finances

In Consolidated Financial Statements of the Indian River Memorial Hospital, Inc. (Indian River Medical Center) for the period ending September 30, 2013, IRMC reported an operating loss of $ 1,504,355 based on total unrestricted revenue of $ 197,115,486 and total expenses of $ 198,619,841. Reimbursement for indigent care by the Hospital District was approximately $ 6,194,000. This amount was recorded in the net patient service revenue of $ 197,115,486. Had IRMC not received the $ 6,194,000 from the Hospital District, from ad valorem taxes imposed on Indian River County property owners, it would have had an operating loss of approximately $ 7,698.355. Additionally, in its Consolidated Financial Statements, IRMC received $ 2,348,111 in operating income from the Indian River Hospital Foundation. Without this additional contribution from the Foundation, combined with the Indigent Care reimbursement of $ 6,194,000, the operating loss would have been $ 10,046,466.

It begs the question, if the IRMC Foundation’s mission is to provide for IRMC improvements in the areas of “Facilities, Programs and Equipment” and its “funds are not used for (IRMC) operations for Emergency Room, Intensive Care and Post Anesthesia Unit or Heart Center” operations, how could the IRMC report $ 2,348,111 in operating income from the Hospital Foundation?

Imaging how it would look if IRMC was not a not-for profit entity and had to pay property taxes and rent for its lease with the Hospital District. Not to mention the impact of cash flow for upcoming principle and debt service due for its acquisition of Vero Radiology and investment in developing its Health and Wellness Center.

On the other hand for this same fiscal period, the IRMC reported a Depreciation and Amortization expense of $ 10,660,597. Since this is a non-cash expense, it must explain why IRMC reports that while it had a $1,504,355 operating loss it has positive cash flow.

At the same Finance Committee Meeting of IRMC on July 1, Committee Member and District Trustee Trevor Smith emphasized that depreciation expense might present risks. It can be a fluctuating number. According to propertyinvesting.com, “even though depreciation is not a physical cash expense, it represents the apportionment of the asset and signals that one day it will need to be replaced using real dollars which you’ll have to pay or fund yourself.” investorsfriend.com reports that “investors should cautious before treating depreciation as a non-cash item. In almost all real cases companies do need some capital spending just to maintain current operations.”

But maybe that’s where the role of the IRMC Foundation comes in. Although the Foundation does not support the IRMC’s operational expenses, its mission is to provide for Medical Center improvements in the areas of Facilities, Programs and Equipment.

Hospitals have an innate need to grow

While hospitals have an innate need to grow, here at home, IRMC, specifically, is confronted with the need for additional patient revenues, particularly at a time when the Affordable Care Act is beginning to scrutinize and limit their fees.

According to Stuart A. McLean, managing director of Alvarez & Marsal Healthcare Industry Group, LLC (A&M), a leading national healthcare advisory firm that presented an extensive summary of the operational and financial performance of Indian River Medical Center, “what differentiates IRMC from many other hospitals are two external factors beyond the hospital’s control. These include the payor mix which has an unusually large percentage of hospital patients under government programs — Medicare and Medicaid — or uninsured; and the seasonality of the area, which creates substantial variations in patient volumes and presents an obvious challenge in managing staffing levels.”

These factors weigh heavily on IRMC operational expenses at a time when it needs additional patient revenues, particularly the “unusually large percentage of hospital patients under government programs – Medicare and Medicaid – or uninsured.”

Subjects for future reporting…

More reporting on how IRMC seeks to increase patient revenues through the continued acquisition of physician practices, the pros and cons of doing so; and how Alvarez & Marsal reported that “interviews with hospital staff and physicians,” uncovered “an increase in negative community perception along with strained relations with some admitting physicians” which “are also impacting patient volume.” And how does this effect continuity of care?

How the IRMC Foundation has been described as “the engine that drives everything” and “the biggest elephant in the room.” While we are blessed to have a Foundation who’s mission is to “fulfill philanthropy” by funding “facilities, programs and equipment,” will the Medical Center be burdened to operationally fund those precious gifts, not to mention how those facilities, with different cost structures, will broaden the to need to fund indigent medical care.

Shawn Tully, reported in the March 4, 2014 issue of Fortune, that “one of the most vexing problems in reforming our health care system” is “fixing the doctor shortage.” Is one of the underlying goals for the IRMC Foundation in funding the IRMC’s Heart and Cancer Centers, among others, to attract well-qualified doctors?

Why can’t the IRMC enroll people otherwise considered indigent in Medicaid? According to Jocelyn A. Guyer, of Manatt, Phelps and Phillips, LLC, as reported in the Association of Corporate Counsel website on February, 25, 2014, “the Affordable Care Act allows hospitals to use preliminary information to enroll people who appear eligible for Medicaid coverage on a temporary basis. The ACA for the first time gives hospitals rather than states the authority to participate. Should that be so, and the Medical Center were to participate, wouldn’t that reduce the burden on the Hospital District to provide reimbursement for indigent medical care?

Conclusion

We reported at the beginning that there are three entities involved in the IRMC. But there is another party to it, as well. It’s the public! Where does the public stand? How can they express their curiosity and concerns, other than to vote for Hospital District Trustees? Is there more they need to know? How can we get them to participate? Is there complacency on the part of the Community?

One comment

  1. There is a means for the public to gain more knowledge about IRMC, This facility as well as all facilities across the nation that accept Medicaid and/or Medicare funds are subject to an annual audit by the Federal government. The analysis is then used as a basis for awarding what is essentially a report card. In the last few years Sebastian hospital has earned an “A” and the Indian River Medical Center has routinely received a “B” grade.

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