NVH audit shows 2011 improvement

TONASKET – North Valley Hospital’s financial health has improved over the past two years and is on par with, or stronger than, most hospitals of comparable demographics, according to the 2011 independent auditor’s report recently completed by Dingus, Zarecor and Associates, PLLC.

Luke Zarecor was on hand at the Thursday, June 14, NVH Board of Commissioners meeting to review the report.

The report wasn’t all sunshine and rainbows. There were three findings relating to weaknesses on internal controls, and getting the warrants situation under control is preventing issues with cash flow. But given the state of the economy, most indicators were positive. Operating revenues rose faster than expenses, total net assets nearly doubled, and the overall bottom line was nearly $1 million in the black.

“You’re kind of bucking the trend that I’m seeing at my board meetings,” Zarecor said when comparing NVH’s performance against other “peer group” hospitals. “For most of my 2011 board meetings… most hospitals are having a worse 2011 performance than they had in 2010. They’re having decreased volumes and rising operating expenses… Some hospitals are doing better, but far and away most are seeing declining margins.”

Some of the highlights of the report:

- Current liabilities (amounts that need to be paid off within one year) dropped to $4.2 million from $5.7 million in 2010, while net assets increased to $2.7 million from $1.7 million;

- Operating revenues increased by $3.7 million (to $19.9 million from $16.2 million) while operating expenses rose by $2.6 million (to $19.6 million from $17.0 million). Net, the hospital finished about $359,000 in the black in 2011 after recording a $759,000 loss in 2010.

“The hospital did a really good job on drawing a line on expenses,” Zarecor said. “For as much as revenue went up, the expenses did not go up nearly as much. And one of the big increases was in depreciation/amortization, just the impact of having the hospital remodel in service for all of 2011, (as opposed to) just for part of 2010.

“It’s definitely progress, and good monitoring of expenses overall. Really where you will win or lose the fight is with operating expenses.”

Zarecor pointed out that 69 percent of the hospital’s revenue in 2011 came from Medicare and Medicaid reimbursements. While it does mean that NVH recovers its cost of care for that 69 percent, it also means that any hopes of turning a profit rest entirely on the other 31 percent of patients and insurers.

“That’s as high as I’ve seen,” Zarecor said. “Most places I go to I’m closer to 40-50 percent.”

North Valley Hospital’s numbers were compared not only to the past two years of its own operations, they were compared to three different sets of hospitals of similar demographics: other Washington hospitals, all rural hospitals between $10 million and $25 million in revenue, all hospitals in that revenue range, and all Far West Critical Access Hospitals (CAH).

The most negative number was the number of days cash on hand: negative 20 days for NVH, compared to 158 days on the average for other Far West CAH units. Zarecor said a 60-90 day supply of cash on hand was ideal.

“This is looking at all the cash you have,” Zarecor said. “If the hospital were to cease collecting cash today, how long could you continue until cleared out the cash.

“The reason this is negative is because we’re including the warrants as a line of credit against the cash, because that’s kind of how they’re functioning. There was as an improvement between 2010 and 2011, but still a ways to go.”

Other numbers were more favorable:

- Operating margin came in at 1.8 percent, up from negative 4.67 percent last year and right on par with other Far West CAH hospitals;

- Gross days in accounts receivable (average number of days before collecting payments) dropped to 60 days from 71 last year and 85 two years ago;

- The number of FTEs (equivalent number of full time employees, based on the total number of hours actually worked) rose to 120 from 114 the previous year, but “considering the increase in patient volume, that’s not a red flag,” Zarecor said;

- The total margin (profits from both operation and non-operation functions) was at 4.5 percent. That was up from 3.8 percent in 2010, and compared favorably to Far West CAH hospitals (2.0 percent.).

The auditors did record three findings, which were down from five a year ago. Zarecor said NVH did well to resolve two of the previous year’s findings, considering that the previous year’s late audit report gave the hospital an unusually short window with which to resolve those issues.

The findings included:

- internal control regarding journal entries.

“We didn’t find any actual problems,” Zarecor said. “But the potential is there for fraud or error to go undetected.”

- policies and procedures manuals need to be developed for transaction cycles;

- reconciliation of bank accounts needs to happen in a more timely manner.

“(Three findings) is in the middle of the pack” Zarecor said. “Half probably have no findings, but a third have more.”

Zarecor said that the report gave an unqualified opinion, “the highest form of assurance we can give.

“That means that management, the board of commissioners, and the public can look at this information and rely on it to paint the picture of what happened here in 2011.”

The board next meets Thursday, June 28, at 7 p.m. in the hospital board room.

About Brent Baker

Brent is a reporter for the Gazette-Tribune. Prior to working at the G-T, he was the sports editor for Sunrise Publishing from 2000-2005 in Michigan. He subsequently owned and operated Buckland Media, a high school sports website, in Michigan until 2010. He and his wife Kim, who have an adult son, moved to Tonasket in 2010. Brent started work at the G-T in 2011.

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