Mercy cuts expenses, considers levy, to address budget deficit
In response to a significant budget deficit, Mercy Hospital’s Board of Directors is considering reinstating a hospital levy in 2015 as an additional measure to the expense reductions already being implemented to address the shortfall.
Mercy is projected to lose well over $1 million this year, primarily due to a decrease in patient volumes, combined with reimbursement changes in contracts with insurance carriers.
Mercy’s multi-faceted approach to address the deficit includes:
- Implementing more cost controls and expense reductions
- Restructuring how the hospital is cost reporting for the federal government based upon federal guidelines
- Developing plans to increase utilization of current services and expand services to increase revenues
“Mercy’s administrative team and Board of Directors take this matter very seriously,” said Michael Delfs, Mercy CEO. “We are working very hard to contain costs while we continue to provide high quality health care. Cutting expenses, however, is only part of the solution. We need to increase utilization by our area population in order to improve our financial performance.
“Service volume growth is normal following new construction, but it usually takes one to two years to realize that growth,” he continued. “The volume reductions that have been seen recently have us in a situation where we cannot wait for the “normal” occurrence. One of the pieces that would help bridge this transitional period is the implementation of a tax levy.”
The levy the hospital is proposing is $500,000 for the coming year. Delfs said it is important to note that the proposed amount does not make up even half of the deficit and that the hospital will need to work very hard to decrease expenses and build new services. In 2015, the hospital will have an interest and principle payment due of $1.7 million. The levy will help while the hospital works to improve financial performance by cutting expenses and increasing revenue. Mercy last levied the hospital district in 1999.
Using a levy to help the hospital reduce the deficit at this time is critical for another reason. Under the terms of the USDA building loan, there are financial performance requirements that Mercy will have to meet once construction is completed and Mercy is not meeting those requirements today.
“Mercy requires this help now as we make adjustments to once again become financially stable,” Delfs said.
The estimated costs to district tax payers are:
Home Value Yearly Levy Amount (homestead)
(Rates vary for non-homestead, commercial and agriculture)
“We fully acknowledge that the timing of this levy is a concern while communities consider school building referendums,” Delfs said. “We do know, however, that quality health care provided locally is important to the area and we are working hard to get back to be self-sustaining.
“We also realize that some people may question why we are building if we have a poor bottom line,” he continued. “It’s important to note that when the decision to build was made and as plans were developed, Mercy was performing very well financially. The drop in patient volumes was unexpected based on recent historical data. The reality is the biggest contributing factor for our poorer financial performance is that fewer community members are choosing the local hospital for services; we will be working hard to change that trend and our new addition and renovation will help us do that.
“I’d like to add, that although this is a difficult time, the future of healthcare for Mercy and the district we serve is still strong,” Delfs said. “I accepted this position at Mercy confident that we are capable of meeting the current financial challenge while continuing to provide the excellent, personal care our patients and the community expect and deserve.”