Federal lawmakers, officials from the United States Department of the Treasury, and members of the U.S. Federal Reserve System are currently coordinating efforts to effectively socialize operational risks pertaining to mortgage finance firms Fannie Mae and Freddie Mac. Seeking an infusion of government-supported funding for the mortgage-based operations – which have been deemed "too big to fail" –  the inevitable end result is likely additional financial burden to the American taxpayer. Meantime, throughout much of the rest of the country, less well-connected business enterprises and their employees are having to contend with more purely-driven marketplace machinations occurring in a waning economy.

Locally, that is also evidently the case at the county's largest employer, Audrain Medical Center. Recently, AMC President and CEO Dave Neuendorf provided an update to hospital employees regarding the hospital's overall fiscal health, while discussing present and forward-looking operational options, including full-time equivalent reduction of employees from 610 to 590.

"We have what's called a perpetual mission," stated Neuendorf. "For 90 years, this is what we've been doing in this community ... Most businesses – for-profit businesses – have a limited horizon. When they stop making money, they stop producing whatever they produce. If they stop producing widgets, they stop building them if they can't build them at a profit. But a not-for-profit service organization like ours has to go on no matter what the profit margin."

Audrain Medical Center is a community-owned hospital, with a five-person board of trustees elected by county residents. In turn, the board of trustees leases AMC to Audrain Health Care, Inc. for operational management of the facility, which includes servicing all its outstanding debt. As part of the arrangement, an 11-person board of directors – acting on behalf of Audrain Health Care, Inc., which operates under the umbrella of an IRS-designated 501(c) (3) operation, granting it non-profit status, and certain corresponding federal tax exemptions – is obligated to provide certain medical services that were in place when the lease was signed in 1991, and to maintain its designation as a not-for-profit and community-owned facility, unless the Board of Trustees and Board of Directors mutually agree upon changes in services. Also, to maintain continuity between boards, two members of the board of trustees serve on the board of directors.

"The lease requires us of course to operate the hospital at a positive margin so that we can continue to pay the debts of the county hospital," stated Neuendorf. "What the 501(c) (3), or the charity, pays in terms of use for the hospital, is they cover the debts of the county hospital. And the county hospital of course wants to make darn sure that we're paying that. Because if we don't, we default on the lease. Then we have to have conversations between the trustees and the governing board of what we would do. There are a lot of bad things that can happen when you can't cover your debt. But we're not going to allow that to happen."

According to Neuendorf – who made multiple, but comparable, presentations last week to several groups of employees, primarily to accommodate various employee work schedules – crucial considerations made regarding the hospital are vitally impacted by AMC's debt service ratio. "We've got to improve our (current) debt service ratio," he said. "All hospitals survive on a combination of debt and equity. We are a high-fixed cost industry. A CT scanner costs $1.5 million. A cath lab a million bucks. An MRI, a million-and-a-half dollars. We are always having to do that with cash. So we do it with a combination of debt and equity. But, if you're going to borrow money, you're going to have to pay that money back."

As background to AMC's present fiscal state, the hospital president referenced a difficult financial period confronted earlier this decade by the hospital. "In 2004, when we were coming off (a) terrible year in 2003, the board said that their minimally acceptable limit was 1.25 debt service coverage, and 30 days cash-on-hand." Neuendorf then pointed to a PowerPoint slide as part of his presentation and noted: "And here's where we were at the end of June: 40 days of cash, and 1.43 percent debt service ratio. So we're getting close. Too close for us. We're going to have to take some aggressive action now to improve the cash flow."

Neuendorf said the low current debt service ratio was especially exacerbated by a combined $600,000 loss in May and June incurred at the hospital. "If you build cars or build widgets for something, you know what your production schedule is, you know what your orders are," stated Neuendorf, adding that the hospital operates on a traditional January 1 to December 31 fiscal schedule. "But we don't know. We don't know if we're going to be busy tomorrow or next week, or going to be slow ... So we have to continually be changing, re-designing ourselves, adapting to changes in the health-care industry so we can continue our mission."

Stating that AMC's board of directors, board of trustees, members of the hospital's medical and executive staff, and various area community leaders would convene in August at the Twin Lakes Sporting Club at an annual strategic planning retreat to discuss "the future of Audrain Medical Center," and followed by another employee forum this fall, the hospital president and CEO then enumerated on various considerations to improve the AMC's balance sheets.

"There are lots of changes ahead for us, as we're going to have to continue to shape our organization, and deal with the world we live in," stated Neuendorf. "Here are some of the changes we're going to make this summer, and probably have started to make:"
• "We're going to see an estimated reduction of about 20 people. Now, only about five of those positions are permanent jobs. Some of those will come through retirement. The rest will be through not filling vacant positions, cutting back the days. We're going to cut back from five days a week to four days a week. Some people are going to go from 8-hour shifts to 12-hour shifts and work 36 hours a week. By the time you put that across to 15 or 20 departments of making these changes, you're going to see an FTE (full-time equivalent) reduction of about 20 people."

• "We are going to put a freeze on hiring. Unless it's an absolutely critical position, we're not going to fill it. We just have to wait and see what happens this summer. If things pick up, get better in the fall, we can probably lift that."

• "We have a lot of unused PDOs (personal days off) on the books ... We have unused PDO (liability) in the amount of $1.1 million." To underscore the point, Neuendorf referenced a recent three percent annual raise to hourly employees. Going forward, he said that would result in additional $33,000 PDO liability cost added to the $1.1 million figure. "That's $33,000 in additional cost because we didn't use our vacation time. That costs one person their job every year. That's about the equivalent of what it would cost." Neuendorf stated the hospital's PDO policy would be adjusted to maximum carry-forward of 40 hours, with policy change date set for December 31, 2009, thereby eliminating a corresponding $1.1 million liability.

• "Limit capital spending. Unless it's broke and not working, we're not going to replace it. It's got to be something we really need. We've got to preserve cash."
Other money-saving options cited by the hospital president and CEO: changes to the hospital's emergency department coding method to maximize efficiency; reduced travel costs; reduced catering costs; time-off without pay this summer to certain salaried employees; eliminating certain discretionary spending; and possible modification to the employee health insurance plan. In addition, he cited continued review of the hospital's overall operating plan, assessing certain programs and analyzing their corresponding growth potential. Also mentioned: efforts to grow the local patient network, and potential affiliation with another health system network.

"We are an independent, not-for-profit, full-service hospital with great staff and great people," stated Neuendorf. "And if you drew a circle around Columbia, about a 50-mile circle, you would find one hospital in that radius that is still independent and full-service. And that is Audrain Medical Center."

If an affiliation with another organization does ultimately occur – emphasized as merely a talking point at this time – Neuendorf said: "Most likely we would affiliate with another not-for profit. It would principally be affiliated with a bigger organization. People have talked with us for years. I have had visits with SSM (Health Care), (University of) Missouri Health Care, BJC (HealthCare). All of them have talked with us about affiliation. They would all love to have us as part of their system."

As compared with a hospital sale, the AMC executive noted that affiliation usually does not involve sale of assets. Instead, he said, "What it does involve typically is sharing of information, or sharing of services. For example, we might be able to piggyback on their managed care contract. We might be able to use their personal contract. BJC is a $5 billion system, and they probably buy 100 times as much material as we buy. So guess what they're paying for it? A lot less than we are. So if we could affiliate with somebody like that, we could get (assistance) with our purchasing contract, and get things cheaper."

Asked about likelihood of an actual sale of the hospital, Neuendorf said: "We don't really want that alternative ... It's important to us to control our own destiny by making changes that have to be made." He added that if a sale of the hospital is ever proposed, it would require approval from the hospital's board of trustees and the Audrain County Commission, and likely necessitate publicly-held discussions.
The various fiscal considerations being made by the hospital are a response to myriad microeconomic and macroeconomic conditions occurring nationwide. Rising health care costs for individuals have been well-reported. But miscellaneous economic concerns have likewise impacted health care providers nationwide, including AMC.
Neuendorf specifically referenced changes to the state's Medicaid funding system in 2005, and the country's general economic downturn as crucially impacting AMC's present-day financial outlook.

Proponents of the former concern indicate resultant changes have encouraged illness prevention and greater personal responsibility. But critics have contended the end result has principally resulted in more uninsured citizens who still require comparable medical treatment. That debate continues. But at AMC, Neuendorf said Missouri's Medicaid changes have impacted the hospital's bottom-line revenue, especially spurring an increase in bad debt and charity care expenses. Between 2004 and 2007, he said the hospital's corresponding bad debt percentage has increased from five to eight percent, approximately equivalent to $2 million.
"One thing about Medicaid is it's great health insurance," he said. "Now those people don't have any money. But they're sick, and we take care of them because that's our job."

Meantime, he said broader economic concerns are further impacting bottom-line hospital revenue. "I've talked to a lot of my colleagues in Columbia and Jefferson City and St. Louis, in hospitals, and they're all seeing the same thing," stated Neuendorf. "There is a  significant increase in bad debt at their hospitals ... The Medicaid changes in 2005 really hurt because all of those people in Missouri are without insurance now. But it's also because of this economy of four dollars a gallon gas, and food prices as high as they are. People will always buy food for their family, gas for their car so they can get to work, and pay their rent. And if they have anything left over, they will pay their hospital or their bad debt. Or they may delay out-patient surgery. They'll limp around on their sore knee for a few more months instead of having that surgery."
On a positive financial note for the hospital, Neuendorf did reference near-term fiscal relief resulting from recent approval of a tax-supported ambulance district, coupled with other inputs, such as a recently-received malpractice insurance dividend. Conversely, he noted those gains would be balanced by other upcoming costs and marketplace considerations, including fees resulting from implementation of a federally-mandated electronic health recordkeeping system; standard operating costs, including three payrolls (versus standard two) in August; upcoming pension system contribution in September; increased competition; and possible building replacement contributions.
Neuendorf's final analysis: "We have worked very hard, everyone on our staff, our board, our medical staff, to improve our financial performance from 2003 to 2007, and we had great success through 2007," he said, specifically noting $3 million improvement in AMC's operating budget during that four-year period. "But now we have this change, and we have to try and offset it."

Bill Johnson, who serves with Sterling Oliver in a dual capacity on AMC's board of trustees and board of directors, elaborated on Neuendorf's general fiscal assessment regarding the hospital.
"The threat to this hospital, as well as hospitals all over the United States, is shrinking income, increasing bad debt and charity services. As well, I think right now in a lot of the hospitals in Missouri – and I'm sure this is true in a lot of other places – as a drop in the patient census. They've got staffing for the facility that they have, and they don't have the patients to fill the beds. That's not wishing that you want anybody to be ill, but it does bounce up and down ... and that makes it very difficult for a hospital day-to-day."
Summarizing the budgetary considerations currently being made by hospital authorities, he concurred with actions and plans, stating: "I would agree that we are in tough, tough times, and that the decisions being made by the board of directors now are extremely important ... I think we can't walk around the bush. We need to go ahead and attack the bush, and do something to make the hospital stronger," clarifying the latter comment by stating "don't beat around the bush, but deal with the issue."

"Rural hospitals really have to manage their resources carefully, because they often deal with that larger percent of the uninsured," noted Dave Dillon, spokesperson for the Missouri Hospital Association. "They're in a different competitive environment than, say large teaching hospitals or hospital systems in urban areas. It's not as easy to offset the cost of the uninsured for example, as it would be when you have a significant patient population. Obviously, economics is important. There is legislation out there on the federal level that is somewhat helpful to rural hospitals. But I think in the long run, rural hospitals are going to have to pay a lot of attention to what goes on with the health care debate in 2008-2009, how we're going to – as a nation – pay for health care."
"Look at the cost of everything in the health care industry," concluded Neuendorf.

"There's a shortage of doctors and nurses and pharmacists, so the price of those people goes up. And then you have this issue of 46 million people that don't have health insurance in this country. And so when they need care, typically it's provided free by hospitals and physicians. And then we just get the general impact that people are living longer, they're consuming more. Also, we can do more for people, and so we do more. And it's just a combination of all those factors that is driving health care in this country. And it's interesting, because our little community is just a little picture of what is going on in the nation."