A Medicaid rebilling plan to improve the financial health of Southwest Memorial Hospital has not generated the expected results, but officials believe a new turnaround plan will.
In May, the hospital’s management arm, Southwest Health System, reported to the Montezuma County Board of Commissioners about financial challenges, including falling out of compliance with bonding covenants that funded a $32 million expansion.
The main bond violation was insufficient cash on hand. It takes $165,000 per day to operate the hospital.
The bond agreement requires that 81 days’ worth of cash be on hand, or $13.3 million. Currently, the hospital has 21 days’ worth of cash on hand, or about $3.4 million.
To try and remedy the shortfall, the hospital conducted a Medicaid rebilling effort of 11,000 claims. Officials believed the hospital was shorted on Medicaid reimbursement because of outdated and erroneous coding inputs.
“The rebilling outcome was not what we originally expected,” said interim CEO Tony Sudduth. “Additional reimbursement came in at less than $500,000.”
Officials are implementing a new turnaround plan to right the ship, he said.
The improvement plan will analyze every department for efficiencies, potential expense cuts and new revenue opportunities. Selling off properties left over from the consolidation of services into the new campus is another possibility.
Bond payments continue to be made on time. A forbearance agreement is being negotiated between the lenders and Southwest Health to allow time for corrective actions and prevent default.
“A financial turnaround won’t happen overnight, but we are confident in the next 12 months we will be back in good standing,” Sudduth said.
He said no services have been cut, but it was decided that 20 full-time positions will not be replaced upon those staff leaving.
Rural hospitals across the nation face financial challenges because of limited population and economies, and Southwest Memorial is no different. To better compete with nearby hospitals in Durango, Monticello and Farmington, Southwest memorial invested in $32 million in upgrades, including a modern patient wing and birthing center.
Bonding was secured in 2016, with payments covered out of a sales tax passed by voters in 2015 for half the loan, with projected revenues paying off the balance over a 30-year term.
But in 2017, Southwest began faced falling revenues revealed in three financial ratios required to be submitted quarterly to the Montezuma County Hospital District board.
The special district owns the hospital, but all operations are leased to Southwest Health, a private nonprofit company. Southwest Health is required under the operating lease agreement to keep financial ratios at certain benchmark levels based on comparable hospitals.
But the ratios have fallen below lease benchmark standards, according to first- and second-quarter reports for 2018. The return on assets, acid test and current ratios of Southwest Memorial have fallen below the 37.5 percentile for comparable hospitals.
According to the lease agreement, Southwest Health is required to turn in a corrective action plan with results by a specific date. If improvement is not made, or the ratios drop below the 25th percentile, the Montezuma County Hospital District has the option of terminating the lease.