St. Mark’s, a Five-Year Financial Review, Continued

This is a continuation of last Friday’s look at the last five years of St. Mark’s IRS Form 990s, part of a recurring column sharing public information and insight on St Mark’s Medical Center, the needs for health care in Fayette County, and a path forward.

Looking at the management fees, the 2021 audited financials describe St. Mark’s four-year agreement with Community Hospital Corporation (CHC) expiring in April of 2024, whereby CHC “provides the Medical Center’s chief executive officer and performs the oversight of day-to-day administration, management and direction of the operations of the Medical Center.” For this service, SMMC states it paid to CHC, its self and sole member (owner), a fee of $229,000 in 2021 and $153,000 in 2020. Roughly $20k a month. However, this is not the whole story. For Program Services, under the IRS category of Fees for Services (Non-Employees) Management, while SMMC reported no amount in this category in 2015, SMMC paid $3.8 million in 2021, up from $2.5 million in 2019 . Under the IRS category of MG&A for the same line item, SMMC paid an additional $2.4 million in 2021, up from $1.2 million in 2019. Again, no fees were reported in this category for 2015, and the years 2016 to 2018 saw modest fees of between 140k and 152k. To be clear, Schedule R of the Form 990, Part V, Line 2, the amount involved with reimbursement paid to a related organization for expenses (cost basis), SMMC pays its sole member CHC on average $3.5 million annually in amounts that at the lowest were $3.2 and the highest $4.4 million. What has warranted a total increase in management cost paid from zero in 2015, to a combined total of $3.7 million in 2019 and $5.0 million in 2021? Incidentally the audited financial statement for 2021 differs from the IRS 990, reporting management fees at $6.2 million. The two financial documents differ in several other areas as well. Interestingly enough, the line item of expense that saw no expenditures after 2015 was Community Relations.

Now let’s look at Medicare reimbursement. Medicare is a different category from Medicaid, and Medicaid was addressed in the prior article . Looking solely at Medicare, we can compare 2015 to 2021; however, an apparent mistake on the filled 2019(2020) Form 990 has to exclude figures for that year. Year-to-year reimbursements are difficult to compare because of what may be reimbursement timing, yet in 2015, SMMC reported Medicare cost of roughly $7.8 million and were reimbursed $8.0 million for a net $268k profit margin reimbursement or 3.3 percent. The figure increases to 4.8 percent in 2016. Looking at a five-year period where figures are available, it appears SMMC realizes generally a 7.9 percent profit margin on Medicare services equating to an average annual profitable reimbursement of approximately $647k annually, albeit reporting annual average loss of $156k for the years 2020 and 2021. The Audited Financial Statement notes state 2020 and 2021 saw consistent Medicare patient revenues of approximately 36 percent of the 2020 and 2021 revenues. These figures are slightly higher than the figures reported on Form 990 for the years 2015 to 2018 which range from 24 to 28 percent. It appears the hospital is able to control cost and actually recover more than their cost in reimbursement from Medicare for at least the years where data is accurate and available.

Running a hospital profitably, even a not-for-profit hospital, by any account is a challenge in today’s changing healthcare environment. It requires expert and caring healthcare professionals (which by my experience we have), methods to blueprint patient treatment protocols and procedures, experts in managing hospital cost, broad procurement power generally obtained through larger hospital systems, and it requires prudent operational and financial funds management. There are managed hospitals operating in the black all over the state and the nation. Excepting what appears to be exorbitant management salaries ($2.8 million), excessive management and general administrative expenses ($6.2 million) and uncontrolled medical supply and other cost ($9.1 million) combined totaling $18.1 million in 2021, the financials for SMMC suggest there is little reason for Lee and Fayette County not to be able to profitably support a wellmanaged small hospital with 40 to 65 beds, providing high quality and even leading-edge treatment across numerous areas of care.

Understanding hospital types, the REH hospital designation, and the Community Health Needs Assessment, and the advantages of a not-for-profit hospital, and a review of historical financial operations, the next article will provide insight into St. Mark’s Medical Center’s mortgage and building assets.