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Audit shows Douglas County Hospital is in good shape

Douglas County Hospital is in good financial health.

On April 26, the Douglas County Hospital (DCH) Board reviewed and accepted the organization's audit for 2012.

The hospital's total operating revenues for 2012 were $110.7 million, and total operating expenses were $103.4 million:

Most of the operating revenue, a total of $105.6 million, was generated from patient service revenue; and $5 million was noted as "other revenue."

The majority of the operating expenses went to: Salaries and employee benefits, $43.7 million; supplies and other, $29.7 million; professional fees and purchased services, $22.5 million; depreciation, $5.9 million; and MinnesotaCare tax and surcharge, $1.7 million.

The hospital reported an operating income of approximately $7.3 million for 2012.

And, after crunching numbers that include things like other expenses, capital grants and contributions, and adding that to the hospital's fund balance of $64.6 million at the beginning of 2012, DCH's fund balance at the end of the year was $70.2 million.

That's an 8.7 percent increase over the hospital's 2011 net position of $64.6 million.


The largest jump in numbers in the audit was noted in DCH's 2012 operating revenue, which grew by about 30 percent, largely due to recent mergers. Operating revenue grew from $85.4 million in 2011 to $110.7 million in 2012. The audit attributed much of that growth to:

--DCH and Alexandria Clinic integrating on July 1, 2012. According to the audit, the increased revenue from those six months in 2012 contributed to 15 percent of the 30 percent revenue increase.

--DCH merging with Heartland Orthopedic Specialists on July 1, 2011. Last year was the first full year of operations and contributed six additional months of revenue than in 2011, contributing about 3 percent to the 30 percent revenue increase.


DCH's operating expenses for 2012 increased by about 27 percent. The audit reports the following reasons for the increase:

Approximately 100 full-time employees were added to the DCH payroll in 2012. The merger with Alexandria Clinic in July added 77 full-time employees. 2012 was also the first full year of integration with Heartland Orthopedic Specialists, which led to the addition of 23 full-time employees. The clinic and surgeons staff additions represented 7 percent of the 27 percent operating expense increase. Salary and benefits accounted for about 40 percent of operating revenues in 2012.

Professional fees increased 85 percent over 2011, according to the audit. Nate Meyer, chief financial officer for DCH, explained that because physicians are not employees of the county, DCH buys services from them. The addition of physicians and providers from Alexandria Clinic and Heartland Orthopedic Specialists added, in part, to this increase.

Supply expense reportedly increased 23 percent in 2012. Of that, about 7 percent was attributed to six months of merged operation with Alexandria Clinic. In addition, there's a continued increase in oncology patients treated and surgical implant cases at DCH. This growth led to expense increases of approximately 13 percent of the 23 percent supply increase.


The hospital added $15 million in long-term debt in 2012. That money was used to purchase Alexandria Clinic assets. That's in addition to the hospital's existing long-term debt of $26 million issued in 2008 to finance the facility addition, equipment purchases and costs related to the bonds' issuance.

As of today, the hospital's long-term debt stands at $39.4 million. However, over the life of the bonds, the actual debt is estimated to total $75.6 million, which includes principal plus interest.

DCH's 2008 bond posts interest rates ranging from 3.25 to 6.25 percent and is set to mature in 2038. The 2012 bond's interest rates range from 2.74 to 3.91 percent and will mature in 2042.


When asked about his reaction to the audit, Carl Vaageness, CEO of DCH, told the Echo Press, "I feel that the audit reflects very positively on the overall strength of our organization. The finance department, which is led by Nate Meyer, chief financial officer, is very experienced, knowledgeable, and effective at helping us proactively plan for how best to continue providing quality health care to meet the needs of our patients while remaining good financial stewards of our resources. Health care is a very complex and highly regulated industry, so I feel good that we have strong internal talent to help us navigate change, which will be extremely critical to our success as we plan and prepare for the changes that will be required related to health care reform and the Affordable Care Act."


The 2012 audit also noted selected financial ratios measuring things like patient days, hospital length of stay and total profit margin:

---Patient days: In 2012, DCH posted a total of 14,157 patient days in the hospital; that's compared to 14,235 days in 2011. On average, there were about 39 patients in the hospital each night in 2012.

--Hospital length of stay: In 2012, the average length-of-stay for a patient was 3.8 days. According to the audit, that's near the industry average statewide. In 2011, DCH length-of-stay was 3.6 days.

--Total profit margin: In 2012, DCH's total profit margin was 5.1 percent, compared to 3.6 percent in 2011. According to audit notes, a total margin in the range of 4 to 5 percent should allow a hospital to continue to provide quality health care and invest in its facility.

Amy Chaffins

Amy Chaffins is a journalist working for the Echo Press newspaper in Alexandria, Minnesota.

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