MURRAY – The Murray-Calloway County Hospital Board of Trustees approved the annual operating and capital budgets during its regular monthly meeting last week.
Chief Financial Officer John Bradford said that while the hospital’s fiscal year begins on Oct. 1, the budget submission came later this year because of repeated delays in the process of moving MCCH’s records from the old Cerner health information technology (HIT) system to the new Oracle Health platform.
“We had thought we were going to go live with Cerner at the end of August, and then it was end of September, and then it was maybe kicked to October,” Bradford told the Ledger & Times after the meeting. “Now it’s April, so there was a lot of confusion (and some department heads had multiple changes to make), so we thought, rather than try to rush it through, we’d give it another month. So it’s kind of odd that you’re reporting actual results for the budget, and the budget hadn’t even been approved yet.”
The board voted to approve an operating income of $1,361,000 for Fiscal Year 2025 and a capital budget of $16,500,000.
“There’s a lot of assumptions in the budget, as there are with any budget,” Bradford said. “… The biggest variable for us is the Cerner-Oracle implementation. The timing of that, and the magnitude of that and how well we navigate that is going to impact volumes, it’s going to impact revenues, it’s going to impact expenses and it’s going to expect impact cash collections.
“The timing right now is mid-April. Our Cerner consultants tell us to expect a slowdown for the first three to six months, and then you’ll be back up to speed, supposedly, at the end of six months. So this budget assumes that we have fully recovered, if you will, in our AR (accounts receivable) processes, our revenue cycle processes and that cash has rebounded, if you will, by the end of the year.”
Bradford said the projected operating income of $1,361,000 is down more than $8 million from last year, primarily due to expenses increasing at a much higher rate than net revenues.
“Net income for the year is projected to be $3.9 million, and EBITDA (earnings before interest, taxes, depreciation, and amortization) for next year is projected to be $17.5 million, or 8.6%,” Bradford said. “Net revenues are expected to increase $8 million, or 4.1%. This assumes gross revenues increase 6.7%; we had a 4% rate increase effective 10/1/24. Our net realization percentage – what we expect to collect from our gross revenues – is declining from 28.2% to 27.5%. This is normal when you have a rate increase; you never realize all of that from Medicare and Medicaid, especially, so your net percentage typically does decline.
“Our assumptions for net revenue include $21.5 million in estimated Hospital Rate Improvement Plan (HRIP) funding. That program has not been approved, but the word we get from KHA (Kentucky Hospital Association) indicates that they expect it will be approved at levels that we saw for this year as well.”
Bradford said that although net revenue is expected to increase only 4%, he is expecting expenses to increase by 8.6%, with major increases in salaries and contract labor going up 5.5%.
“This includes the 3% merit increase that’s currently in the budget for next year, an increase in FTEs (full time equivalent), provider salaries and also a $1.1 million hit for expected RN market adjustments,” he said.
Purchase services are another area Bradford said have a large variance year over year, and they are projected to increase by $4.6 million.
“A lot of these are one-time costs, in a sense that we have significant costs related to the Cerner conversion,” he said. “Those total about $3.8 million when you include actual purchase services for IT and some costs in our accounts receivable department to help work and run down the old AR and MEDITECH, while our staff focuses on new AR in Cerner.
“Supplies are another item going up significantly. It’s going up $5 million, or 14%. Half that increase is $2.5 million related to the loss of 340B (Drug Pricing Program), and the other increase is related to both inflation and increased volumes, but especially increased volumes in our infusion therapy department.”
On the investment side of the budget, Bradford said he projects investment income for FY 2025 to be around $4.6 million.
“Obviously, that’s significantly below the about $13.5 million that we incurred this year,” he said. “Assumptions there are a more modest return, 8% in our investments and about 3% on cash and bonds. We do project … around $16.5 million for capital for next year, which includes an estimated $1 million in capitalized Cerner costs. Based on all those factors, the budget projects that we’ll end the year cash and investments with a balance of $95.3 million, or 182 days cash on hand. Cash is only expected to drop about $3.5 million, or 3.5%, but our days cash on hand is going to go down about 15% because the average daily expenses are going to grow almost 12% year over year.”
Bradford also summarized the October financial report. He said revenues were over budget about $2.7 million, with $65.1 million in gross revenue for the month. He said this was about 4% over budget.
