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Archive for Wednesday, November 15, 1995

LMH BOARD APPROVES $41.5 MILLION BUDGET

November 15, 1995

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With or without a new partner, LMH will watch its costs in 1996.

By the standards of most businesses, October was a terrific month for Lawrence Memorial Hospital.

There were more customers than expected and revenue was well ahead of expectations, with more adults coming in for care, babies staying longer than expected, and the emergency department 16 percent busier than anticipated.

But hospitals aren't normal businesses, and as anyone in the industry knows, there's a dark side to success.

Discounts negotiated by health insurers and required by the government's Medicare and Medicaid programs gobbled up most of the revenue gains, and the expense of treating all those patients added to the hospital's staffing and supply costs, so that income for the month -- $198,000 -- was $65,000 below budget.

Too many "good" months like October, and LMH, the city-owned hospital at 325 Maine, could wind up losing money.

It's a dilemma faced by hospitals across the country, and one LMH hopes to address to some extent in 1996, when managers will be asked to rein in their expenses.

The $41.5 million expense budget approved by the hospital board Tuesday represents a 1.1 percent increase over 1995 spending. But that's far less than the 3 percent increase expected in patient revenue -- $43 million.

Budgets for advertising and staff training and travel are being slashed, and the board has decided to drop its membership in the American Hospital Assn., saving about $20,000.

The pressures to cut costs will only intensify next year, when managed care companies and the government demand deeper discounts, said Dennis Strathmann, the hospital's chief financial officer.

"I don't think any of the payers out there are going to be offering increases in their reimbursements," Strathmann said.

It will be, he said, the second round in the nation's market-focused struggle to control health-care costs. While that might translate into lower insurance premiums for employers and employees, the news for consumers may not be entirely good.

"It will probably culminate in a lot of hospitals across the country closing," Strathmann said. "It will certainly impact on the decision-making process at the hospitals that stay open, in terms of what services to provide."

LMH remains financially strong. It earned $2.7 million in the first nine months of 1995 and expects to earn $3.6 million in 1996 on gross revenue of $60.9 million. The board voted Tuesday to proceed with renovations in the emergency and maternity departments -- projects that will cost more than $1 million.

But expenses will have to be watched carefully, Strathmann said.

"We're going to have to get smarter," he said.

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