photo by: Chris Conde

LMH Health is pictured in a file photo from October 2018.

As the year draws to a close, leaders at Lawrence Memorial Hospital are getting their arms around a $20 million surprise.

The hospital at the beginning of the year had budgeted to collect about $11 million in profits from the hospital’s basic businesses. Instead, LMH is on pace to post about a $10 million operating loss.

Add those together, and that is a more than $20 million of unexpected bad news.

“This has been a uniquely challenging financial year,” Russ Johnson, president and CEO of LMH Health, told the hospital’s board last week. “It is like when the kitchen appliances, the washer and dryer and the car all break at the same time.”

Hospital board members gathered last week to begin crafting a budget for 2020. Hospital leaders preliminarily are projecting LMH again will return to profitability — but just barely so. The hospital is projecting an operating profit of $1.6 million on a budget of about $308 million.

A $1.6 million profit may sound like a lot, but it is a far cry from past results. In 2017, the hospital posted a $14.3 million operating profit and a $10.1 million profit in 2018. (A quick note on LMH profits: The hospital is a nonprofit entity, so any profits actually remain with the hospital to be reinvested back into the hospital. But leaders keep an eye on the profit and loss statements as a way of judging financial health of the organization.)

The hospital is expecting to book about $14 million in expense savings and other efficiencies in 2020 by implementing recommendations from a one-plus year review by outside consultants.

Johnson said that will involve changes to the way the hospital operates on a variety of levels. Getting employees and hospital leadership comfortable with change will be a major initiative in 2020, while also reassuring employees about the future, Johnson said.

“It is one thing to build a culture and morale in a stable marketplace,” Johnson told the board. “It is something else to do it in a changing environment where you are upsetting some apple carts, but that is likely the environment for the next five to seven years.”

The preliminary budget documents do not show a major cutback in staffing for LMH. While the documents show reductions for some individual departments, the budget projects total employment at LMH will grow by about 50 full-time equivalent positions to about 1,580 positions.

The documents, however, show LMH does have fewer employees in 2019 than what the hospital expected to have for the year. Through September of this year, LMH employed 1,523 full-time equivalent positions, which is down about six positions from what was budgeted for the year.

The budget calls for a 2% cost-of-living increase for most LMH employees in 2020. In an effort to control costs, senior executives of the hospital won’t be eligible for a cost-of-living increase, the board was told.

Some hospital positions may receive greater pay increases, if they are deemed to be at below-market wage rates. The hospital spent about $1.3 million in midyear wage adjustments this year in an effort to better recruit and retain some nursing positions and other tough-to-fill positions. Hospital leaders said a similar effort may be required in 2020, depending on the labor market.

Johnson told the board that the hospital’s financial results continue to be impacted by a variety of factors. They include: a slow flu season in 2019; insurance companies that are continuing to pay the hospital less for certain services; and a tight labor market that is forcing the hospital to use higher-priced, temporary contract employees.

More generally, though, Johnson told the board that the health care market is facing change as more procedures that once required a stay in the hospital are now done via an outpatient facility. That market is more competitive and has lower operating margins, in many cases. LMH is constructing an approximately $100 million outpatient facility near Rock Chalk Park in northwest Lawrence. It is expected to open in October 2020, Johnson said. That facility should help in the competitive outpatient market, Johnson said, but the hospital also will have to start making debt payments on the facility in 2021.

Hospital board members did not give final approval to the 2020 budget at last week’s meeting. Instead, they received a briefing on the document and will be asked to approve it at the board’s Dec. 4 meeting.

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The 2020 budget will be the last for the hospital’s chief financial officer Joe Pedley. He announced in June that he planned to retire in December.

LMH officials have announced that Deb Cartwright has been hired to serve as LMH’s next CFO. She will begin Dec. 2. Cartwright previously served as a regional CFO for Prime Healthcare Services. In that position she was responsible for the finances of four Kansas City-area hospitals: St. Joseph Medical Center in Kansas City, Mo.; St. Mary’s Medical Center in Blue Springs, Mo.; Providence Medical Center in Kansas City, Kan.; and Saint John Hospital in Leavenworth.

Pedley joined LMH in 2012. He has overseen the early retirement of about $46 million in debt, negotiated lower rates for about $20 million in debt and oversaw the financing of the new LMH Health west campus that is currently under construction.

“These major accomplishments have helped LMH Health be a stronger, safer and better organization,” Johnson said in a release. “In all these projects and his daily interactions, Joe has given LMH Health his best. He has led with humility, expertise and kindness. We are deeply grateful for his service and commitment to LMH Health over these past eight years.”