LMH approves budget for 2021 with hopes for financial improvement and caution about new competitors
photo by: Ashley Golledge/Journal-World File Photo
As leaders at LMH Health look ahead to 2021, they expect the pandemic to have eased greatly by the second half of the year and for finances at the not-for-profit hospital to be on an upswing.
But they aren’t expecting it to be a year without threats. LMH will be on the lookout for competitors from the both the east and west to get more aggressive in the Lawrence market.
“The past practice of being able to be kind of like Switzerland and play everything in the middle and maintain positive and harmonious relationships with four or five health care organizations is probably limited,” Russ Johnson, president and CEO of LMH Health, told the hospital’s board of trustees Wednesday.
Trustees on Wednesday approved a 2021 budget that calls for about $4.5 million worth of profit, after the hospital in 2019 posted its worst financial year in recent memory, while 2020 has been better but largely due to federal pandemic relief funds that can’t be counted on going forward.
A return to more predictable profitability is important in order to give LMH the financial reserves needed to adjust to any new competitors or changes in the marketplace, Johnson said.
“We need four or five more good years of stable performance because that is what provides us the ability to remain an independent community hospital,” Johnson said.
Several potential competitors are lurking just outside of Douglas County. One of them wears a very familiar crimson and blue. Johnson on Wednesday made a particular effort to emphasize how serious the University of Kansas Health System is about dominating certain markets.
“The aspirations of the university’s health system is to be the — and I do mean the — tertiary and quaternary health care system in Kansas,” Johnson said, referring to a type of health care system that provides the most advanced and specialized type of care available.
Johnson said the university’s decision for the University of Kansas Health System to take over more medical management and oversight of the Watkins Student Health Center is a “manifestation” of those larger aspirations. Johnson also said he thought the KU health system has a desire to further expand its orthopedic practice in Lawrence. The KU system currently has a facility in west Lawrence, but Johnson said he thought KU could be looking to grow that presence. LMH in recent years has acquired OrthoKansas, one of the larger orthopedic practices in the area, and it is now based at the LMH West Campus, which is next door to KU’s Rock Chalk Park in northwest Lawrence.
The new $100 million LMH West facility is “enormously important” in LMH’s competitive strategy, as it is expected to “give significant pause” to any health care company that might think of building a micro hospital or other significant facility in Lawrence, Johnson told the board.
The list of health care companies that have their eyes on Lawrence is likely much greater than just the KU system. Johnson highlighted AdventHealth, which previously operated in this area as Shawnee Mission Medical Center. The Florida-based company has taken over the operations of the community hospital in nearby Ottawa. Johnson said Advent has a very aggressive growth strategy over the next four to five year, and its presence in Ottawa puts it in competition with an area that LMH has served.
Johnson said Stormont-Vail Healthcare in Topeka is growing significantly, with several projects in the Manhattan market, and he’s confident the company is closely watching the west Lawrence market.
LMH Health board members have affirmed on several occasions that its strategic plans call for LMH to remain community-owned and independent. However, the hospital’s management team has been authorized to explore partnership opportunities with other health care companies. As the pandemic emerged, those partnerships didn’t develop in 2020, but that doesn’t mean the pressure to create them has lessened.
“I think we expect to see more of that,” Johnson said of competitive pressures. “It will be an example of if you are not with us, you are against us. It is important for us to understand that.”
As for specifics about the 2021 budget that board members unanimously approved:
• Budgeted operating revenues are expected to be about $316 million versus operating expense of about $314.5 million. That would create a $1.5 million operating profit. But when nonoperating funds — such as the hospital’s pool of investments — is added to the mix, total profit is budgeted to grow to $4.5 million.
Both numbers are an improvement over what LMH has posted for 2020 thus far. Through November, LMH Health has posted an operating loss of $9 million. However, to help offset that loss, LMH has received about $11 million in federal pandemic funds. When those grant funds and other nonoperating revenue are accounted for, the hospital has posted about $3 million profit thus far.
• The budget calls for a general price increase of about 5% for both in-patient and outpatient procedures at the hospital. Prices at LMH doctor’s offices, though, are budgeted to remain largely steady.
• Hospital employee totals are expected to grow to 1,619 full-time equivalent positions. That’s up from an average of 1,524 FTE positions in 2020 and from about 1,580 in 2019. The hospital expects to spend about $135 million on salary and wages. As reported earlier this month, most hospital employees are receiving a 2.5% cost-of-living increase for 2021.
Hospital leaders also said LMH needed to be prepared to pay more to attract employees for other hard-to-fill positions. Executives on Wednesday briefly discussed that Stormont-Vail in Topeka publicly announced a $15 per hour minimum wage for all positions at its hospital. LMH said it would need financial results to improve more than what is currently budgeted for it to be able to implement such a program.
But leaders also didn’t rule out that possibility. They said staffing issues will be some of the largest the hospital must confront in the new year.
“People are tired,” Deb Cartwright, chief financial officer for LMH Health, said of the hospital’s staff during the pandemic. “Staffing fatigue and burnout is a real concern. I pray for our nursing staff and chief nursing officer and our medical staff every day because I know they are tired, and I know we are not to the end yet.”