Memorial considering price changes to stay competitive

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For the first time in years, Memorial Health System took an in-depth look at its pricing structure — and has decided to propose some room-rate and other changes based on what the competition is doing.

The hospital system’s 2011 budget proposal includes price reductions for radiology and other outpatient lab services so that they’re more in line with the rest of the Pikes Peak region. But other services, such as room rates, will be going up, for the same reasons.

“We’ve always just done an across-the-board increase,” said Mike Scialdone, chief financial officer at Memorial. “This year, we decided to really take a look at what our competitors are doing — not just Penrose, but at a group of hospitals along the Front Range.”

The changes, he said, are designed to make Memorial more competitive in the health care market. In comparing its rates to others, it discovered in some cases that it was charging above the average for services. But other charges were far below the average. Those will take longer to get in line with the market, Scialdone said.

“We could have really raised our prices in order to be more in line with our competitors,” he said. “But we decided to take a conservative approach, and we’ve kept price increases to between 6 and 7 percent.”

The hospital also plans to get started on work to build an integrated IT network for its doctors, in response to the government’s move toward bundled payments for hospitals and doctors. That work was supposed to start this year, but questions over the governance and ownership of Memorial pushed the bulk of the work until 2011, Scialdone said.

Memorial’s finance committee approved the budget earlier this week, but the full board still needs to consider it. A public hearing is scheduled on both the city budget and the Memorial budget for 7 p.m. Wednesday, Oct. 29.

Overall, there isn’t much change in the 2011 budget.

The budgeted operating margin for 2011 is 4.6 percent, compared to an expected margin of 5.2 percent for 2010.

Net income is budgeted at $20.8 million, compared to projected 2010 net income of $18.8 million.

Gross patient revenues are budgeted to increase to $1.9 billion from $1.7 billion in 2010, a result of the price increases. The hospital is also projected overall volume to increase to 4.5 percent, even though patient volume was flat during 2010.

Net patient revenue is budgeted to increase to $692.7 million in 2011. Scialdone said inpatient reimbursement rates might decrease by slightly less than 1 percent, but outpatient rates are expected to increase by 2.1 percent.

Medicaid could be the great mystery next year. Currently, inpatient rates are budgeted to decrease by 1 percent and outpatient to increase by 4.1 percent. But the state budget crisis could change those projections, if the General Assembly cuts Medicaid funding.

Memorial also projects its uncollectible accounts to increase to $65.3 million in 2011, which is 3.3 percent of gross revenue. The provision of charity care is budgeted to increase to $35.6 million in 2011, 1.8 percent of gross revenue. Both figures are roughly equal to 2010 numbers.

Memorial’s finances are in pretty good shape, Scialdone said. The 2011 budget was drawn conservatively to maintain that health.

“Really, we’re going into 2011 from a position of strength,” he said. “We just want to maintain that strength, that balance.”

Meanwhile, 2010 projected numbers are mostly hitting targeted rangesNet operating revenue was $10.2 million as of that date, compared to a target of $10.5 million. Projected expenses were $9.4 million vs. actual expenses of $9 million.

Click here to see Memorial’s proposed 2011 budget.

Reacting to Amendment 61

Memorial is planning to refinance and restructure its debt ahead of the November elections.

That’s because voters will be decide on Amendment 61, a ballot initiative that severely limits the way a government entity such as Memorial can borrow money for capital projects — or refinance current debt to take advantage of lower interest rates.

The system plans to create a single loan of $97 million to cover current debt, which would include $20 million in auction-rate securities the hospital is still holding. The new loan is for 15 years and the interest rate is set at 4.4 percent.

Currently, the loan is set at 20 years, with a balloon payment due in 10. If Amendment 61 passes, it would be too difficult to refinance at the time of the balloon payment, hospital officials say.

Refinancing will save Memorial about $894,000 in interest costs over the term of the loan. Scialdone hopes the city council will approve the refinancing plan at its Nov. 23 meeting.

Amy Gillentine can be reached at 719-329-5205 or at amy.gillentine@csbj.com. Friend her on Facebook.