Interview: GRMC CEO Ray Reynolds on the hospital’s financial crisis and the hospital district election

Ray Reynolds, GRMC's CEO, said he believes a hospital district still is the best option for local control. Photo courtesy of GRMC

Ray Reynolds, GRMC’s CEO, said he believes a hospital district still is the best option for local control. 

Photo courtesy of GRMC

With the election to form a new taxing entity, a hospital district, approaching on May 11, the Glen Rose Current’s editor, Kathryn Jones, recently sat down with Ray Reynolds, chief executive officer of Glen Rose Medical Center, in a wide-ranging interview about the proposed district.

Reynolds addressed questions about the hospital’s financial condition, the impact of a district and how it would function, and what taxpayers would receive for the extra money coming out of their pockets if the district passes.

Below is a transcript of the interview.

 Q. Why a hospital district — and why now?

A. As Judge (Mike) Ford said, the county cannot continue to provide the financial support that we, like other rural hospitals, need. So I think for us the choices are, do we want to continue with local ownership, management and control or do we want to lease to some other entity. We think the best route is a hospital district. Number one, it has local control; it has an elected board, which oversees the finances and services of hospital. They appoint a CEO or select a CEO. We think that the tax burden is worth that.

So based on a house that has a $100,000 valuation, that would be about $120 a year  in taxes. That’s at a tax rate of somewhere between 10 and 12 cents (per $100 of valuation) because that’s what we think the tax is going to be. It’s actually very close to what the community is now paying for the water district. I believe they’re at 12 cents.

Q. And how much of the county tax rate right now goes to the hospital?

A. About seven cents now is what they’re budgeting. That includes the bond and it includes the indigent care.

 Q. So what would taxpayers get for that extra three to five cents?

A. In that number, there’s not any dollars in there for capital in terms of that seven cents from the county. We estimated in our projections that capital (requirements) would be somewhere in the neighborhood of $500,000 a year. We are a capital-intensive business. If you replace any type of equipment, it’s expensive.

The other piece is we have no reserves now – no financial reserves. That would also provide us over a period time to build a little bit of a cash reserve, which any business needs. We have zero right now. It would also give us the flexibility of considering additional services as we need them. And I want to be real careful with that because it’s a little bit of an issue in terms of what do we need and what would we like to have.

In order for us to continue to grow, we need to add additional services over a period of time. We need to be able to grow our surgery. That involves new equipment in order to provide additional surgery services. Surgery is kind of the heart of the hospital. As surgery goes, so does a lot of the other revenues. And the other piece of that is just to keep our services up to date. For instance now, we have physical therapy across the street and we want to figure out how to bring that in-house.

But I think that the main thing for the extra three to five cents is to let us at least consider moderate growth of services as there is a demand for them, provide for the replacement of capital needs and also to build a small reserve.

 Q. Could the consultant that you used, Community Hospitals Corp., be in the picture at all in the future? Because don’t they also lease hospitals?

A. They do, but they primarily manage hospitals. We use them now for our benefits. We were able to access their health and other employee benefits and that saved us some dollars. Perhaps, but they are in the business of managing hospital more than leasing them.

Q. As far as Lake Granbury Medical Center goes, if they were able to get their hands on this hospital, would that allow them to become a critical care facility?

A. I don’t know the answer to that. That’s been discussed. There are some very specific rules for being critical access. There’s distance and also hospital size. So I do not know.

 Q. The clinic at Pecan Plantation obviously is still very attractive to them.

A. Over half our business comes from Pecan Plantation. It’s a very nice patient mix and also a very nice insurance mix.

 Q. No bad debts from Pecan?

A. Less, certainly, than the general population.

 Q. I’ve heard you all say that without the burden of bad debts and charity care, the hospital would be in pretty good financial condition.

A. Sure, but that’s the same with all small hospitals, particularly small rural hospitals. Bad debt-charity is a significant part of our operations. As you know, whenever patients present in our emergency room, we have no choice but to see them.

Q. Do you still have problems with people using the emergency room basically as a doctor’s office?

A. Sure. But that’s not unique to us. That’s health care in general.

Q. What are some of the pressures you all are facing from some of the healthcare reform things going on?

A. Decreasing payment from Medicare and Medicaid. Right now we’re facing a 2 percent reduction in Medicare because of the congressional sequester. That will probably come back to us. Plus the pressure from the managed care contracts. Many of our managed care contracts, our insurance contracts, they’re now tying their reimbursement to Medicare, so they pay us as a percentage of Medicare. So anytime we get a cut from Medicare, not only is it a cut from Medicare, it’s also a cut from the other insurance payers.

 Q. What percentage of your patients are on Medicare or Medicaid?

A. Over 50 percent.

Q. What percent would be uninsured?

A. Between 4 and 5 percent.

 Q. So basically there’s nowhere to shift costs.

A. That’s correct.

 Q. So as far as all these dynamics go, even with a hospital district, those things are not going to change, right?

A. No.

 Q. Some people may think that having a hospital district is going to solve everything, It really doesn’t, does it?

A. What it gives us is a non-operating revenue stream. We have that now from the county. That’s been appreciated, but certainly the county has its limitations and so — the district. But, no, it doesn’t really solve any of the operational issues that we’re dealing with.

Q. As you know, Glen Rose has a very active rumor mill and there’s all sorts of information floating around out there. One of the things I’m hearing about a lot about now is the 17.5 cent tax cap on the tax rate for the hospital district. People are concerned that the rate will soar up to the cap pretty quickly — and beyond.

A. The other taxing districts all have cap rates.  I’ve been sort of encouraging people to look at where the tax rate for that entity is in relationship to their cap. There is a 17.5 cap. We anticipate that the initial tax rate will be between 10 and 12 cents. But that will be set by the district board. Once that tax rate is set, it then is subject to rollback. So any annual increase over 8 percent is subject to a rollback election. The only way the 17.5 cent cap can be raised it to go back to the voters.  The voters have to approve that.

 Q. And if there was a rollback election, what would that involve? Someone would have to petition for that?

A. Petition, yes.

 Q.  Opponents are saying the hospital board has not considered enough options and I know there’s been a lot of conjecture about what Lake Granbury Medical Center might do if some kind of arrangement could be made here. So what are your concerns about leasing the hospital?

A. Our concern with leasing to any entity, but particularly Lake Granbury Medical Center, has to do with the duplication of services.  We believe that if we were leased by Lake Granbury that they would be very reluctant to continue to provide the level of services that we have here. It’s just good business sense for them to consolidate — first, non-clinical services, which would mean jobs for Somervell County, and then the other is the clinical. Does it make good sense to have a surgery department at Lake Granbury and a surgery department here? I think those are our concerns and those are the issues that we would like to have resolved if we ever get to that point. We just think those are important issues that the community needs to address before considering leasing to anyone.

Q. The Somervell County Hospital District Political Action Committee that compiled enough signatures to put the hospital district up for an election talks a lot about the hospital’s impact on the local economy. Can you quantify that for me?

A. We have about 180 employees at the hospital. And what’s interesting is that a number of those live outside the county.  But as we’ve talked to them, they buy gas here, they go out for lunch here, they shop on their lunch hour. So even the employees who live outside the county are bringing a significant amount of dollars into the community.

 Q. What’s your total payroll?

A. Just for the hospital itself, it’s going to be about $5.5 million. That’s for 2013. That does not include benefits, just salary and wages. Benefits are going to be about another $2 million.

 Q. So that’s a pretty significant payroll.

A. Comanche Peak (Nuclear Power Plant) would be first. Probably, the school district and the county would be up there. I think we’re certainly in the top five.

 Q. The other thing the hospital district PAC talks a lot about is that when people think about relocating here, especially retirees or people with kids, they look to see if there are medical facilities nearby. 

A. I think there are two pieces to that. One is that we’re a retirement community and there is some movement to become a Certified Retirement Community. And certainly, for retirees, health care is one of the first things that is looked at. For the younger people with not as many health care needs, but with children, the availability of physician care and hospital care is part of that decision.

Q. Do you get many patients who are tourists in town and develop a health issue?

A. Yes, we do. In the summer, with all the recreation on the river, we get a number of ER visits from vacationers.

Q. What do you see is different now versus the last time a hospital district election came up?

A. Well, I think our financial situation is even more critical than it was then. And I think it also would apply to the county in terms of the dollars that the county had to allocate to health care in the previous election as opposed to the dollars they have available now. The other thing is we’ve tried to involve the community in the decision. We’ve tried to be more transparent. We hope we’ve done a better job of providing the community – and we’ll continue to do that until the election – with the information they need to make an informed decision.

Q. There seems to be some concern out there about the makeup of the temporary initial board members the PAC proposed.

A. I guess I really don’t really understand what the concern is because the hospital district petition requires that the temporary board be identified. And we did that. There’s some representation from the existing board and then we’ve tried to include other people. One of the big differences is there are two physicians on the new board. We think there needs to be at least one physician on the board to provide us with the clinical insight we need to make decisions and we’re pleased that there are two. Whether any of those will choose to run at the first election, I don’t know. But it is just a transition board to get to where we are now with an elected board, and that’s where we want to be. We want the board to be representative of the community and we want it to be community owned and community controlled and that means an elected board.

 Q. Why do you think there’s still so much suspicion that if this temporary board comes in and the hospital district passes, that there’s not going to be accountability, it’s going to be all of this kind of secretive stuff going on?

A. I don’t understand where that’s coming from. Our meetings are open to the public. All of our information is available to anyone that wants it. All you’ve got to do is file a request and we’ll provide people with our information. We thought that we’ve really made a real earnest effort to be more transparent than we were previously perceived.

 Q. It does look like some of the people who were pretty outspoken about the hospital’s problems in the past have changed their position somewhat.

A. They have and there are members of the PAC that have told us they didn’t support it last time but now they do.

Q. Do you think part of it is a difference between people who find themselves in a position of having to use the hospital, even the ER? Do you think the vote will boil down to raising taxes vs. providing services?

A. I understand people’s concern about another taxing entity. I think we all have that concern. The question we need to try to go out an answer is, “Does that bring value? Does the additional taxing entity bring value to the community?” I think it does because I think it provides us with long-term financial security for the hospital, which we don’t have now. I think the tradeoff on the taxes brings value. I guess that’s the question that we’re asking the voters to make a decision on.

Q. I keep hearing people saying that if the hospital district doesn’t pass, the hospital could close. Is that a real concern or  just fear, and what time frame are we talking about?

A. That is a concern we need to have. We’re not talking about closing in six months, we’re talking about in the long term. Then it will be the responsibility of our board to look at what all the options are. And they’ve addressed that. They’ve addressed that in terms of if a lease is considered, we think the right course of action is an RFP (request for proposal). So no, we don’t think the doors will close immediately, but we do think that over the long term, that if the hospital district doesn’t pass, services will be reduced and then the long-term viability of the hospital is in question.

 Q. I’ve read that the town of Breckenridge is going through something similar with its hospital and an election. Are you looking at any other communities that might be models?

A. Hamilton is a good example. Hamilton’s hospital closed some time ago and they had a hospital district election and lost and the district was defeated at least once. They finally passed that and if you look at them now, they have not only a very viable hospital, but medical staff. I think that’s sort of a model to look at.

 Q. In terms of financials, what is the hospital’s latest status?

A. We struggle to break even on a monthly basis. There is still some opportunity for us to get some 1115 Medicaid waiver funding (a federal incentive program to give states more flexibility in expanding Medicaid care to more poor and near-poor citizens; the money has been delayed for all participating hospitals). We expect it the first week in May. It should be about $1.5 million. That’s over several years. The expectation is we would continue to receive somewhere close to that over five years.

 Q. When that comes in, will it make a dent in your financial situation?

A. It kind of catches us up, lets us get even and lets us move a little bit from a month-to-month. That would provide us with a little bit of a reserve.

 Q. If the hospital district passes, when exactly would it take effect?

A. It would take effect on May 11. The new board would be seated then and the new board would continue to be the board until May of 2014. That’s by law the earliest we can have an elected board. We would expect to have tax revenue coming in in December or January. From May until the end of January 2014 will be the transitional period. January is when most of the tax revenue is collected.

 Q. If the hospital district passed, there would be a budget submitted by the end of September?

A.  We’d be required to prepare a budget and part of that would be to prepare the information for the board to set a tax rate. We, as a hospital district, would be required to be even more transparent with our budgeting process in terms of having public meetings, just like the county, to review the budget and hearings.

In doing our projections to project that 10 to 12 cent tax rate, we’ve tried to be very conservative in terms of what we think the value of the Comanche Peak plant will be, but of course, we don’t know that.

 Q . One thing that is still a lightning rod for criticism is the medical center’s former CEO Gary Marks. Is he still a consultant to the hospital?

A. No. The last time he received any compensation was a year ago and that was a payout of his PTO (paid time off). We appreciate his years of service, but he’s not involved in the hospital or any other of its related entities in any shape or form.

 Q. What’s going on with the nursing home and rehab center lease?

A. That’s been leased to Brian Thomas and Rick Villa. They took over operations on Jan. 1. There’s been, from our perspective, no significant change in the operation. They’re spending some dollars on some renovations and paint and flooring and I’d invite anybody to come take a look. We’re very pleased with the way things are going. We get a monthly lease. They’re an independent entity. There are some services we provide that they pay us for, and then they provide us with dietary (services) and we pay them for that.

 Q. How much is the lease?

A. It’s $26,000 a month.

 Q. So that takes another financial headache off the plate.

A. It does.

 Q. What would you like to say to folks out there who are on the fence about the hospital district?

A. I would like for them to consider not only the financial perspective, but also the service perspective of what the hospital brings to the community. We believe that with the extension of the toll road from Cleburne to Fort Worth, that’s going to bring growth. Even though it doesn’t extend all the way to Glen Rose, with our schools and quality of life and taxing structure, we think that will cause us to continue to grow and grow significantly. And we think those people are going to want and would use health care as part of their decision to move here. In addition to that, if we’re going to continue to be a retirement community, the availability of health care will be part of those people’s decisions to live here. We believe that the hospital and value that health care brings will certainly exceed the tax cost that the citizens will be asked to pay.

 

 

 

 

 

 

One Response to Interview: GRMC CEO Ray Reynolds on the hospital’s financial crisis and the hospital district election

  1. Suzanne Gentling Reply

    April 11, 2013 at 8:57 pm

    Excellent interview…good questions and good answers. Thank you.

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