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Will Cancer Center inflame hospital's operating deficit?

STORY BY MEG LAUGHLIN, (Week of September 26, 2013)

The Cancer Center in Vero Beach, affiliated with Duke Medicine. Who doesn’t like the sound of that?

Right here, thanks to more than $30 million in contributions from island residents, people could go to a shiny new Indian River Medical Center building with state-of-the-art equipment to seek care for a dreaded disease without having to fly to other parts of the country or drive to Orlando, Jacksonville, Tampa or Miami.

But at several meetings last week, hospital board members, doctors and Hospital District trustees – all of whom said they would enthusiastically support a cancer center that was self-supporting in a few years – voiced concern that the center could be underutilized and lose money for years to come, making it a drain on the hospital’s operating budget and foundation.

Currently the hospital’s operating budget is in trouble with a $5 million to $6 million shortfall, according to hospital budget reports. Further, those reports show a cash-in-hand balance of $29 to $30 million. Other hospitals in Florida with similar reimbursement methods have no budget shortfall and over $100 million cash on hand.

Hospital board chairman Tom Segura said at public meetings last week that the hospital lost $52 million in operating costs over the past 15 years.

Nevertheless, at last Tuesday’s hospital finance committee meeting, hospital CEO Jeff Susi expressed optimism about the hospital’s finances and pushed for a vote to endorse the Cancer Center and move forward with construction.

“The center will be less-profitable at the outset and we’ll be passing by the opportunity to turn around costs with operations. I feel good about expanding but less good about day-to-day operations,” said Hospital District trustee Burton Lee.

“I’d rather we wait, hear the turn-around plan (to reach a break-even budget in 2014), implement the plan and get the hospital on sound footing first. I support the cancer program, but the most important thing is to turn around the hospital’s financial performance,” said board member Paul Nezi.

Board member Jack Weisbaum agreed with Nezi, but worried that waiting could “give an indication of equivocation.” He voiced the dilemma this way: “The time to do what should be done versus a lack of faith in the project.”

The next day, at a meeting with the full hospital board, the topic – righting the financial ship before proceeding with the Cancer Center – came up again.

Hospital chief of staff Charles Celano told Susi that doctors had voiced reservations about the Cancer Center and how its operating costs would be paid for.

Board member Fran Ross said her concerns about money for the Cancer Center and projected losses were “based on the figures I see and plain common sense.”

“We can’t afford a loss leader this big at this point in this hospital,” said physician Tom Perry. “We’d feel a lot better if we saw that (the operating budget) was going to break even.”

The meeting ended, however, with 10 board members – including several of those voicing reservations about financial losses and the added burden of cancer center operating expenses – voting to proceed with construction. Only Celano and Ross voted against.

The next afternoon, on Thursday, the Hospital District, which owns the hospital land, buildings and equipment and directed over $8 million in taxpayer dollars to the hospital this year, met.

Chairman Tom Spackman, who had attended the meetings about the Cancer Center, told trustees the hospital has “a significant budget shortfall” and that “issues having to do with the Cancer Center” had come up.

Spackman said that as “landlords of the hospital,” it was the district’s job to watch the hospital “day to day.”

Hospital District trustee Mike Weiss continued: “The hospital is owned by the people and the district. We’re here to protect the people of the district.”

Weiss, who is on the hospital’s financial committee, said that the hospital had made arrangements with Duke for the affiliation with the Cancer Center for a fee of over $500,000.

“Anything over $500,000, we (the Hospital District) should be notified. We should have been consulted,” he said.

“We take our lease (with the Hospital District) very seriously,” CEO Susi responded from the audience.

“We understand the obligation to operate at break even,” he added. Part of the ongoing attempt to break even in 2014 is being accomplished by reducing hospital executive salaries, and he had reduced his own by 5.5 percent, Susi said.

Friday evening after the week of meetings, Susi emailed a “MedEx” to the hospital medical staff about hospital finances but excluded the hospital board and the Hospital District.

“I think it’s unfortunate that the CEO did not send the email either to the board or the Hospital District,” said Spackman.

The omission is particularly worrisome to Hospital District and hospital board members, who voiced disappointment two weeks ago when Susi forced the resignation of two top hospital executives – who were well-versed in hospital finances – without informing most of his board or the district trustees.

In his Friday email to medical staff, Susi said the hospital’s cash in hand for operations is $55.5 million instead of the $29.8 million repeatedly reported to the hospital board and the Hospital District.

When asked by Vero Beach 32963 about the discrepancy, Susi said Monday that he was adding restricted foundation money to the cash-in-hand operating money.

But he also said that the foundation money was “donor-restricted” and could only be used for “plant and equipment,” not for operating expenses.

Susi conceded that the cash in hand   for operations number was close to the $29.8 million in hospital reports.

Further, Susi wrote the medical staff on Friday that in the 15 years he has been CEO, hospital cash performance has been positive.

But hospital board chairman Segura said at a meeting earlier in the week that the hospital had lost $52 million in operating income during that time. On Monday, Vero Beach 32963 asked Susi to explain the discrepancy.

“The operating loss totals $52.9 million,” said Susi, agreeing with Segura. But he still contended that the hospital had a positive cash flow.

Finally, in his email, Susi said the net value of the hospital, which is the book value of the buildings with improvements, has increased by 40 percent to $158.5 million since he has been CEO.

 The book value of the hospital, however, is not the market value, which may be reduced since the hospital is a consistent money loser.

While the turn-around plan may change those losses to break even in 2014, the hospital is not there yet.

The question remains whether the hospital can afford an increase in operating costs caused by the Cancer Center.

That explains why a majority of Hospital District trustees appear reluctant to approve moving ahead with construction of the Cancer Center until hospital finances are less precarious.