Sometimes you have to spend money to make money. It’s a maxim Lawrence & Memorial Hospital is hoping holds true as it plans to more than double its expenditures on capital projects in its next fiscal year. Among those projects are plans to establish an outpatient facility in Old Lyme.
At the annual meeting of the Lawrence & Memorial Corporation on Wednesday, L&M Finance Committee Chairman Fred Conti said the New London hospital had a number of successes in the 2012 fiscal year, which ended on Sept. 30. However, he said a number of challenges have also affected the finances.
“2012 was a hectic year,” said Conti. “It’s been a blur with so many things going on and some great accomplishments, and a few disappointments,” he said.
L&M saw a total of 480,577 patients during the fiscal year period. In that time, the hospital and its affiliates expended $327,591,000 while collecting $340,556,000 in revenue. Conti said the operating gain of $12,965,000—which is used to finance ongoing developments—was less than expected due to factors such as drug costs, the increased cost of transitioning medical records to an electronic format, and reduced revenue due to a reclassification of patients admitted and kept for observation.
During the fiscal year, the corporation spent $34.6 million on capital projects including $13.5 million for routine equipment upgrades, $7.2 million for a Dana Farber cancer center being built in Waterford with an expected opening date in the fall of 2013, and $2.6 million for the purchase of a Howard Street building in New London that will house 60 exam rooms. On October 26, the hospital also paid $700,000 for property at 1 Huntley Road in Old Lyme.
In 2013, the corporation expects to spend $79.4 million on capital projects including $23 million on the cancer center, $21.5 million toward the acquisition of the Westerly Hospital assets, $12 million for equipment upgrades, and $6.9 million for renovations at the Howard Street building.
Bruce Cummings, the L&M president and CEO, said health care is changing from fee-for-service care to value-based payments. He said the corporation’s investment in facilities such as the cancer center reflect a shift in patient numbers, with more people requiring outpatient care than inpatient care.
“This is our new imperative, to adapt,” he said. “We’re all Darwinians in health care now.”
Ulysses Hammond, director of the L&M Board of Directors, said the increasing demand for services against decreasing state and federal assistance represents a “perfect storm” for health care. He said the corporation’s governance is being adjusted to decrease the size of the board of directors and streamlining committees to avoid duplication of effort.
“Although our current governance model has served this organization well for many years, we recognize that the future will increasingly be turbulent for health care providers,” said Hammond. “Payments will continue to shrink. Regulations will only increase in number and complexity. And incentives from insurers, both public and private, will increasingly favor results, or value, over volume.”
Cummings said the hospital’s model calls for funds from private insurers to cover any losses incurred through uninsured patients or patients on Medicare or Medicaid. However, he said that without an increase in Medicare the hospital’s operating margin will drop from a current goal of three percent to a level where revenues will be 4.5 percent below expenditures by 2017.
Cummings said several efforts aim to generate revenue to stave off such a deficit. These include the cancer center, the $69 million bid to acquire the assets of Westerly Hospital, and increasing surgical staff. Cummings said estimates have these investments reducing but not eliminating the projected 2017 deficit, and the corporation is looking for internal savings and other means of revenue as well.
L&M has already made some sacrifices in the past year due to financial difficulties. In June, the hospital discontinued its sports medicine program after determining that it was no longer sustainable. Last month, the hospital laid off 22 employees to close a $3.2 million budget gap in the current fiscal year.
However, speakers at the meeting identified a number of achievements in the prior year as well. Hammond said these included plans for an Old Lyme outpatient facility and renovations to the hospital’s lobby, clinical design unit, and a patient unit.
“Now on with the second century,” he said.