Windemere Is Operating in Black This Fiscal Year

Gazette Senior Writer

On the subject of money, at the Martha's Vineyard Hospital this year the watchword is up: Cash is up, patient volume is up and contributions are up.

The hospital released draft combined financial statements this week, and the numbers show that the Vineyard's only hospital ended its fiscal year solidly in the black - even after factoring in a $198,000 operating loss at the Windemere Nursing Home and Rehabilitation Center.

"We think we are in good shape this year - it's a volume business and our goal was to capture as much volume as we could," said hospital chief executive officer Tim Walsh. "Overall for both institutions I am feeling pretty positive," he added.

Windemere is a business affiliate of the hospital and shares the same campus. The financial statement released this week is a consolidated statement for both institutions. The hospital's fiscal year runs from April 1 through March 31. Windemere's fiscal year follows the calendar.

The report shows that last year the hospital posted a combined operating loss of $410,000, while this year the institution will show a combined operating gain of $286,859.

"It's a pretty remarkable moment we are at - it's the first time on a consolidated basis that we've turned a profit," said hospital board vice chairman Tim Sweet. "This is a trend we have going, you are watching a consistent and continual turnaround of the financial situation of the institution."

Total combined revenues at the hospital and Windemere were $34.75 million in 2004, an increase of eight per cent over total revenues of $31.98 million in 2003. Total expenses were $34.46 million compared with $32.39 million the previous year.

Gifts, income from endowment and other nonoperating gains enrich the bottom line even further, although the published number of just over $2 million is somewhat inflated by an accounting cleanup that eliminates a gain the hospital has been carrying for three years in connection with the Windemere bond.

The $2.5 million bond was bought by the hospital in December of 2000 for $1.5 million. For reasons that are not entirely clear, Windemere and the hospital have been carrying the bond transaction on their books since then, and Mr. Walsh said this week that it was time to get rid of it.

"We kept the bond on the hospital books at $1.5 million and we left it on the Windemere books at $2.5 million. We kept both transactions on the books because we were uncertain about how the transactions were going to work, but there was no reason for us to have a bond receivable and them to have a bond payable," he said, adding: "It's a paper transaction that has no impact on anything."

Cash is way up this year; the consolidated financial statement shows that the hospital ended the year on a combined basis with just over $5 million in cash, a 77 per cent increase over the $2.8 million in cash posted at the end of the previous year.

Mr. Walsh said cash got a boost in part from the healthy operating gain this year.

"When you have profitable operations you actually get to hold onto a lot of those donations coming in instead of using them for operations," he said.

The financial statements show that the hospital also took on more long-term debt, which was booked at $575,285 in 2004, compared with $176,547 in 2003.

Mr. Walsh said all the radiology equipment was replaced this year using a capital lease arrangement.

He said replacement of the radiology equipment nearly completes an ongoing upgrade of clinical equipment at the hospital. "Our equipment is in very good shape," Mr. Walsh said.

The useful life for equipment like CAT scans is about six years, he said.

The financial picture for the hospital in 2004 is framed squarely around higher patient volumes, especially in ancillary and outpatient services. Gross revenue from ancillary services was $6.4 million, up 13 per cent from the previous year. Gross revenue from outpatient services was $40.7 million, also up 13 per cent from the previous year.

Mr. Walsh credited a new rehabilitation program at the hospital for much of the increase.

Gross revenue for routine inpatient services is down slightly from last year; Mr. Walsh said volumes were in fact up but charges were lowered.

The hospital continues to carry Windemere by subsidizing the dietary services it provides to the nursing home. The annual costs of these services is about $300,000, and Windemere currently owes the hospital more than $1 million for the last three years.

In an accepted accounting practice for transactions between affiliates, the money is eliminated in the combined financial statement. Nevertheless, Mr. Walsh said the money represents a real expense on the hospital's part.

"It's real money, it's $1 million worth of service that was done by the hospital for Windemere," he said.

The good news, Mr. Walsh said, is that Windemere is operating in the black for the first four months of its fiscal year and will now begin paying the hospital for dietary services on a month-by-month basis. "I don't know how long it will last, but we are going to try it and it's certainly an improvement over the past," he said.

Mr. Walsh and Mr. Sweet said it all adds up to an auspicious outlook at the hospital for the first time in recent memory. The draft financial report will be reviewed by the hospital board of trustees at a meeting this weekend.

"In my mind we've done very well this year," Mr. Walsh said.

Concluded Mr. Sweet: "We're not finished - we think we can improve on this again."