Hospital Ends Year Flush with Cash

By JULIA WELLS

The Martha's Vineyard Community Hospital ended its fiscal year
on a high note drenched in black ink, posting a net operating gain of
just over $1.5 million, more than double the gain posted last year
before gifts and other income. Cash reserves are also at an all-time
high at the Island's only hospital, thanks in part to a surge in
volume.

"This is the way I like to see things. It's not like
we're generating a profit by cutting back on services; our
services are growing. It was a very good year," hospital chief
executive officer Tim Walsh declared this week. "When you start
getting squared away it starts to be fun after awhile," he added.

Year-end audited financial statements were presented to the hospital
board of trustees at a meeting last weekend and released to the press
this week. The hospital fiscal year ended on March 31. The audit is a
consolidated statement of the financial picture at the hospital and its
affiliate, the Windemere Nursing Home and Rehabilitation Center. The
Windemere fiscal year follows the calendar year.

The hospital also has received the results of the Press-Ganey
patient satisfaction survey, and again the news is all upbeat, with high
scores across the board for its emergency, ambulatory and inpatient
services. Only one ranking stood out for its poor quality and that was
the hospital physical plant, which is decrepit and slated for
replacement. The survey examined 881 other hospitals for the quality of
their services over a six-month period.

Among other things the independent auditors' report offers a
detailed accounting of the capital campaign aimed at raising $42 million
to build a new facility at the Linton Lane campus in the Eastville
section of Oak Bluffs. The capital campaign has amassed $33.6 million in
commitments and contributions; $17.4 million of the money is in cash and
unconditional commitments, while another $16.1 million is in conditional
or what are termed intentional promises. Conditional commitments and
intentional promises are not recognized as assets in the financial
statements for the last fiscal year.

Total operating revenues for the year 2006 were $44.4 million, up 17
per cent from $37.9 million the year before. Total expenses were $42.8
million, up nearly 15 per cent from $37.2 million the year before.
Salaries and wages, at $19.8 million, were up 14 per cent from $17.4
million the year before.

On the balance sheet, cash and cash equivalents stood at $6.9
million at the end of the year, up from $5.3 million in 2005.

Despite its deep cash reserves, the hospital is still not without
debt and carried $3.1 million in long-term debt and lease obligations on
its books in 2006, including three mortgages with substantially all the
hospital property as collateral.

Mr. Walsh said the hospital's debt obligations are of no
concern, and he said the cash is better kept in reserve for the upcoming
building project than used to pay down debt. "When you do these
building projects you better have something in reserve," he said,
adding:

"Bank notes are not a burden; we don't have a whole lot
of debt and it's really not bad at all. When you have money, then
borrowing from the bank is easy; it's when you don't have it
and you need it that it's hard."

Mr. Walsh said he expects the hospital will roll the bank notes over
into new notes when the hospital building comes down to make way for the
new facility. Construction is planned to begin late this year, if the
money can be raised and if the building project clears all the necessary
regulatory hurdles, including approval from the Martha's Vineyard
Commission.

In 2006 net patient service revenue at the hospital was $41.7
million, up from $36 million the previous year. Gross patient service
revenue, which includes inpatient, long-term care and outpatient
services, was $78.2 million (before $36.5 million in contractual
obligations). Outpatient services saw a huge jump, from $45.6 million in
2005 to $57.1 million this year.

Mr. Walsh said the growth in outpatient revenues represents the
overall increase in volume that the hospital has seen in everything from
lab and X-ray work to rehabilitation services.

A breakdown of operating expenses in the audit shows that the
hospital bureaucracy also swelled this year, with administrative
expenses up sharply from $6.5 million to $7.7 million, an increase of
18.5 per cent.

Mr. Walsh said the increased number includes recruitment and
relocation expenses for five physicians; he said there were also some
staffing increases in accounting and medical records that were
volume-driven. Advertising costs for the capital campaign are also
booked under general expenses, and utility costs went up, Mr. Walsh
said.

Fund-raising expenses are also climbing, up 38 per cent from
$431,571 in 2005 to $594,072 this year. Mr. Walsh said the fund-raising
expense is modest considering the fact that the hospital is running the
largest capital campaign in the history of the Island. "We
don't have a consultant; we are doing it all in-house and I think
that is pretty remarkable," he said.

In conclusion Mr. Walsh, who is the former chief financial officer
at the hospital, said the financial picture is dramatically different
from 10 years ago when the hospital and Windemere were both in a state
of near-financial collapse after a previous board of trustees had
invaded and spent endowment money, and an emergency board of trustees
stepped in to turn around the crisis and save the hospital.

"Ten years ago it was everything bad . . . so it is striking
that we are sitting here today with real strong financials and a load of
business coming in the door. I think it shows that people have
confidence in the hospital and a lot of the credit goes to [hospital
board chairman] John Ferguson and the rest of the board," Mr.
Walsh said.

Windemere, the affiliate, is operating at a bare break-even pace,
posting an operating gain of just under $4,000 for its fiscal year.

"I think Windemere is going to be okay, but it's a
really tough business," Mr. Walsh said. He said two of the three
units at the nursing home are full with a waiting list; only the
assisted living unit has open beds. A requirement by the state that a
separate dining room be built for the residents of the Alzheimer's
unit caused the temporary loss of two beds and a commensurate loss of
revenue, Mr. Walsh said.

"Even two beds can make a difference," he said.