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Sandoval hospital in the red

RIO RANCHO, N.M. — The UNM Sandoval Regional Medical Center has high hopes for the years ahead, despite again falling short of profitability last month, the board of directors learned at its regular meeting June 25.

Darlene Fernandez, SRMC chief financial officer, told the board the hospital in Rio Rancho had a $350,000 loss in May, after a $200,000 loss in April, primarily due to fewer inpatient visits and more patients paying with Medicare instead of commercial insurance.

The year-to-date net loss for SRMC increased from $5.89 million in May to $6.20 million in June, according to the financial reports delivered to the board for those months.

The hospital no longer loses about a million dollars per month, said Dr. Paul Roth, chancellor for Health Sciences, as it did for most of 2013.

“We anticipate that for fiscal year 2015 we’re going to be on pretty solid ground,” he added.

SRMC has struggled to balance its books.

Revenue from patient services is $10.2 million below budget. Roth told the board the state’s delayed Medicaid reimbursements caused part of that decline. Fernandez said it mostly happened because of low patient volumes.

The number of patients the hospital sees on a weekly basis has fallen below the previous highs set in November, January and February, according to figures presented to the board, even though SRMC budgeted for a steady increase each month.

SRMC has found some ways to make up the difference.

Employee compensation is $3.3 million below budget, Fernandez reported, with staff members working the equivalent of 360 full-time employees, which is nearly 50 fewer than the 409 FTEs in the hospital’s 2013-14 budget.

Payments to suppliers is down $8 million, from $36.5 million in 2013, and cash received from Medicare, Medicaid, insurance and patients is up from $10.5 million to $46.9 million, according to the statement of cash flows distributed at the June meeting.

The hospital expected a $2.2 million mill levy payment from Sandoval County in June, Fernandez said.

One creditor has a particular interest in seeing a financial turnaround at SRMC.

SRMC will use the mill levy funds to pay back $944,000 to the University of New Mexico Medical Group, which covered provider expenses not included in the hospital’s budget for this past year, according to Fernandez and hospital president and CEO Jamie Silva-Steele.

SRMC owes UNMMG, which played a key role in obtaining the bond and mortgage financing that paid for the hospital’s construction and equipment costs, $2 million in negative arbitrage, according to the balance sheet distributed at the board meeting.

Negative arbitrage occurs when the interest rate for the borrower’s debt outstrips or exceeds the rate at which the borrower earns interest on the money set aside for repaying the debt.

The hospital and its trustees have accounts with more than $8 million in cash and cash equivalents, according to the balance sheet, and the hospital deposits about $2 million annually into a mortgage reserve fund account at Wells Fargo.

The hospital needs to generate $275,000 in additional net income, Fernandez said, to meet the requirements of its debt covenant.

“We may make an adjustment on that payment, too, after we determine what it would take to fully satisfy all the debt covenants,” said Dr. Michael Richards, executive physician for the UNM Health System and chairman of the UNMMG board.

The physicians who belong to UNMMG made a commitment to help SRMC before it opened its doors in the summer of 2012.

UNMMG expected to contribute $23 million to the hospital in its first few years until it became self-sufficient, and estimated the mill levy would cover 75 percent of the debt service on those bonds, according to an August 2011 Moody’s ratings update for UNM.

SRMC has received almost $27 million from the mill levy, generated by local property taxes, according to the June cash flows statement.

The remaining amount owed on the hospital’s bonds fell from $143 million to $134 million after final endorsement occurred June 18, Fernandez said, when the U.S. Department of Housing and Urban Development officially insured those bonds under its Section 242 Hospital Mortgage Insurance Program.

For much of the two years it took SRMC to receive final endorsement, the hospital made its mortgage and bond payments each month, but it needed time and increased revenues to fulfill the various terms of the debt covenant.

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