That?s the immediate game plan to rescue the hospital financially, says Roger Forgey, CEO and president.
?Hospitals need Medicare to survive,? Forgey said. ?We want to pay this (Medicare debt) off so we wouldn't have to pay interest.?
The Medicare debt comes with an 11-percent interest rate, compared to a 1-percent interest rate on the bond anticipation note.
Forgey and other hospital officials emphasis that the Medicare debt is not a case of fraud.
?The debt was incurred as far back as 2007,? Forgey said.
In some cases, Forgey explained, Medicare will offer a payout at the beginning of the year. The payout is estimated, based on population and patients, he said. At the end of the year the hospital will average out the money spent on patients and provide a refund if all the Medicare funding was not used.
For about five years, Hutcheson did not settle up with the government, thereby accruing $12 million in Medicare debt, he said.
Usually a Medicare intermediary will investigate payout compared with use, but at Hutcheson the position changed and the assessment was not completed, Forgey said.
After Chattanooga-based Erlanger took over management of Hutcheson in May 2011, an analysis of the cost report revealed over-payments by Medicare. Forgey and the new administration self-reported the overpayments to the government and set up pay back, with a standard 11-percent interest rate.
The $25 million bond anticipation note, which is short-term (two years), will also be used to pay off $2 million of $5 million that the hospital owes to medical suppliers, Forgey said.
The note?s remaining money, about $11 million, will be used to upgrade equipment at the hospital.
Catoosa County commissioners have agreed to back the $25 million bond anticipation note using the hospital property as collateral. Walker County commissioner Bebe Heiskell, as of Jan. 24, had not decided on whether to back the note. The counties, along with Dade County, own the hospital property. Dade is not participating in the note.
$20 million Erlanger loan: Where has it gone?
Hutcheson?s debt stretched beyond belief when Erlanger came to the rescue in early 2012 with a $20 million loan, Forgey said.
In operations alone, Hutcheson faced $11 million in debt in 2012, he said.
About $7 million of the Erlanger loan was used immediately to pay creditors, he said.
The hospital also continued to use the money toward basic needs, such as paying employees? wages and everyday bills, he said.
To date, the hospital has used $18.8 million of the $20 million loan, Forgey said
?Now we are making payroll and paying bills. It's still not enough to pay down the debt,? Forgey said.
The loan from Erlanger was necessary for the hospital to turn around its finances and become profitable. That mission has been accomplished, Forgey said.
?(Erlanger) spent money in order to turn the organization around and we did, and now we are profitable. The question is long-term survival, and that means consolidating debt,? Forgey said.
As the hospital looks to the future to consolidate debt with the short-term bond anticipation note of $25 million, the date to pay back Erlanger's $20 million is fast approaching. The two-year contract on the loan ends in April, at which time Hutcheson must begin paying it back with a 5-percent interest rate.
Long-range plans
The hospital wants eventually to secure a total of $60 million in a long-term bond, which would essentially consolidate and include the $25 million bond anticipation note and the $20 million loan from Erlanger.
?The county (Catoosa) is committed to these bond phases,? Forgey said. ?The counties are allowing a short-term bond using all these properties as collateral.?
Hutcheson?s properties include the hospital building, which sits on about 100 acres; three family practice clinics ? Chickamauga Family Practice, LaFayette Physician?s Care and Trenton Family Practice; four specialty practices ? cardiology (located at the main hospital), endocrinology (located at Hutcheson on the Parkway on Battlefield Parkway in Ringgold), pulmonology (located at Hutcheson on the Parkway), and multi-specialty (located at Hutcheson on the Parkway).
Meanwhile the hospital authority of Walker, Dade and Catoosa Counties faces contention as the three counties decide the number of board members based on population. Changing the number of members from nine to 12 will require state legislative approval, according to Forgey.
?They will resolve the issue with members with the legislature and go ahead with the BAN (bond anticipation note),? Forgey said. ?It may take an amendment to the bylaws. Either way, it (the amendment) is not necessary before the BAN. It is before the (long-term) bond.?
The long-term bond may be reduced if Erlanger opts to exchange the $20 million loan payments for purchase or ownership, said Forgey about the different possibilities to minimize debts.
?I can't make everyone in the community want a hospital here,? Forgey said. ?The voice of the people is the (Catoosa) county commission and the commission wants a quality product. They like my staff and like what we are doing. The core services we offer we do a fine job at and each year we are improving.?
Source: http://catwalkchatt.com/bookmark/21566283
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