As Region's Health Care
Needs Grow, Funding Becomes a Challenge
Combine northern Michigan's designation as
one of the fastest growing areas in the state, with its reputation
as a popular retirement destination, and you quickly arrive at
a need for expanded medical services that is relentless.
For Munson Medical Center, the area's leading
regional referral center, that need is constantly being assessed.
And, with continuing challenges in the area of health care financing,
formulas for funding growth are an ever-present agenda item for
administrators and board members.
"We are the predominant health care system
in northern Michigan and have an obligation to provide care for
the communities we serve," said John Rockwood, President
and CEO of Munson Healthcare. "This obligation includes keeping
pace with capacity and technology — but challenges our resources."
In fact, much of the recent construction on
Munson Medical Center's campus has occurred during a period when
Munson Healthcare's income from operations, as a percentage of
total revenues, have been declining. In fiscal year 1999, Munson
Healthcare's operating revenues were $9.5 million. They tumbled
to $5 million in 2000. In fiscal year 2003, income from operations
had risen back to $8.3 million.
"As a percentage of total revenues, Munson
Healthcare's income from operations has been declining,"
said Chief Financial Officer Ed Carlson. "Over the same period
we have had to spend $25 million to $30 million annually on capital
expenditures, mostly on new technology and facilities to meet
the expanding health care needs in the region."
With limited resources, it has taken creativity
and cooperation to fund projects that will serve ever-increasing
demands for services in coming years. "It may look like we
have extensive capital resources because of recent construction
projects," acknowledged Rockwood. "But in fact, three
of our most recent projects have required no cash outlay by Munson
Healthcare."
Each of the three projects — Hospice
House, Northwestern Michigan Surgery Center, and 1200 Sixth Street
— had different financing formulas.
The Northwest Michigan Surgery Center building
on Silver Lake Road in Traverse City was financed through a loan
to the hospital/physician joint venture, the Hospice House was
funded through philanthropy, and the new 1200 Sixth Street office
building across from the Medical Center, will be mainly financially
supported through leases with physician practices.
Rockwood emphasized that while the health
care system continues to work to improve operating margins, and
is beginning to see an improvement in its investment returns,
these sources cannot be counted on to fund all our future health
care needs.
"Our operating revenue keeps us going
on a day to day basis — it pays for the basics. Revenue from
investments serves a different purpose," explained CFO Carlson.
Reserves generated from Munson's investment income must be kept
at a certain level to maintain an "A" rating and ensure
the ability to borrow money at a favorable rate." He added
that due to the stock-market's decline from 2000-02, the health
care system reached a point where it could not borrow money without
jeopardizing its favorable credit rating.
"In order to maintain its beneficial
"A" bond credit rating, a certain amount of cash must
be kept available," said Carlson. "Recent improvements
in investment income have helped to support that important cash
fund, but it is still slightly below where we would like it to
be."
Carlson says the challenges facing both operating
and investment revenue are most likely here to stay. "We're
a very prudent and proactive organization, but there are too many
factors that are out of our control to rely on these revenue streams
to fund growth," he said.
This financial reality has led Munson Healthcare
to determine that philanthropy will play a vital role in the organization's
future. "We will not be able to keep pace with the demands
that face us unless philanthropic support becomes part of our
ongoing funding plan," said Rockwood.
The Hospice House stands as a testament to
what can be accomplished when widespread community support focuses
on a single need. Donations ranging from $10 to $500,000 from
more than 3,000 community members, employees, and volunteers made
it possible.
While the Hospice House was built through
philanthropy, the Northwestern Michigan Surgery Center was the
result of months of complicated funding negotiations between Munson
Medical Center and a 26-member physician group. The Surgery Center
is a partnership between the physician group and Munson Medical
Center. "The physicians are 51 percent owners, while Munson
Medical Center is a 49 percent owner," explained Carlson.
The surgery center is an excellent example
of Munson and physicians working together to benefit patients.
The state-of-the-art facility will handle much of the outpatient
surgery now done at Munson Medical Center. This will free up capacity
within the hospital for more acutely ill patients and patients
who require more complicated surgeries. The surgery center is
in the Copper Ridge development on Silver Lake Road in Traverse
City. The first floor has capacity for up to six operating rooms
and four procedure rooms. Physician medical offices are on the
top level of the building.
The new medical office
building at the corner of Sixth and Madison is nearing completion.
Another example of physician-Munson cooperation
is the new $11 million, four-story medical office building at
the corner of Sixth and Madison Streets. The top three floors
will be occupied by physician practices that will either lease
or purchase their space. The first floor will house the chemotherapy
clinic and other outpatient functions.
Rockwood said that funding to meet capacity
needs will continue to be a challenge. "The combination of
anticipated reductions in hospital payments and projected growth
in inpatient services over the next decade will make for difficult
times for all hospitals," predicted Rockwood. "Nonetheless,
we are currently planning to build a new wing to Munson Medical
Center which will house an expanded emergency department and additional
inpatient beds. To meet the future needs of our region, these
are projects we cannot delay."
If you are a Munson Healthcare patient and have a compliment,
concern, or complaint, please contact one of our Patient
Liaisons.
