By Emily Featherston | February 21, 2020 at 12:01 AM EST – Updated February 21 at 12:01 AM
NEW HANOVER COUNTY, N.C. (WECT) – Tasked with exploring the future of New Hanover Regional Medical Center, the Partnership Advisory Group got a closer look at one of the main reasons behind their exploration — the hospital’s uncertain financial future.
While the hospital has had a banner decade — an average of 7% annual growth from 2009 to 2019, with up to 8.7% in some cases — industry changes and the continued growth of the region mean NHRMC’s needs will begin outpacing those revenues in the next 10 years.
Ponder and Company, the independent financial firm hired by the PAG to assist with the exploration process, went through the financials Thursday night and outlined the projections from now until 2031.
Those projections are based on a few major assumptions:
- The hospital maintains a modest 5.2% annual growth
- The hospital maintains access to its 340B benefits
- The hospital maintains its status as the sole community hospital in the region
The projections are also based on the hospital’s identified strategic plan and goals, which some members of the PAG questioned at the beginning of the meeting — but County Manager Chris Coudriet said addressing the scope of the strategic plan is outside the scope of the PAG’s charter.
With those assumptions and goals in mind, including the $1.9 billion in capital expenditures the hospital hopes to make in the next decade, the financial outlook isn’t positive.
If nothing were to change, the hospital’s financial ratios, which are used by crediting agencies to determine risk and interest rates, would worsen and operating margins would dip to the point the hospital would end up with less than 100 days of cash on hand.
To avoid those outcomes without changing the set up of the hospital, there would be two options: cut costs or get revenue from the county.
The required cut to operating costs would be a total of $340 million, or roughly $31 million over the course of the next decade.
NHRMC CEO John Gizdic said while the hospital is lean, cutting costs to that point would be difficult at best.
Revenues from the county in the form of taxes could both stabilize the operating budget and account for the loss of 340B and the sole community hospital status, but at a cost.
Ponder estimates to cover just the capital needs and operating downturn the county would need to raise taxes by up to 21%. For a homeowner with a property valued at $267,000, that would mean about $300 more in property taxes each year.
To compensate for 340B and sole hospital policy changes, the county would need to raise rates by up to 68%.
PAG Co-Chair Barb Biehner said those numbers put the idea of doing nothing into tangible numbers.
“It really helped put into perspective what we’re really looking at,” she said.
When asked to reconcile Thursday night’s financial presentation with the assertion the PAG is still keeping “staying independent” on the table, Biehner said there is a difference between “independence” when it comes to hospital governance and not changing anything.
“Status quo absolutely would mean we do nothing, we stay under the county, we don’t have any access to capital, any further debt, any additional economies of scale, anything, and that would be, I think we’ve all agreed that would be even scarier than what else we are looking at, because we don’t have the ability to grow to meet the needs of the community going forward,” she said.
She said the PAG will use the information from the financial firm to finally establish its key factors, which will be used to evaluate the responses to the Request for Proposals and any in-house options.
The next PAG meeting will take place on March 3 at 5:30 p.m. at the New Hanover County Government Center.
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