Accounting professor insists hospital finances are 'in really good shape'

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As the debate goes on concerning the creation of a Boulder City hospital district, a local accounting expert and former member of the hospital's board of directors says the medical facility generated a moderate surplus during the past four years, while hospital officials claim the nonprofit health care organization suffered a seven-year loss of income from operations of nearly $3.9 million.

"What they're doing is they're looking at partial income and subtracting total expenses, basically," said Ron Milne, an associate professor emeritus of accounting at UNLV and former city Finance Advisory Committee chairman. "So they're excluding some of the income from the stream ... (so they can) focus you only on the bad news. If you take the last four years and assume the next four years are going to be the same, they're in really good shape."

When asked whether the hospital was presenting its entire financial picture in claiming a loss, Administrator Tom Maher stood by his previous assertions that the annual average loss since 2001 has been $555,734.

"Well, that's the bottom line loss, and we've always said that's the average loss on operations over the last seven years. Of course, I'm putting a bottom line out there. I don't want to present an entire spreadsheet with every single line item on it. I don't think you get the message across that way. We do invite people to make an appointment to look at our audited financials," Maher said.

The difference between the two schools of thought lies in the details of the hospital's financial statements and the Internal Revenue Service's Form 990, also called a "Return of Organization Exempt from Income Tax," that's filed annually, which Milne and Maher both used to make their respective claims.

In making his assertion that the hospital is in dire straits and in need of the property tax money that would be generated by a hospital district, Maher uses figures from the audited statements to show operational losses.

Operational losses (or income) are determined by subtracting operating expenses (payroll, employee benefits, telephone, postage, the amount paid for interest on outstanding loans, depreciation, bad debt and other costs) from operating revenue (payments for services from Medicare, Medicaid, insurance companies and patients) and other operating income.

What's not included in Maher's revenue picture is the extra money the hospital receives, the so-called nonoperating revenue, which comes from such sources as Art in the Park proceeds, donations, investment income, net proceeds from rental activities and the sale of fixed assets such as land, buildings, equipment and vehicles, the amounts from which can vary from year to year.

By not adding operational income or losses to nonoperating revenue, a different financial picture is presented.

For example, the hospital's "Statement of Operations" for 2007 shows operating revenue of $20.2 million and operating expenses at $21 million, resulting in an operational loss of about $828,000. That's one of the yearly numbers Maher uses to claim the hospital is running in the red.

By adding about $465,000 in nonoperating revenue reported that year to the $828,000 loss, the net loss is actually $363,000, or 56 percent less.

In years when nonoperating income exceeds an operational loss, the net income is a positive figure.

It's the net income figures that the retired UNLV professor, who holds a doctorate in accountancy from the University of Illinois and a master of business administration degree in accounting from Michigan State University, used to show how the hospital is actually in the black.

Milne's figures, which were taken from hospital reports to the state of Nevada, show that from 2004 to 2007, the hospital's net income (or loss) was $233,047, $912,957, ($28,887) and ($363,381), respectively, for a total gain of more than $753,000, or an average annual net income of more than $188,000.

Again, using figures from the information reported to the state for 2004 to 2007, the hospital's change in net assets, or what Milne calls "the proverbial bottom line," increased $2.1 million or more than $533,000 per year on average.

Typically, net income and the change in net assets are identical, but in some cases they vary because of reporting methods.

"(Net assets) captures everything coming in versus everything going out," Milne said. "So if you present the change in net assets as what people would think of as net income or the financial results of a particular year, then what you're looking at for the last four years is a positive $533,000 per year. So that tells you their assets are going up."

Hospital Chief Operating Officer Charlie Harrison agreed with Milne's description of how net assets are determined, noting also that the hospital did make money during the past four years after reviewing the Form 990s.

"What this shows is, yes, (net assets) continue to be positive," said Harrison, who's a certified public accountant and was employed as a health care auditor in Southern California by the Arthur Andersen accounting firm for 26 years. "It also proves that in '04 that there was clearly excess or deficit for the year over expenses or revenue ... and we made some money in '04 ... $283,000 according to the tax return. In '05, it appears we made some money ... This shows we had an excess of $600,000. Now included in that was contribution revenue (of) $986,000 ... In '06, that was sort of a normal year, we lost about $28,000 on the tax return. I think what we're saying is, on average, over the last several years, we've lost half a million dollars from operations. Now, when you say operations, that takes out contributions, takes out Art in the Park, and Art in the Park is what we earn and we depend on it, we spend it ... Without that money, we'd be hurting. We're still hurting with it."

Milne, who served as a hospital director from April 2004 to January 2005 at which time he resigned for health reasons, said the hospital tax levy wouldn't be necessary if the hospital would change its method of attracting and increasing patient volume.

"If they were to go into Henderson, just down to College (Drive), they would almost double the population they could support because there's probably 15,000 people just over Railroad Pass, and they're building more and more apartments all the time," Milne said. "They don't focus marketing down there and I think they should, especially for the ER. I've suggested a few times that they go down there with a great big signboard and say, 'Come to the Boulder City emergency room; the average waiting time is only eight-and-a-half minutes,' and they would garner a lot of traffic from that area."

Maher disagrees with that approach.

"We did that at one point in '05," he said. "The hospital did an advertising campaign in South Henderson and the volume peaked in one month and fell off the following month, so it was not sustainable. The only way to sustain that is spend that money in a (marketing) campaign. So you're talking about spending $100,000 to $125,000 a year to maintain that level of advertising to bring those patients in. The second question is, do we have an ER big enough to handle that extra volume, and my answer is no, we don't, because we're already at 90 percent of capacity."

Milne also believes a small increase in the number of visits to the emergency room would make the need for a hospital district go away.

"If they could net, bottom line, $1,000 per person for every (additional) person who comes into that emergency room ... say two people a day ... that's $730,000 a year in more bottom line," he said. "That would cover what they're looking for in the tax district."

But, again, Maher disagrees and asserts that the issue is more complex than that.

"That may be right. I guess you can take any equation and just add $5,000 more here a week and you don't need (the tax)," he said. "These are all hypotheticals, so what does that mean? The fact of the matter is, we've been running a hospital here for 54 years, and in the last seven years of operation, it's been hemorrhaging money. Yeah, you can throw any number at an equation to make it balance, but what does it mean operationally? What do you have to do to get that business in? What do you have to do to make sure you collect on all those billings? What incremental costs are going to be created by having that additional volume of patients come in? It's a multitude of variables that are involved operationally, but you can throw any number at it and say, 'Yeah, well, if you only had this much more money coming in ..."