Our View: Why not a health trust?

No one should be surprised the vast majority of attendees at Monday’s Sarasota Memorial Healthcare System hearing urged the system’s board to remain a not-for-profit, tax-supported community hospital system.

Nor should anyone be surprised the Sarasota County Public Hospital District (Elected) Board of Directors recommended that the health-care system remain that way as well.

Next to the beach, there probably is no other community asset that is more revered or prized than Sarasota Memorial. Heck, if we took a poll, it might even finish first.

Here was the exercise: At the urging of Gov. Rick Scott, a former for-profit hospital company CEO, in 2011 the Legislature mandated that all of the state’s 32 hospital taxing districts conduct valuation studies on sale value of their hospitals. In addition, these studies were to determine whether the sale of the districts’ public, tax-supported hospitals would provide better benefits to the community if the community used the proceeds of the sale for community health services and let a not-for-profit or for-profit corporation operate the hospital.
Public-hospital supporters bristled at this exercise. How dare the governor?

And yet, Florida TaxWatch, the Tallahassee-based, non-partisan research organization that is always looking out for taxpayers, recommended in 2009 that such a study was needed — especially for Florida’s 16 independent hospital taxing districts. Sarasota’s hospital district is one of those. As TaxWatch sees such an evaluation, it helps keep districts in check and makes sure they are fulfilling their legislative and community missions.

So if you cut to the quick, the way this examination should be framed for taxpayers is this:

Could more good in the community be accomplished by selling Sarasota Memorial for $328 million to $558 million; setting up a public health trust; and using the proceeds of the sale and investment income earned on that cash to provide health care and other services in Sarasota County?

Under this option, a separate company would operate the hospital — and even eliminate the $41 million collected in property taxes from Sarasota County residents that is used to provide health care to indigent patients. It would be up to the taxing district whether to continue the property tax.

Or is it better to leave that cash in the SMH Healthcare System, where it competes with the needs of the system to keep it operating and funds new and existing services? Is it better to continue to operate the system as is and continue the 1.0863-mill property-tax that the hospital district imposes now?

To be sure, Sarasotans have taken note of Manatee County. After the county sold Manatee Memorial, it used the proceeds for more than a decade to help pay for indigent health care. That fund is now set to run out of money in 2015.

As a result, the Manatee County Commission is bringing to referendum an increase in the half-cent sales tax to generate about $23 million a year for indigent health-care costs.

That scenario no doubt would spook Sarasotans. They wouldn’t want to sell the hospital and see the cash depleted — only to raise taxes again.

Even so, in spite of what the board decided, it is still worth pointing out that hospital industry trends raise some concerns about the future for the Sarasota Memorial Healthcare System (see boxes).

In particular, take note in the box above “Who’s Paying the Bills.” For the past three years, Medicare and Medicaid patients continue to grow as the dominant patient base at Sarasota Memorial. Those patients also pay the least amount for the hospital’s services, which, in turn, increases pressure on the hospital to charge insured, paying customers more. This trend will be exacerbated under Obamacare.

And look at the amount of bad debt/uncompensated care — roughly $70 million a year. That represents 14% of the system’s total operating revenues. As the county grows, charity care is likely to grow as well.
This will continue to put pressure on the hospital district’s tax rate.

To a degree, it seems as though the discussion and debate about whether to sell the hospital to create a public health trust zipped by too quickly. In TaxWatch’s report evaluating Florida’s public-hospital districts, it posed a structure that is worthy of more discussion. Said TaxWatch:

“Special hospital districts should become indigent health-care districts, funding indigent health care based on local priorities and not limited to hospitals owned or operated by the districts. As a part of the transition to indigent health-care districts, hospital districts that own hospitals should de-couple them from the districts.”
Sarasotans shouldn’t let the Manatee experience dissuade them. TaxWatch makes a case worth considering.

Industry Trends
• Focus on spending control, balance-sheet improvement
• Deferred capital spending to build liquidity
• Profit margins stable or modestly improved
• Weak revenue growth
• Flat inpatient volume
• High bad debt
• Physician alignment costs
• Shift from inpatient admission to observation status
• Deferral of surgeries; competing facilities; movement of services to physicians’ offices
• Unfavorable shifts in payer mix to Medicaid, Medicare, self-pay
• Moderate pace of improved rating and outlook actions

Industry Outlook
Challenges on several fronts:
• Reduced state or local funding
• Expected rate or service reductions for Medicare, Medicaid
• Uncertainty as to state opt-out of Medicaid expansion
• Slow economic recovery; low revenue growth
• More hospital-insurer collaboration for value-based payments
• Increasing acquisition of physician practices
• Managing bundled payments
• Greater financial risk with quality-of-care concerns
• Coordinating more care outside hospital
• Continued uncertainty about health-care reform
• IT spending, bad debt, physician costs also weigh on budgets

Click here to view Sarasota Memorial Snapshot.