CEO Briefings to Employees on the Financial Improvement Plan – Held Feb. 10, 2012

At a series of meetings held to discuss the hospitals revenue shortfall and plans to improve finances, the following information was handed out to employees:

Discussion Points:

What Caused the Finance Problems

1. For Fiscal Year 2011, ended on June 30, 2011, MCDH suffered a $1,477,967 loss
from operations and a total bottom line loss of$337,461 after non-operating
income was added back in. Additionally, the hospital suffered extraordinary
losses of $1,326,987 for the year. Not taking into consideration the extraordinary
losses, this was a nearly identical performance for the previous year (2010) except
in 2010 we had over $2,300,000 in non-operating income, which allowed us to
end the year with a small profit. This means that our operating results did not
change significantly from 2010 to 2011 except that we received over $600,000
less in non-operating income (property tax, donations, grants).

2. For the current year, 2011-2012, our goal has been to trim the 2011 loss by at
least $1,000,000. It was an aggressive budget and depended upon our hospital
having a very busy winter season. For the first 4 months of the current fiscal year,
we were on target. However, as you all know, the months of December, January
and February have been anything but busy. With an average daily census of 14
for the months of December and January and so far, an average daily census of 12
for the month of February, we are bleeding badly.

3. Due to low activity in all areas in December (inpatient, outpatient, swing, home
health) and resulting low revenues, and no decreases in expenses, we suffered a
$583,630 operating loss in December alone. That caused our year-to-date total
bottom line to change from positive to negative. To make matters worse,
January’s revenues are lower than Decembers. We do not know yet if we were
able to substantially decrease our expenses during the month of January. Barring
extraordinarily low expenses for January (not expected), our operating loss for
January is expected to be similar to December.

4. Our 25-bed critical access hospital cannot continue to sustain losses like this and
immediate action is necessary if we are to survive as a hospital.

5. To make matters worse, we have recently determined that the minimum required
Debt Service Ratio, as required by our revenue bonds, is not being met. We are
asking for 11 months (until 12-31-12) to bring our Debt Service Ratio back into
compliance.

6. The cause of these disastrous financial results for December, January and
February are likely related to (1) the economy, (2) a mild winter, (3) increased
debt.

7. It is necessary at this time that we evaluate all of our revenues, all of our expenses
and to make a determination where we can either increase profitability or reduce
cost, in order to stop our current free fall. Every department is being looked at.

8. An Ad Hoc Committee of the Board of Directors has been established to work
with the Hospital CEO and CFO to give extra attention to every area of
opportunity. We are meeting 2 times per week on Wednesdays and Fridays.

9. The Ad Hoc Committee will be making a report to the Board of Directors next
week on progress towards improving our bottom line performance. It will take a
while longer to develop a full report of budgetary changes for the year. My
goal for today is to give our employees an update of what changes have been
decided upon so far.

10. When looking at areas of opportunity to improve the financial performance of
MCDH it is clear that the major opportunities are in salaries and benefits because
70% of MCDH’ s expenses are in the areas of employee salaries, employee
benefits, physician fees and registry expense.

The following changes will be made in order to reduce expenses:

11. A management restructure is underway. The first 2 changes to be announced are
that the Chief Clinical Officer position (Roni McDermott’s position) and the
Ambulance Manager position (Jeff Diehl’s position) will be eliminated during the
month of February. I want to thank Roni for her professionalism and her
integrity. She stepped forward and volunteered that MCDH is too small a hospital
to retain a Chief Clinical Officer position. For the ambulance we will be
reinstating the Ambulance Supervisor position that we had in the past. The
Ambulance Supervisor will be a working Supervisor position, including working
shifts on the ambulance.

12. Bonnie Kintner will be elevated to a Chief Nursing Officer position and will have
management responsibility for all nursing areas. The other clinical areas will
report to the Hospital CEO.

13. Additional management restructuring is planned, but I am not ready to announce
at this time.

14. All MCDH Administrators and Managers will be taking a 5% salary reduction,
effective February 19,2012. This is a savings of approximately $180,000.

15. Due to the fact that MCDH currently pays approximately $1,000,000 per year for
benefits for part time employees, MCDH will strictly enforce that PT employees
working less than 40 hours per pay period will be converted to Per Diem status
with no benefits. Where possible consolidate part time positions into a smaller
number of full time positions.

16. A productivity system is being installed for every department. Every department
manager will be given productivity targets and bi-weekly payroll reports to
monitor productivity compliance.

17. A meeting has been scheduled with UFCW officials in order to discuss
opportunities for cost savings in the current union contract.

18. All medical staff contracts will be reviewed for opportunities for re-negotiation or
renewal at reduced terms. .

19. Any changes to clinical services will be brought to the MCDH Board of Directors
for consideration and possible approval. This includes the possible change of
transitioning MCDH’s Home Health Department.

The changes shown above in numbers 11 – 16 above can easily total over $2,500,000 in
annual savings. But that alone, is not enough in savings. Ea~h year MCDB makes it’s
annual employer contribution into the employe.e pension fund in June. We will be.
making that payment once again this year and it is expected to be $1,000,000. .

Additionally, the 3% union negotiated salary increase that is due to ‘go into effect in July
of20l2 will cost MCDH an additional $1,000,000. The savings shown above are
necessary to make those payments. We still need to reverse our current course of a
projected $2,000,000 + loss for this year. An additional $2,000,000 in savings is needed
in order to get MCDH back to break even.

This is going to be a difficult time for MCDH. But working together I have no doubt that
we can accomplish this. When we do (and provided that we can maintain it), we will be a
sustainable hospital that will be here for our children arid our grandChildren. We will also
be a much stronger hospital that is putting money into our reserves and building for the
future.

 

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