THM officials address nursing home again

Hospital trustees hear viability study

Advertisement

There is no reason a properly managed nursing home couldn't turn a profit in Craig and care for 60 patients. There are some hurdles, to be sure. But nothing in the books of the defunct Valley View Manor suggested a flaw in the concept that a long-term care facility could reopen and sustain itself.

That was what The Memorial Hospital Board of Trustees heard from Paul Zuidema, associate group vice president for Quorum Health Resources, TMH's management company.

Zuidema presented the board with a report that assessed the market in and around Craig and probed the financial viability of a nursing home.

Zuidema admitted that his report was based on numerous assumptions. But the assumptions stem from known healthcare benchmarks and the input of experts in the nursing home business. The report includes footnotes from industry literature and government sources, along with census data, regional comparisons and input from local residents.

The market assessment revealed a need for a facility that could accommodate up to 75 patients. It was calculated based on four different methods. One looked at the overall rate at which people use nursing homes in Colorado. Another calculated the number of potential patients based on the incidence of certain diseases. The third used an estimate of hospital discharges to a nursing home over a period of time. The fourth method was based on the percentage of Medicare enrollees who reside in an institution.

"They all come out almost with the same bed needs," Zuidema said.

Although officials from Valley View Manor's parent company, Mariner Health Care, said the home was operating more than $1 million in the red, Zuidema's report suggested that the picture wasn't quite so bleak.

The home wasn't spending too much money. It wasn't overstaffed. The finances looked to be healthy. In 2002, the home showed a net cash income of $350,000 and a profit of $260,000.

"That certainly should have been enough to sustain the organization," Zuidema told the board.

That was the case until 2003, Zuidema said.

Mariner emerged from Chapter 11 bankruptcy in May of 2002. It underwent a reorganization. Zuidema said it looks like the company had decided to get rid of the nursing home in Craig.

The home's patient census dropped. The occupancy rate dropped below 70 percent.

The home did have 29 inspection deficiencies, but that didn't seem to be the reason for the closing, Zuidema said.

"The closing was more a characteristic of Mariner than anything locally," Zuidema said.

Zuidema said his financial assessment left out a $3 million deficit that "stuck out like a sore thumb" on the books. He ignored the figure because it looked unrelated to Valley View Manor. Instead, Zuidema suspects that Mariner allocated corporate losses among the homes it planned to close.

Zuidema surmised that "They were writing down corporate assets unrelated to the hospital here in Craig."

"It didn't relate to billed charges?" one board member asked.

"I think probably what happened is that they were going to divest of 20 companies. They had a certain amount to write off for wrap-up costs. They divided it among the 20 companies," Zuidema said.

After explaining his account of the nursing home's demise, Zuidema explored the feasibility of a new home under new management.

Taking the market assessment and the financial picture into account, Zuidema prepared a model that outlined a scenario for a nursing home in Craig.

He estimated that the home could ramp up its patient census from zero to sixty in about a year. The home would start making a profit in month 10, when it reached the break-even point of 47 residents.

"Under the model, the project would cash flow in the 10th month," Zuidema said.

In two years, the home could pay back the estimated $500,000 that would be required to purchase the building. A management company likely would require a fee equal to five percent of gross revenue. Even then, a nursing home, if managed effectively, should be free of its startup debts and operating completely in the black by its third year.

Zuidema reiterated that the whole scenario is based on a lot of assumptions. And the report isn't officially finalized. Zuidema is still waiting on input from a company that manages nursing homes and other experts.

Zuidema's long-awaited report brought a double dose of good news. When the report was commissioned, the Craig City Council, the Moffat County Board of Commissioners and TMH agreed to spend up to $10,000 each for its preparation. But after Zuidema's presentation, Hospital Administrator Randy Phelps announced that Quorum was donating the service and would not seek payment.

Jeremy Browning can be reached at 824-7031 or jbrowning@craigdailypress.com

Commenting has been disabled for this item.