El Camino Hospital staff are budgeting for a lucrative year next fiscal year, calling for cost-cutting measures and another bump in prices in order to keep the community hospital financially stable in a fiercely competitive local market.
Perhaps overshadowing all of these new budget plans, however, is the beginning of a massive overhaul of the Mountain View hospital campus, which is expected to take a big bite out of the hospital’s reserves. Starting in the 2016-17 fiscal year, which begins next month, El Camino Hospital will be putting aside more than $200 million to start construction on a new medical office building and behavioral health services facility.
The plans, which were revealed early last year, include a new seven-story 265,000-square-foot medical office building with an adjacent parking garage, to be placed near the center of the campus, as well as a new behavioral health building and an expansion of the existing parking structure on the north end of the campus. The construction plans are expected to alleviate parking woes on the campus by bringing 611 additional spaces — a roughly 30 percent increase. The project is estimated to cost $1.1 billion.
Most of the $204 million committed to facilities for the coming fiscal year will go towards starting work on the medical office building, replacing the existing behavioral health building and expanding the Women’s Hospital, according to a hospital budget report.
Construction spending is expected to heat up less than a year after the hospital wrapped up its last major capital improvement: switching to an online medical records system. In November, the hospital announced that it had gone live with its new iCare program, which cost an estimated $150 million. Iftikhar Hussain, El Camino’s chief financial officer, said the hospital’s cash on hand is roughly $695 million as of March, which is down from $700 million.
Ending on a sour note
El Camino Hospital has been in good financial shape in recent years, putting away upwards of $70 million in the 2014-15 fiscal year and $75 million the year after, beating projections and giving the hospital more leverage to plan for big facility upgrades. But this year ended on a sour note, as cost-cutting measures fell flat, the launch of iCare cost more than expected, and hospital investments ended up a money-loser.
The hospital originally budgeted to end the fiscal year with about $50 million left over, but staff are now projecting that it will fall short of the goal by roughly $9 million for myriad reasons. Going live with iCare cost the hospital $4 million in additional unexpected costs, and attempts to increase efficiency in order to slice $6 million off the budget fell short.
At a joint board meeting with the hospital’s finance committee, hospital board member John Zoglin said he was “nervous” about the costs per employee remaining high at the same time the hospital will be hiring more staff in the next year. A hospital budget report found that the average cost per full-time employee, including salary and benefits, is expected to surpass $180,000.
Hospital investments were expected to rake in an extra $18.6 million in revenue, according to the original 2015-16 budget, but are now estimated to actually lose money for the hospital. Reports from May show the hospital faced a $12.8 million loss, though Hussain said that has since decreased to just $5 million.
“This was not a big year,” Hussain told the Voice. “Target earnings are lower than last year, but we hope to catch up by the end of the year.”
To improve the hospital’s financial picture for the coming fiscal year, hospital staff plan to increase prices across the board by 6 percent. The hospital has kept prices close to flat — increases amounted to a fraction of a percent — until last year, when the board agreed to a 5 percent increase in prices. The second big bump in prices for the coming year, Hussain said, is an important step towards staying competitive with other local hospitals.
According to data from the Office of Statewide Health Planning and Development, neighboring Stanford University Hospital has increased prices by anywhere from 6.9 percent to 9.6 percent each year over the last four years, averaging 7.6 percent. Good Samaritan Hospital in San Jose has increased prices by an average of 8.6 percent over the same period. Between a growth in patients and the price increase, El Camino is expected to rake in an extra $22.8 million for the coming fiscal year.
Hussain said that the price increases shouldn’t have a big effect on most patients covered by commercial insurance companies or government payers like Medicare. Patients who are uninsured, he said, will still have the option of using the hospital’s discount policy in order to waive costs they cannot afford to pay.
When asked whether more price increases are on the way, Hussain said it depends on future trends, and the goal is to always stay in the mid-range for prices in the area.
Hospital board member Dennis Chiu said the price changes, as well as the big plans for facilities improvements, are both necessary measures to keep up with “enormous” competition from other hospitals in the neighborhood. He said growth is critical if El Camino is to continue to exist at a time when the health care industry is quickly changing towards preventive care.
“We have to grow or die, and that’s why we’re investing so much more back into Mountain View and Los Gatos,” Chiu said. “We will take our cash down more than what people are used to, but that is the future where the hospital can survive.”
Email Kevin Forestieri at kforestieri@mv-voice.com
