Although the rhetoric among El Camino Hospital's top officials has been one of gloomy economic uncertainty and an adapt-or-die mentality, the 2016-17 fiscal year is looking to be one of the hospital's most prosperous years yet. Budget reports released last week show that El Camino spent less and brought in more money than anticipated, and is expected to stow away just over $155 million in profit.
The hospital's annualized 2016-17 budget, which the hospital's board of directors reviewed Tuesday night, May 30, shows that El Camino Hospital and its affiliates made $93 million in operating income -- over 75 percent more than what was budgeted for last year -- through a combination of higher revenue from patient services and lower labor costs. Along with a $59 million windfall in investment earnings this year, El Camino will be ending the fiscal year with its highest annual earnings going back to at least 2012.
Barring any major changes through the end of June, El Camino will have enough money on hand to keep the hospital's annual $800 million budget afloat for 426 days -- an all-time high for the hospital, and more than double what it takes to maintain an "A" credit rating with Moody's, according to the hospital's financial reports.
But the lucrative year is unlikely to be the new normal, said Iftikhar Hussain, El Camino Hospital's chief financial officer. He called the 2016-17 year "very unusual," and attributed the big earnings to general "upsides in revenue" that the hospital will be unlikely to repeat. Past budget reports note that outpatient surgeries at both the Mountain View and Los Gatos campuses were up nearly 8 percent through at least March, and that the hospital's cancer and infusion centers saw record patient growth in early spring. Hussain said the hospital also received big, one-time government payments that are not expected next year.
Expenses are also down this year, at least in part, because the hospital switched to an electronic medical records system called EPIC in November 2015, Hussain told the Voice in an email Wednesday. Using the new system has improved efficiency at the hospital, and has gone from a costly capital project to an annual money-saver since it went live.
At the Tuesday meeting, board members were hardly ready to crack open the champagne over the hospital earnings, instead focusing on future plans for growth and reducing labor costs. The board, as well as top hospital staff, say they remain uneasy about the volatility of the health care market, and the constant push for hospitals to provide the same services at a lower cost.
A lot of that pressure comes from government-subsidized health care, particularly Medicare. About half of the patients who come to El Camino Hospital are insured through Medicare, but the reimbursement rates hardly cover the cost of providing the services. And despite political divisions in Washington, there's a fairly bipartisan effort to reduce the cost of Medicare through both the Affordable Care Act and new proposals by the Republican majority in Congress.
El Camino Hospital's response has been one of growth and expansion. Investment plans for the 2017-18 year include a massive $211.8 million budget for capital projects, which includes construction of a new behavioral health facility, a seven-story medical office building and expansion of the Women's Hospital. The total cost of the upgrades to the Mountain View campus is estimated to be over $1 billion over several years.
An estimated $3.4 million will be set aside to design and build a new primary care facility on Winchester Boulevard in San Jose. The clinic will be in a building leased to El Camino, and will be modeled after the hospital's existing Silicon Valley Primary Care Clinic in Mountain View, according to hospital spokeswoman Jennifer Thrift.
Absent from next year's capital project list is the nearly 16 acres of land in South San Jose that El Camino Hospital bought early last year. The $24 million land purchase aims to extend El Camino's services to southern Santa Clara County, and was seen as a key move towards scaling up the hospital's operations.
Cost of services to increase
Despite the banner year for El Camino, hospital staff say they still plan to increase prices for services by 5 percent across the board for the upcoming fiscal year, marking the third sizable increase in three straight years. Data from the Office of Statewide Health Planning and Development (OSHPD) indicates that El Camino's prices are still below its competitors, including Stanford Hospital, Sequoia Hospital and Good Samaritan.
Overall price increases by the hospital differ from the final negotiated prices with insurance companies and other rate payers, Hussain said. Patients with private insurance and patients on Medicare and Medi-Cal are largely shielded from the effects of the cost increases, and there's a discounting process for uninsured patients who cannot afford to pay for services.
The finalized 2017-18 budget will return the hospital board later this month for final approval.