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Partnership Advisory Group Considers NHRMC’s Financial Future

The independent advisor chosen to review NHRMC’s long-range financial plan and capital needs presented its findings to the NHRMC Partnership Advisory Group on Thursday, February 20.

Ponder and Company was selected by the Partnership Advisory Group at their meeting January 9. With no prior experience working with New Hanover County or New Hanover Regional Medical Center, the financial consultants were engaged to provide a fresh perspective and independent analysis of NHRMC’s financial projections and how they could inform decisions on the best course forward.

The 21-member citizen-led Partnership Advisory Group is charged with exploring options for the NHRMC system that could include restructuring, entering into partnerships to bring additional resources without changing local control, and entering agreements that more fully integrate NHRMC with another health system.  The group will make a recommendation to the NHRMC Board of Trustees and the Board of New Hanover County Commissioners later this year.

During its presentation on NHRMC’s financial performance, Ponder shared NHRMC’s strong track record of growth. The system has doubled in size in the last decade, exceeding national trends.

NHRMC has also had stronger than average operating margins since 2013 but Ponder explained that much of that margin is dependent on funding sources that could be lost with policy changes being considered at the state and national levels. For example, a loss of 340b drug pricing could cost NHRMC $40 million a year. A loss of Sole Community Hospital status could cost NHRMC $50 million a year.

The continuation of those funding sources is potentially critical as government and private payers are cutting reimbursements and Medicare is a growing share of NHRMC’s patient population. To maintain a 3% margin, which would allow for a good credit rating, NHRMC estimates it would need to keep those funding sources and successfully remove up to $340 million in expenses from the system over the next ten years. That number represents close to 2% of its operating expenses each year.

NHRMC has already removed about $250 million in expenses in the past nine years from supply savings, quality initiatives that have eliminated waste and improved outcomes, and standardizations implemented across the system. Finding additional expenses to remove from the system will be challenging, particularly as NHRMC is working to keep pace with patient demand.

The explosive population growth in the region requires additional services and upgraded care sites that are reflected in NHRMC’s 12-year, $1.9 billion capital plan.

“We don’t see a lot of markets that are growing at this clip,” said Eb LeMaster, Managing Director of Ponder and Company. “There are major needs that go with that growth.”

LeMaster said it’s natural for organizations to go through cycles, with alternating periods of greater building to meet demand and future growth, followed by slower periods to build back operating margins.  That’s the cycle NHRMC has been on as it invested in facility improvements which included the Betty H. Cameron Women’s and Children’s Hospital, the Surgical Pavilion and upgrades to the patient tower between 2006 and 2008. Building slowed for a period but will need to accelerate again to address the growth in the market.

Future building plans include a new hospital in the Scott’s Hill area to provide additional access in the northern side of New Hanover county, a new emergency department to replace the one at the Orthopedic Hospital campus, and additional outpatient sites for more convenient and affordable care options. While these are needed so area residents don’t have to wait long for care, some projects have been pushed out to 2027 and beyond because of potential lack of cash flow.

Ponder reiterated that addressing the robust regional growth is a strategic imperative that requires significant capital spending, but the spending could outpace the operating cash flow, stressing the balance sheet. That stress also comes at a time of industry uncertainty, with declining reimbursements and the potential for policy changes which could cost the system millions of dollars each year. Additionally, under its current structure, its considerably more expensive for NHRMC to build services needed outside New Hanover County.

The question of whether NHRMC needs to build in the region and work outside New Hanover County was raised during the meeting and in forums outside of it. The topic was addressed in a slide in the evening’s presentation which spoke to how NHRMC’s regional focus supports its ability to offer specialty services. Without the patient volume that comes from serving the region, NHRMC wouldn’t be able to offer services such as cardiac catheterization and heart surgery, advanced stroke care and neurosurgery, advanced cancer care, pediatric specialty and intensive care, neonatal intensive care, a level II trauma center, and advanced behavioral health and expanded rehabilitation services.

To maintain and advance high-end specialty services, NHRMC plans to further build its regional presence, centralize services on its main campus, and disperse more routine services to settings that are more convenient and affordable, improving health and lowering the overall cost of care.

In response to a question of whether NHRMC’s strategic plan is too ambitious, Advisory Group member and chairman of the NHRMC Board of Trustees, Jason Thompson said it’s just what is needed.  “It’s not what we want to do,” said Thompson. “It’s what we have to do.”

The next meeting of the NHRMC Partnership Advisory Group is March 5. Find presentations and meeting minutes online at www.nhrmcfuture.org. Sign up for email updates at www.nhrmcfuture.org/stay-informed.