Beebe's finances starting to mend after a few rough years

Beebe Medical Center receives a lot of attention in the pages of the Cape Gazette. No surprise, really. Every day we all see and hear ambulances with sirens and flashing lights heading for Beebe's emergency room. When we hear helicopters flying overhead, most of the time they are headed for Beebe.

With 1,800 employees – by far the largest single employer in our area – it's safe to say we either work at one of Beebe's many facilities, one of our family members works there, or someone we know works or volunteers at Beebe.

The huge impact of Beebe Medical Center on our local economy is undeniable. Over $150 million of Beebe's annual operating expenses pay for salaries, contract labor, benefits and physician fees. There was a time when the impact of General Motors on the U.S. economy was so huge that it was said that when the company sneezed, the nation caught a cold. The same could be said of Beebe Medical Center and its impact on the economy of Delaware's Cape Region.

When Jeff Fried was hired as the medical center's chief executive in 1997, total annual operating revenues were in the realm of $72 million. In this fiscal year which ends next June, Beebe's Chief Financial Officer Paul Pernice projects the year's operating revenue will come in at about $300 million.

For that reason, and many more, the annual financial report published by Beebe in its December Beacon publication deserves extra attention. For me, this year's report showed a sniffle, if not a sneeze. Where income from operations in the fiscal year that ended June 30, 2011 showed a modest $483,305 profit, the most recent financial report, for the fiscal year ending in June of 2012, showed a loss of $3,254,360. No company or institution can survive for long with that kind of a loss, so I asked Fried and Pernice whether there was reason for alarm.

They reassured me. Without $6.6 million in non-recurring expenses that hit Beebe's books last year, the medical center's profit-and-loss statement would have shown a $3.3 million net profit instead of a similar loss. Roughly $3.8 million of those nonrecurring expenses involved the Bradley case, including $1.3 million in legal fees paid last year – of a total $3 million in legal fees - and $2.5 million paid out to complete Beebe's $8.2 million share of the final Bradley settlement. The other expense was roughly $2.7 million that had to be written off because Beebe had to scrap an electronic medical records system that was fraught with problems. “We were one of the first to get involved with this remote operation back in 2008 or 2009,” said Fried, “and there was nothing but problems. We decided, all things considered, to go to another vendor, so we had to write off that old system because we could no longer depreciate it as an asset.”

Pernice said he is projecting a $6 million operating profit for the current fiscal year, which began July 1.

“Through October, we're ahead of where we budgeted,” said Pernice, “but that's typical for this time of the year because it includes three of our strongest months.”

Fried said Beebe's challenge will be to sustain higher volumes through the rest of the year. If Pernice's projection holds true, Beebe will have returned to the kind of financial performance that was typical before the Bradley tragedy. Fried said when everything is counted, the Bradley case will have cost Beebe more than $34 million in cash taken off its books.

The good news is that Beebe's growth remains on the upswing. Sixty more babies – a total of 889 – were born in Beebe in fiscal year 2012 than in 2011, and outpatient revenues were up $54 million for the same period over the previous year. “That's important,” said Fried, “because the government is reimbursing us less all the time for inpatient care, and more and more emphasis is being placed on outpatient services. Those services cost less, and people would rather be in their own homes. We're seeing growth at our outpatient health campus on Route 24, and we have our outpatient facility in Millville. We're also working on a new outpatient facility in Georgetown. Obamacare is creating impetus for organizations to do things differently. We have to because the government is paying us less. We still have to work on getting costs out.”

The biggest challenge, said Fried, continues to be how to keep people out of the hospital.