Context for the Upcoming Supplemental Hospital Appropriation

On December 29, 2016, the Hospital Authority voted to request a supplemental appropriation from Metro for Nashville General Hospital. I expect this request to come before the Council on February 7, 2016.

Before the request for a supplemental appropriation gets discussed broadly in the community, I would like to spend a few minutes providing context for the hospital’s finances. My main point is that the hospital’s finances have been challenging for a long time and we should NOT be surprised that they need a supplemental appropriation to get through the year.

I’ll write more about this after the appropriation request is formally made to the Council. For now, I just want to compare a few key financial statistics for NES (which is in good shape financially) and the hospital. By putting these numbers side-by-side, I am not trying to embarrass the hospital. In fact, I think it is amazing that they can keep plugging away with these finances. It is a testament to how much they believe in their important mission that they can make these numbers work.

First, by comparing the amount of bills you owe at any time to your total expenses for the year, you can get a quick snapshot of how you’re doing financially. For example, if you are 6 months behind on the mortgage and a year behind on your credit cards, you are in worse shape than if you are current on your bills.  Businesses often try to stay around 60 days outstanding on their bills.  In the chart below, you will see that as of June 30, 2016, NES’s current bills were just under 60 days of expenses for the full year.  At the same date, the hospital’s current bills were almost a 100 days of expenses.

For the hospital to have gotten down to 60 days outstanding on its current bills as of June 30, 2016, it would have needed an additional $10 million appropriated to it for the current fiscal year.

Second, we have all heard the rule of thumb that families should maintain an “emergency fund” of 3 or 4 months of expenses. And, without that, your family is at financial risk due to the unpredictable circumstances of life.

Let’s look at how NES and the hospital do with this. As of June 30, 2016, NES had enough cash on hand to pay approximately 100 days of expenses — that’s a healthy, appropriate reserve. The hospital had under 4 days of cash available on June 30, 2016.

For the hospital to have had even a modest 1 month of cash in the bank as of June 30, 2016, it would have needed an additional $7 million appropriated to it for the current fiscal year (in addition to the $10 million I mentioned above to bring the days of bills due down to 60 days).

My last financial point is there is absolutely nothing new about this situation.  I took a quick look at Metro’s audited financials for 2005 and 2010. By my math, as of June 30 of each of those years, the hospital had less than 1 day of cash available to it. In fact, in 2010, the hospital had $97 million of expenses and ended the fiscal year with $11,094 in cash.  (I didn’t forget zeros — it was 11 grand!)

In the coming weeks as we discuss a supplemental appropriation for the hospital, there may be some of the usual voices saying “shut it down.” That’s the wrong answer. I think the right answer is to look at what it will take to properly pay down the bills, and properly fund its bank account to help the hospital weather the inherent unpredictability of the healthcare industry.

You can read my previous posts about Nashville General Hospital here and here.

NOTE: All of the dollar amounts in the charts are from pages B-27, 31 and 34 of Metro’s FY2016 audited financials. The percentages and “approx days” calculations are mine.

Bob Mendes

Bob Mendes represents all of Nashville as a Council-At-Large member of Nashville’s Metro Council. He is Chair of the Council’s Charter Revision Committee, a member of the Metropolitan Audit Committee, and a member of the Council’s Budget & Finance Committee, Rules & Confirmations Committee, and Ad Hoc Affordable Housing Committee. Bob also practices business law at Waypoint Law PLLC. Bob’s complete bio is here. You can follow Bob @mendesbob.