Vail Daily column: It’s time for a community discussion about the Vail Valley Medical Center
September 23, 2016
Eagle County and the Western Slope are facing a crisis in affordable health care and insurance. Insurance costs for a family can easily run to $20,000 a year, which rivals the annual mortgage payments on a $500,000 loan.
Colorado Health insurance rates are set by geographic area. Eagle County is in Zone 9, which encompasses the Western Slope from the Continental Divide to the western border of the state, north to south, with the exception of Mesa County. Recent attempts to equalize insurance rates across the state were thwarted by the Division of Insurance for what many deem questionable logic.
Zones were created to reflect localized costs for health care. Those costs to some degree are driven by the varying expenses borne by local providers, but the primary drivers seem to be competition and the ingrained profit expectations of the providers.
The Vail Valley Medical Center had revenues of $230 million in 2015 and what is known in the nonprofit accounting world as "excess revenues" of $52 million. Excess revenues are what remain after operating expenses and depreciation are deducted from gross revenues. It's what an ordinary business would call taxable profit.
VVMC disputes the excess revenue number when the Vail Daily fact-checked this column, setting the number at $37 million. That number includes a reduction for items such as assets transferred to for-profit subsidiaries and "paper losses" on the value of its investment portfolio. My contention is a typical business could never deduct such items from net income.
Based upon 20 years of reviewing tax returns and financial statements for a living and my research into generally accepted accounting practices for nonprofits, I'm sticking with my assertion that $52 million is their net income. While I have reached out to them several times VVMC has no apparent interest in meeting face-to-face to discuss this. And it is worth noting, there are entries on their current operating statements which refer to excess revenues as net income, further supporting my assertion.
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As an annual average VVMC's total revenues increased year over year by 21 percent from 2001 to 2015. At the same time "excess revenues" increased by 98 percent, from $3.5 million in 2001 to more than $52 million in 2015. When excess revenues increase five times faster than gross revenues and excess cash piles up, the obvious explanation is prices increased unreasonably faster than costs.
By my accounting the audited financial statements from April 30, the liquid assets of the VVMC (and I am including such things as patient account receivables, cash and current pledges but excluding real estate and proceeds from issuing bonds) totals more than $275 million. VVMC disagrees with my number noting for example that the liquid assets of the organization are constantly changing. But assuming my number is accurate, and the liquid assets have steadily increased through the years, that is enough to write a check to every man, woman and child in Eagle County (approximately 53,605 people) for $5,140.18 each.
Looked at another way, it would pay that $20,000 annual insurance cost for a family of four.
VVMC's audited financials show assets invested in a variety of hedge funds, equity funds, brokerage accounts and cash. These holdings are from a combination of profits accruing over the years and donations from individuals, as well as from events such as Pink Vail and the holiday dinner dance and other efforts such as the current $75 million fund drive.
Going back to 2001 and charting the financial course of the VVMC by analyzing tax returns is an amazing study in the growth and stunning profitability of a nonprofit hospital, and it raises legitimate questions about the course the hospital has taken and its influence on and the cost of health care in Eagle County its effect on current insurance affordability crisis.
Relative to "charity care" and working with those without or who cannot afford insurance VVMC's financial statements speak for themselves. The 2015 audited financial statements for the VVMC indicate the actual cost of charity care at $67,000, which against their excess revenues of $52 million is shameful.
Medical providers use what is called a "charge master" which lists the full price patients can be charged. Insurers negotiate a percentage of that price, often 30-40 percent. If one is without insurance, then they are billed the full price. While anecdotal, several people who are uninsured tell me they have been handed bills offering a 10 percent discount if paid promptly and in full. If you can't and you don't, then you're going to be asked to pay the full amount and far more than what an insurance company would have paid for the same procedure.
To finance the hospital's expansion, now estimated to cost between $275 million and $300 million (the original estimate was $180 million) VVMC issued $100 million in bonds and is paying cash for the balance. To date, VVMC has not disclosed why costs have spiraled by more than $120 million.
The cost of the expansion and renovation is more than $5 million per bed. A generally accepted measure is new hospitals can be built for less than $2 million per bed. Even at resort market prices the cost raises questions if VVMC can continue as a viable and affordable option for local residents, or is it destined to be a medical resort locals can no longer afford or rely on for care unless they have insurance.
During the four years before the expansion and renovation is estimated for completion VVMC will need $200 million for the non-financed portion, which is about equal to the aggregated net profits generated during that time assuming current profitability levels continue. Once the last workman has left, the hospital will still hold about $275 million in cash and liquid assets.
VVMC may argue they are not the sole driver of increased insurance premiums and to an extent they are correct. But consider this fact from a Division of Insurance study released this month: the cost of in-patient care across the Western Slope averages 31 percent more than for Denver residents. The difference in insurance premiums for a 40-year old male is 34 percent.
When I have met with hospital executives at VVMC on three occasions since March as a concerned citizen it was clear they see little wrong here. The fact that health care and insurance have become an unaffordable luxury to the middle class seems to not be their problem and I sense little interest to change.
The hospital was organized by in the 1960s by locals who saw the need for a full hospital to serve a growing community. A nonprofit organization seemed the best way and for decades the VVMC served the community by providing reasonably affordable care. In 2009, which coincides with the appointment of the current CEO, the profit margins (as gauged by excess revenues) doubled from about 10 to 20 percent and have since climbed to 24 percent of gross revenues.
The VVMC is actually owned by another nonprofit entity, Vail Health Services, which also controls its interests in, among other entities, the Edwards Surgery Center and other related businesses. Vail Health Services appoints the board of the VVMC, and several directors serve both entities. Mike Shannon, head of KSL Resorts and former head of Vail Resorts, is chairman of Vail Health Services. Art Kelton is chairman of the VVMC. Doris Kirchner, the CEO of the VVMC, serves on both boards.
Unlike some nonprofits where each customer is a member and votes for the board of directors and participates in an annual meeting and periodically receives equity checks based a portion of excess revenues, the VVMC and Vail Health Services do not have members or board elections or annual meetings, and definitely does not return excess revenues to customers.
As structured the VVMC has no shareholders or owners and profits are retained. In time profits are required by law to be reinvested to expand services or reduce costs. But the question of when profits are reinvested is not clear.
While not owners, all citizens in the county and those from surrounding counties who depend on VVMC are stakeholders. The board of Vail Health Services, which in reality controls the VVMC board, is self-perpetuating, meaning the current board appoints its own successors. Board meetings are closed to the public and there is, legally, limited accountability to stakeholders beyond making tax returns public and when other documents surface such as when bonds are issued. It can be described as the good old boys' (and in this case, girls') club. This is the group which dictates health care costs for many in our community. For a full list of board members, check out the website http://www.vvmcmoney.com.
To be clear, this is all allowable under Colorado law, even though the Colorado attorney general and the Colorado secretary of state publish suggested guidelines for nonprofits endorsing wide ranging transparency. I believe the community needs to stand together and respectfully demand changes to how the hospital prices services and tell VVMC what is a reasonable profit margin as well as demand the boards of directors open their process to public input and scrutiny. Profit margins of 24 percent should be reduced single digits by lowering charges, and cash reserves should be used to pay down debt.
Doris Kirchner has given speeches on the magnanimity of VVMC in providing grants and bike helmets and defibrillators. That's all fine and well, but keep in mind after the "charity" work is done they bank $51 million in profits.
So what can be done to bring a greater level of sensibility to this situation?
I've started an online signature drive for a community resolution asking VVMC to cut charges, adopt more liberal guidelines to deal with uninsured patients, increase financial and decision-making transparency and include more local diversity in representation on the board. This is not and cannot be a binding demand to the boards of Vail Health Services and VVMC, but it can be a clear and definitive statement to those board members that things need to change, and change rapidly.
Indeed if the VVMC wishes to retain the respect of the local community and keep its other fundraising efforts credible, the boards and managers need to change the culture of the hospital.
Go toto learn more, view the actual pages of financial statements and tax returns and let your voice be heard. There is also an open forum for the community to start a community discussion.
Chris Neuswanger lives in Edwards.
Editor's note: Vail Valley Medical Center points to the increase in volume of orthopedic and sports medicine services as a significant factor in its increased profits.
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