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An Independent Analysis of Phoebe Putney’s Finances & Operations

I. Introduction—How did this report come about?

Phoebe Putney Memorial Hospital is a not-for-profit community hospital. It is owned by the Hospital Authority of Albany/Dougherty County (“the Authority”). In 1990, the Authority restructured to allow the hospital to expand its services to the citizens of Southwest Georgia. As part of this restructuring, the Authority leased its assets to the Phoebe Putney Memorial Hospital board, which today is responsible for all operations and stewardship of these assets. The board’s members are volunteers who live and work in Albany and Dougherty County.

Throughout this posting you will see numerous references to the lease and the provisions contained therein because this agreement defines the hospital board’s relationship to the Authority and some of Phoebe’s obligations to its southwest Georgia community. As part of the Authority’s oversight responsibilities, in early 2005 the Authority commissioned a study by an independent and nationally recognized auditing firm to evaluate Phoebe’s compliance with the conditions of the lease. Phoebe Putney believes it is important to share the results of this study with you.

In order to provide the Authority with a well-informed picture of Phoebe’s operations and finances, the study compared Phoebe to the operations of comparable size hospitals operating as Georgia Hospital Authorities, as well as to other comparable not-for-profit hospitals in the Southeast. This comparison group is of similar size and in counties of similar population to Dougherty County. This study provides a thorough assessment of Phoebe’s operational and financial performance against a valid comparative backdrop - and we want to share it with you. To see the areas examined, and the summary findings, please click here.

The study evaluated six key conditions of the lease between Phoebe and the Authority:

  • Has the financial management been of a caliber that we are confident that the debt service will be met and the organization will continue to operate in the foreseeable future?
  • Has the quality of care been at a level for the lessee to continue to participate in health insurance plans?
  • Have the physical assets been adequately maintained? At the termination of the lease, what are the assets that would be returned to us?
  • Has the lease resulted in a reduction of cost to the community?
  • Has the lessee met its obligations regarding the delivery of care to the indigent?
  • Has the lessee maintained its tax-exempt status?

Key findings to those questions in the report include:

  • Phoebe maintains “AA” bond rating, the top rating for not-for-profit hospitals with outstanding tax-exempt debt.
  • Phoebe compares favorably overall to similar hospitals when it comes to quality of care.
  • Phoebe has significantly increased its investment in the facility over the term of the lease, including $145 million on services and equipment above and beyond routine maintenance.
  • Phoebe charges rates that are reasonable, and hospital inpatient stays compare favorably with similar hospitals.
  • Phoebe provides a higher amount of uncompensated charity care than the average of comparable hospitals in Georgia. Phoebe’s level of charity care is nearly tripled what is required in the lease.
  • Phoebe has made significant investments in expanding health care services and access to a larger service area.

As a community hospital, our most important values are transparency, competency, accountability and trust. As a result, we at Phoebe believe it is very important for our community to see first-hand that we are running a hospital that delivers world-class health care in an economically responsible manner.

Finally, publicly available sources of information were used to generate this report. We encourage our readers to visit the original sources in order to corroborate the accuracy and integrity of the information posted below. Thank you for visiting our website and taking the time to review this information.

II. “No margin, no Mission”

Among non-profit hospitals there is a tried and true saying, “No margin, no mission.” This phrase serves as a reminder to community hospitals that if an organization does not generate more revenue than expense, it will eventually be unable to fulfill its charitable mission. In Phoebe’s case, our mission is to provide world-class health care to southwest Georgians regardless of their ability to pay. Because a significant and important component of our mission involves providing health care to those who cannot pay for our services, achieving our mission requires sound strategic financial planning.

“Indigent care” is the term used to describe the services a hospital provides to people who cannot pay for the services. All Georgia hospitals annually report the amount of indigent care they provide. The methodology for reporting is established by the state and, presumably, hospitals comply with the state’s methodology. The data has been displayed below in order to provide a comparison of the charity care provided by Phoebe Putney and other Georgia Hospital Authorities.

Through its lease with the Hospital Authority, Phoebe has agreed to provide health care services to the indigent population in its market at a level of at least 3% of gross patient charges less certain contractual allowances and bad debts. As you can see below, in each of the last 13 years Phoebe Putney has easily exceeded the 3% indigent care requirement.

Also, as you can see below, Phoebe routinely provides more charity care than most of its Georgia Hospital Authority Peers. The chart below compares indigent care reported by Phoebe Putney to that reported by the hospital authority comparison group:

In addition to needing to plan for our significant indigent care demands, maintaining a margin is particularly important for community hospitals because health care is a capital intensive industry. In order to fulfill its commitment to provide world-class health care, Phoebe Putney must continually invest in technology, equipment and infrastructure in order to maintain the quality of care and access to services that act as the cornerstone of our mission. As you see below, Phoebe works hard to maintain a margin that provides us access to the financial resources necessary to be truly world-class. 

In fact, according to Phoebe Putney’s audited financial statement, between the years 1991 and 2004, Phoebe Putney spent approximately $316 million on capital expenditures. Of that amount, Phoebe has invested approximately $145 million on services and equipment beyond routine replacement and upkeep requirements. Some of the new services and programs that Phoebe Putney developed since inception of the Lease include:

  • Sickle cell anemia program
  • Neonatal intensive care program
  • Community Hospice program
  • Maternal fetal medicine services
  • Oncology—radioactive seed implant treatment services
  • Blood stem cell transplant program
  • Comprehensive wound care and hyperbarics program
  • Stereotactic breast biopsy services
  • Neonatal transport
  • Southwest Georgia residency program
  • Infectious disease physician services
  • Gateway to care: Indigent medicine program (access to discounted drug cost
  • programs for indigent patients)
  • Morningside Assisted Living Center
  • Phoebe Worth Hospital
  • Convenient Care: Phoebe Northwest, Phoebe East, and South Albany
  • Lymphadema Treatment Services

This list of program development initiatives does not include any service or program expansion projects undertaken during this time period. Phoebe Putney’s leaders maintain a revenue margin because it enables our hospital to provide ample amounts of charity care while simultaneously investing in world-class infrastructure and health care technology.

A hospital’s average age of plant is an indicator of how effectively a hospital is replacing its assets as they depreciate (wear out) over time. Having a higher average age of plant could indicate that a hospital’s facilities and equipment are not the most up-to-date and efficient. The following graph depicts Phoebe Putney’s historical average age of plant as compared to Standard & Poor’s medians. The graph underscores Phoebe’s commitment to maintaining a cutting-edge health care organization:

III. An Analysis of Phoebe Putney’s Financial Management

There is no single industry standard to empirically measure the success of an organization’s financial stewardship. However, it is reasonable to draw conclusions based on comparisons to the standards relied on by the financial markets.

Because the non-profit health care market relies heavily on tax exempt bonds as a source of capital, it is common to assess a non-profit hospital’s financial performance using the bond ratings assigned by major rating agencies. The highest and best bond rating category is AA, while the lowest and worst is BBB.

Standard and Poor’s, perhaps the most well-known and well-respected bond rating agency, rates Phoebe Putney’s underlying debt “AA.” This stellar bond rating demonstrates Phoebe Putney’s outstanding tax exempt debt, while underscoring the organization’s strong overall financial health. While at first the importance of Phoebe’s “AA” bond rating may not be obvious, with a little further explanation it should be.

It is helpful to think of a hospital’s bond rating process as similar to what happens when a person applies for a new credit card. When a person applies for a new credit card, the credit card company evaluates the person’s finances. They look to see whether the person pays bills on time, whether they’re already carrying debt (not to mention the interest rate assigned to that debt!), and they gauge the person’s ability to pay off any future debt they might incur. When a bond rating agency evaluates a hospital’s financial condition, it’s not so very different. Both processes result in a determination of how expensive it will be to carry a line of credit.

For reasons similar to why a credit card company asks about the resources you have to pay off future bills that you might put on your credit card, liquidity is arguably one of the top performance indicators that the rating agencies and capital markets consider when assessing a hospital’s financial health. Liquidity is a measure of the degree of cash (or assets easily convertible to cash, such as investments) available to pay for operating expenses, capital needs and other obligations. A hospital’s liquidity is also a primary driver of the organization’s ability to access a lower borrowing rate.

The following graph compares Phoebe Putney’s liquidity to the comparable S & P medians. The graph demonstrates another important aspect of Phoebe’s strong financial standing.

Much like a credit rating agency views a person with a poor credit history as a risky investment, the capital markets view poorly run hospitals as higher risk investments. Hospitals that appear to be poorly run are typically graded with a lower bond rating (BBB being the lowest). This, in turn, translates into higher interest costs that the hospital must absorb. When the hospital happens to be community owned like Phoebe Putney, the higher interest costs associated with a lower bond rating are ultimately passed on to the community. 

While a lower bond rating results in higher interest rates, the opposite is also true. Higher bond ratings result in a lower cost of capital, or lower borrowing rate. Most importantly, lower borrowing rates translate into savings to the community. The difference in annual interest costs for an AA rated healthcare organization (like Phoebe Putney) and a BBB rated organization both issuing $150 million in tax exempt bonds in 2004 was approximately $1.3 million. It is important to note that this saving occurs every year the debt is outstanding. Phoebe Putney’s leadership works hard to protect our organization’s financial health because it furthers our mission and ultimately saves our community’s tax dollars.

IV. Phoebe’s Commitment to Competitive Pricing

Phoebe is committed to sharing information about our pricing in a manner that is both transparent and easily corroborated by members of the public. Our hope is that our readers take a moment to check our math, along with our sources of information. Once you’ve done that, you’ll know Phoebe Putney is providing world-class health care to southwest Georgians at very competitive rates.

“Net patient revenue per admission” is a calculation that provides a view of the average revenue collected from patients for the services provided to those patients. This statistic is important because it is the clearest assessment of the money Phoebe Putney takes in for the services it provides. The following chart compares Phoebe Putney’s ratio to that of the Georgia and Southeast peer groups. As you can see, our organization is not dedicated to windfall profits. In fact, Phoebe’s revenue is typically right in the middle of the pack. We’re proud of the fact that our rates are competitive and in-line with our comparable market.

Another method of examining the amount it costs to receive treatment at a hospital is by examining a hospital’s “charges per admission.” The following chart compares Phoebe’s charges against those of the Georgia Hospital Authority peer group and the southeast market peer group. Again, by this measure Phoebe’s charges are competitive and right down the middle of the pricing road. 

V. Closing Remarks

We appreciate you taking the time to learn about Phoebe Putney’s operations and finances. As a community hospital, our most important values are transparency, competency, accountability and trust. We recognize that our values cannot be maintained without a willingness to share information with our community and vice versa. We encourage our readers to obtain the full contents of the report described on this website by clicking here.