University Hospital’s acquisition of McDuffie Regional Medical Center and construction of a replacement hospital by Interstate 20 could greatly increase the visibility of the struggling hospital and bring greater efficiency and stability, according to analyses of the deal.
The potential sale must still be approved by the Georgia attorney general’s office, and a public hearing on it will be held March 29 in Thomson. But in a filing more than 1,000 pages thick with the attorney general, analyses and audits lay out a dire picture of the McDuffie hospital’s financial future and a potential economic boon once University joins in.
The move from downtown Thomson five miles up the road to a site a half-mile north of Interstate 20, fronting Georgia Highway 17 and the Thomson Bypass, would double the population that lives within a 20-minute drive of the hospital, University CEO Jim Davis said. It would also put the hospital closer to some of the fastest growing ZIP codes in the Augusta area, such as Grovetown and Evans, and position the hospital for future growth, Davis said.
The population around Grovetown grew nearly 82 percent between the 2000 and 2010 Census, while the Evans population jumped 50 percent, according to a data analysis by The Augusta Chronicle.
University recently purchased land in Grovetown but has yet to specify plans for it.
“Grovetown is just growing so fast that I think it is going to be a very important site in the future, and actually I think that growth is going to spill over into McDuffie in the future as well,” Davis said. “Having some more primary care physicians, urgent care and the hospital all seems to make a lot of sense for us strategically.”
When the replacement hospital is built – at a cost of between $25 million and 30 million that University will bear alone – it will be visible from I-20, he said.
“A lot more people will know that it is there than where it exists now,” Davis said.
The building will allow greater efficiency than the current facility, which opened in 1952 as a 47-bed hospital and is still configured that way despite the fact that it averages about eight patients a day, according to an internal audit.
“The new hospital … will be built for the types of business they are in now,” Davis said. “You will eliminate a lot of overhead expense and inefficiencies just by doing that.”
Coming under the University umbrella could lead to tremendous savings and increases in quality, according to an August memo on the merger from Cherry, Bekaert and Holland. McDuffie Regional lost about $2 million in fiscal year 2011 and had averaged $420,000 in “negative cash flow” over the past three years, according to the memo.
University services, such as radiology and laboratory, could achieve a 60 percent cost savings, or about $2.2 million a year, according to the report.
McDuffie’s biggest problem has been falling volumes and rising expenses, according to a report by consultant Pershing Yoakley & Associates prepared for the Hospital Authority of McDuffie County. The hospital has been racking up operating losses the past four years, dropping from a positive margin of $675,000 in fiscal year 2007 to a $1.2 million operating loss in fiscal year 2011, added to nearly $900,000 in depreciation.
Unrestricted cash has dropped from $2.2 million in fiscal 2007 to $13,229 on Sept. 30, 2011, according to the report. Net patient revenue dropped from $18.9 million in that period to $16.5 million while overall expenses stayed relatively flat and some expenses increased. Contractual labor increased from $354,000 to nearly $1 million, and purchased services increased from $1.4 million to nearly $2 million.
University’s volume purchasing power through the Volunteer Hospitals of America group should reduce prices for supplies and potentially help with some staffing issues, Davis said. Smaller hospitals such as McDuffie often don’t have access to that and to greater economies of scale, he said.
“It is very hard to be small now,” Davis said. “I think if you look at the other small hospitals in our area, you’re going to find they are all under severe stress. Without doing this, I’m not sure there would be a hospital in McDuffie County in the future. And I’m concerned about the other small rural hospitals around us. Those communities need care, they really do.”
Taking into account the construction costs, the continued payroll, projected growth in market share, and using multipliers of that money out in the community, Pershing Yoakley estimated the deal could have an economic impact of between $49.2 million and $58.4 million.
Since the deal was announced, McDuffie officials said they have been contacted by national restaurant and hotel chains about moving into the area around the replacement hospital, according to the report. More importantly, it puts the hospital and University in better position for the future, Davis said.
“I see McDuffie in the growth corridor and they are going to need a hospital out there, not just to take care of the folks that are there today but also to attract business to that area, and ultimately take care of the people those businesses will bring to that community,” he said. “I see that as an economic development area we need to be a part of.”