As OSU closes in on projects, questions cutting deeply
Business First of Columbus - by Jeff Bell Business First
Ohio State University Medical Center administrators are being asked for some firmer calculations on growth projections linked to the health-care complex's $780 million expansion plan.
The primary question: What would be the return on investment that the medical center expects to receive from facilities it is proposing to construct, including a new cancer hospital, critical-care patient tower and outpatient diagnostic/treatment building? The question was posed by Donald Shackelford, a member of the OSU board of trustees' Medical Affairs Committee, when the group met Sept. 22.
Responding to Shackelford's query, Eric Kunz, associate vice president for facilities and materiel management at the medical center, estimated the expansion program could produce nearly $500,000 a day in additional revenue.
But Kunz later told Business First pinning a number on revenue growth generated by the new facilities isn't possible yet because of many variables, such as price inflation, growth rates from outpatient care, new inpatient beds and ancillary services, such as diagnostic tests.
But he also said the medical center's data and projections show demand for care at OSU facilities will continue to increase.
Four of OSU's leading patient activity indicators - hospital admissions, surgeries, outpatient visits and emergency room visits - have increased at least 28 percent since 2000, according to a report given to the Medical Affairs Committee. All four indicators posted increases ranging from 3.5 percent for outpatient visits to 12.9 percent for ER visits in the medical center's fiscal 2006 alone.
"Every day I'm challenged that we won't have enough programming (and space) to meet demand," Kunz told the committee.
That prompted Shackelford to ask what the operating margin would be on $500,000 a day in added revenue.
OSU Health System had a 6.4 percent operating margin in fiscal 2006, which ended June 30, said John Stone, the medical center's chief financial officer.
But he said he can't specify the margin from the new facilities without additional study.
"At some point," Shackelford said, "we need to get information that is deeper. Now it's a back-of-the-envelope number. I want to get beyond that."
Multiple projects
The projections also must include the chance that one of OSU's major revenue sources - Medicare reimbursements - could be cut in the future, said committee member David Lauer.
Neither Lauer nor Shackelford are OSU trustees, but they serve on the Medical Affairs Committee as public representatives. Both have extensive banking backgrounds in Central Ohio - Shackelford with Fifth Third Bank and the former State Savings Bank and Lauer with Bank One, which is now JPMorgan Chase & Co.
Much of the medical center expansion will be financed by university-backed bonds that are to be paid off with revenue received from patient care.
OSU's financial plan calls for the first phase of the master plan to be funded by $680 million in bonds and $100 million in philanthropic gifts.
Trustees approved the medical center master plan in September 2005. Each project will also need their approval as they move into the design and construction work.
The original plan called for the first phase to include the cancer hospital and outpatient diagnostic/treatment center in an area west of Rhodes Hall and east of Cannon Drive. Other first-phase projects include:
- An expansion of the Richard M. Ross Heart Hospital.
- The addition of a digestive health center at Doan Hall.
- A faculty office building.
- A new chiller plant
- Two parking garages.
A proposed critical-care patient tower was part of the second phase of the master plan.
Kunz said the project can moved up to the first phase, however, by reducing the scope of renovations planned for existing buildings, such as Rhodes and Doan halls and the Arthur G. James Cancer Hospital.
That would allow the tower and all other phase-one projects to be completed by mid-2011, according to the medical center's project schedule.
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