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Erlanger CFO Britt Tabor presents the fiscal year 2020 budget to the Erlanger Health System Board of Trustees in the POB room at Erlanger on Thursday, June 27, 2019 in Chattanooga, Tenn. / Staff photo by C.B. Schmelter

Erlanger Health System capped off a rollercoaster fiscal year with about $35.3 million net income from operations, after receiving $55.9 million in federal stimulus funds meant to offset costs of the COVID-19 pandemic.

Erlanger's financial status was revealed during the hospital board's budget and finance committee meeting Monday evening. A report from independent auditors found that without the stimulus funds, Erlanger was operating at a $19.9 million loss compared to a budgeted operating income of $13.2 million.

At this time last year, Erlanger ended fiscal year 2019 with a $4.4 million loss and the first quarter of fiscal 2020 with a $4.5 million loss.

Net patient revenue for the health system fell from $1.05 billion in fiscal year 2019 to $993.6 million in fiscal year 2020 due to fewer people seeking medical care as a result of the pandemic and a temporary pause on elective procedures, which Erlanger Chief Financial Officer Britt Tabor called the "lifeblood" of the health system's revenue.

Health systems across the country received large amounts of money to help weather the pandemic under the federal coronavirus relief package.

Of that money, Erlanger received $55.9 million in provider relief funds to offset COVID-19 expenses and $93.9 million in Medicare advance payments, which are not reported as revenue but do count toward the hospital's "cash on hand" — a calculation of how many days Erlanger could fund its operating expenses without bringing in additional revenue.

Erlanger's days of cash on hand increased from 74 in the last fiscal year to 146 in 2020, or $87.6 million compared to $268.2 million in 2020.

Tabor said that Erlanger has used the provider relief funds but not the Medicare advanced payments, which he equated as a loan to be used as a last resort because those funds have to be paid back starting in April 2021.

"It's sort of like a line of credit. You would draw on it only if you needed it, because you knew that you had to pay it back. Whereas the stimulus monies, you didn't have to pay back based on the criteria," he said. Tabor said the advanced payments were made available when the pandemic started in case hospitals got into a situation in which they couldn't pay salaries or afford basic supplies for patients.

Heading into fiscal year 2021, Erlanger has an additional $25 million in relief funds at its disposal. Tabor said it's now costing Erlanger about $2 million per month to care for COVID-19 patients, including the personal protective equipment, testing supplies and other expenses. But at the beginning, it was much more, because Erlanger had to make capital investments to prepare, such as buying ventilators and converting rooms to negative air pressure to contain contamination.

For the first quarter of fiscal year 2021, which started July 1 and ended Sept. 30, Erlanger had an operating profit of $12.6 million and increased its days of cash on hand to 164.

While he's pleased with the hospital's financial performance despite the many challenges, Tabor said he's worried about the potential for patient surges given what's happening with the pandemic in the rural areas that Erlanger serves.

"There's still so much uncertainty with the possible next wave. There's capital needs that we must continue to invest in ... and we've got to continue to monitor cost-containment measures," Tabor said. "If you're looking at the $35.3 million income from operations, I know that sounds like a big number, but if you put it in perspective, it's a 3.28% operating margin. That's a very small operating margin."

Trustee Jim Coleman, chairman of the budget and finance committees, said just because the days of cash looks high right now, that does not mean that the health system is in a position to fully fund the pension plan and restore the lump-sum option that was suspended at last month's board meeting. That's because Erlanger's cash on hand includes a $50 million line of credit obtained at the start of the pandemic and the Medicare advanced payments, neither of which officials want to spend.

"It would be irresponsible of us to take those funds and fully fund the pension. That would take $80 million, and so we just don't have that capability at this point in time to fund the pension from operations," Coleman said, especially given the uncertainty of the pandemic.

" ... There's just so many things out there that we don't know the answer to. Prudently, you need to hold onto that cash for operations," Coleman said, adding that there are still "really good positive trends" in these reports despite the confusion.

After Monday's meeting, Erlanger CEO Dr. Will Jackson issued a letter thanking the workforce for sacrifices throughout the year and detailing plans to increase pay for some frontline clinical staff.

Contact Elizabeth Fite at efite@timesfreepress.com or follow her on Twitter @ecfite.

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