Hospital audit shows $40.9M net loss in FY23

The Guam Memorial Hospital Authority received a clean opinion in the report of its fiscal year 2023 audit conducted by Ernst and Young LLP on the hospital's financial reporting and compliance for each major federal program, however, the report noted that the hospital ended the fiscal year with a net loss of $40.9 million.

The island's only public hospital went from a balance of negative $257.5 million in fiscal 2022 to negative $298.4 million in fiscal 2023, according to the Office of Public Accountability.

"It generated a $97.9 million operating loss due to decreases in net patient revenue by $36.7 million. The operating loss was mainly offset by nonoperating revenues of $54.7 million comprising transfers from GovGuam of $32.5 million, federal grants of $21.7 million, and other income of $474,000," OPA said.

The hospital's reliance on the government of Guam was highlighted in the report as the audit examined the incurred losses.

"GMHA continued to incur losses from operations amounting to $97.9 million in fiscal 2023, from $61.2 million in fiscal 2022, an increase in losses by $36.7 million. The negative cash flows from operations of $71.6 million, which increased from $57.8 million in fiscal 2022, were mainly due to a $28.6 million decrease in receipts from and on behalf of patients and sales and other services. This resulted in a cash balance of $1.3 million as of fiscal 2023, a decrease of $2.3 million from the prior year. Although GovGuam transferred $32.5 million to GMHA (an increase of $6 million from the prior year), this was offset by a decrease in federal grants by $9.6 million. GMHA receives financial support from GovGuam in the form of supplemental appropriations and subsidies," the OPA said.

During an Oct. 8 oversight hearing before the legislative committee on health, GMHA administrator Lillian Perez-Posadas premised the hospital's current financial situation with some background, telling the committee that when she came on board in 2019, GMH was at a $30 million deficit.

In the audit of fiscal 2023, that deficit was understood, she said.

"According to GMHA, with its large operating deficits, alternate funding sources are needed; otherwise, this will significantly hinder the achievement of other goals. GMHA will continue to ask for additional subsidies through the annual budget request process to cover increases in personnel costs, contractual costs for physicians, supplies and equipment, and electricity," the OPA said.

The audit report noted that the hospital's payer mix explains its challenges with collections as a public hospital.

"Gross patient revenue comprises of the 3 M's (Medicare, Medicaid, Medically Indigent Program), third-party insurance payers, and others and self-pay," the OPA said. "Gross patient service revenues decreased by $1.6 million, from $246.5 million in fiscal 2022 to $245 million in fiscal 2023. Of the total decrease, $7.3 million was attributed to self-pay patients, $6.4 million by MIP and Other patients, and $2.4 million by Medicare patients."

The OPA noted it wasn't all negative, as collection of revenues for Medicaid patients increased.

"Gross patient service revenues for Medicaid patients, amounting to $82.1 million, increased by $14.6 million from $67.5 million in the prior year. Overall net patient service revenues decreased by $37.7 million, from fiscal 2022 of $131.2 million to fiscal 2023 of $93.5 million," the OPA said.

Decreased revenues were coupled with a decrease in billings and collections. The audit report confirmed that the 2023 financial statement was hit hard by technological issues.

"GMHA billed $232.4 million in claims for fiscal 2023 compared to $253 million in fiscal 2022, (a decrease of $20.6 million) mainly due to decreases in billings for the Self-Pay by $14.8 million and the 3 M's by $6.1 million. The billings decreased due to the technological issues experienced during the Electronic Health Record go-live, the network shutdown, and Typhoon Mawar," the OPA said.

Ernst and Young found that GMH's unbilled receivables amounted to $20.9 million in fiscal 2023, a growth of $5.8 million from fiscal 2022. This is one of the material weaknesses identified and noted as a "repeat finding."

The 38% increase in unbilled accounts at the end of fiscal 2023 was stressed as the OPA warned that it "results in the accumulation of potentially uncollectible receivables and the potential for inadequate cash flows to meet current obligations."

It also noted that fiscal 2023 ended with $2.1 million in accounts receivable suspense accounts which could result in "disputed receivables because collections in the accounts receivable suspense accounts are not recorded."

The audit report noted that the hospital implemented four measures to reduce dependency on GovGuam, support its operational expenses and reduce operating losses and negative cash flows:

- Advances from Medicaid claims were received from April to October 2023, totaling $22.3 million, with recoupments totaling $5.7 million.

- Public Law 37-43 appropriated $30 million from the general fund to pay GMHA vendors. The Department of Administration made $25 million in payments directly to GMHA's vendors as of May 31, 2024.

- For fiscal 2023, GMHA received vendor support amounting to $6 million.

For fiscal 2023, GMHA received $15.3 million from the Federal Emergency Management Agency for COVID-19 medical staffing, alternate care sites and personal protective equipment.

The second material weakness noted was that unallowable direct charges were made by the hospital.

"EY identified that the authority made capital expenditures on equipment that is material to the program without prior approval from the pass-through entity due to the absence of the required procedure," the OPA said.

According to the OPA, hospital officials said they would be more proactive in obtaining grants eligibility requirements to ensure compliance.

In a management letter to the hospital's administration and board, the OPA said a review of the Construction in Progress status relative to the Labor and Delivery Maternity project has not taken into account impairment loss.

"During our review of the Construction in Progress (CIP) status, we noted that the Board of Trustees (BOT) agreed to remove the L&D Maternity project due to plans to construct a new hospital facility. The management have not evaluated previously capitalized costs associated with the project and have not recognized any impairment losses," the OPA said.

The OPA recommended that the hospital conduct a review of all capitalized costs and assess the recoverability of those costs by determining if an impairment loss is present.