Phelps Health’s Board of Trustees gave their final approval to issue $20 million in bonds following the finance committee’s acceptance of the health system’s May finances. This left the Phelps County Commission to determine whether to authorize the issuance of the Series 2019 bonds for the health system’s Epic electronic medical record system — $33 million in projected capital expenses.

Phelps Health was over budget by 2 percent in May 2019 with $23.2 million in net operating revenues. There was a pick-up of $400,000 from pharmaceutical revenue recognized during May, Vice President and Chief Financial Officer for Phelps Health Jana Cook said at Phelps Health's June 26 Board of Trustees meeting. 

Phelps Health had $22.9 million in operating expenses in May, which was over budget by $1 million. Supply expense from chemotherapy infusion drugs and expenses related to agency personnel contributed to May's operating expenses over budget by 4.5 percent, Cook said.

The month of May saw an influx of new nurses coming into the organization, Cook said. Orientation expenses for new nurses in addition to the health system’s use of agency nurses accumulated in higher expenses, with orientation for new nurses lasting anywhere from six weeks to 16 weeks.

For May, income from operations was $300,000 for the health system, which was $500,000 below the $800,000 the health system had budgeted. “We had a little bit of an investment loss this month of $1.6 million,” Cook said. “That was on the equity side, and last I looked June was doing good, so we should pick that back up.”

Year-to-date, Phelps Health had $113.1 million in total operating revenues, a growth of 5.3 percent over 2018. Total operating expenses year-to-date were over budget by $3.9 million due to $1.7 million in supply expenses and $2 million in expenses from purchased services.

“That means we have a total income from operations of $2.8 million and an operating margin of 2.5 percent,” Cook said. “Not quite where we want it to be, we did budget a very aggressive income from operations at $3.9 million that was about 3.5 percent through the first five months of the year.” 

With a 2.5 percent operating margin, Phelps Health still benchmarks favorably with other “like-organizations,” Cook said.

Non-operating revenues grew by $8 million during 2019, leaving the organization with a 1.9 percent operating margin with non-operating revenues totaling $10.9 million. Phelps Health’s cash and investments increased by roughly $11.3 million because of favorable investments, “but also we’ve been able to grow cash by $4.2 million,” Cook noted.

Phelps Health’s total debt was $59 million, and overall the health systems’ debt-equity ratio was quite good, Cook said. The health system met its debt service 7.2 times through 2019, primarily due to pick-up in income from investments.

Days cash on hand continued to be consistent with the last couple of years at 222 days, well above the benchmark at 160 days, and cash and investments totaled $152 million, which was 2.5 times the $59 million Phelps Health has in long term debt, according to Cook, before the Finance Committee accepted the May financial statements for the health system.

The Phelps County Commission passed a Resolution authorizing the issuance of the $20 million principal amount of hospital revenue bonds for Phelps Health, Series 2019, on June 27, 2019. The closing on the bonds is expected in July.

Phelps Health had cash and investments totaling $152 million with $59 million in total debt, Cook said, allowing the organization to have excess capacity to take on additional debt. 

“Our debt-capitalization ratio is at 19.7 percent well below the benchmark at 34.3 percent. This is where you want to be below the benchmark,” Cook noted. 

Commerce Bank plans to purchase the bonds, which are scheduled to mature on July 1, 2029. The bonds carry an interest rate of 2.36 percent, a rate lower than what was initially anticipated. 

The Phelps County Commission is authorized per Missouri Revised Statutes (205.160) County Hospital Law to issue revenue bonds of the County for the purpose of providing funds for the acquisition, construction, improvement, extension, repair, equipping and furnishing of hospitals and related facilities. 

Provided that the principal of and interest on revenue bonds are payable solely from the net income and revenues arising from the operation of such hospitals and related facilities after providing for the cost of operation and maintenance. 

The Phelps County Commission, per the County Hospital Law, has previously issued and has outstanding three series of revenue bonds payable out of the net revenues derived from the operation of the medical center:

— Hospital Revenue Bonds, Series 2014, on Feb. 11, 2014. The amount issued was $24.27 million with the amount outstanding at $17.5 million.

— Hospital Revenue Bonds, Series 2015, on June 1, 2015. The amount issued was $35.45 million, with the amount outstanding at $32.81 million. 

— Hospital Revenue Bonds, Series 2016, on May 5, 2016. The amount issued was $9.8 million, with the amount outstanding at $8.06 million. 

The Series 2019 bond was issued for the Epic electronic medical record system, which is $33 million in projected capital expenses. “We had $12.3 million set aside through our capital budgeting process in 2017 through 2019. That leaves a gap of about $21 million,” Cook said.

Phelps Health’s $59 million in total debt is broken out between the Series 2014, Series 2015 and Series 2016 bonds. “Right now we have about $6.2 million we pay in total debt service annually,” Cook said. “The life of the bond is 10 years, and it does add about $2.5 million in additional debt service.” 

The indenture on which the bonds were issued was adopted in 2003 and there have been supplements for each bond issue since. The Series 2019 bond for $20 million is a drawdown bond with $4 million drawn on five specific dates, and interest is solely paid on the portion of the bonds drawn. 

The closing on the Series 2019 bonds instills that the governance at Phelps Health remains the same with 60 days cash on hand, and requires Phelps Health to meet its debt service coverage ratio 1.2 times to stay on track with its other bonds, Cook said. The initial draw of $4 million will be deposited upon the bonds closing.