PORT ANGELES — Olympic Medical Center is considering a $20 million loan to pay for three major expansion projects and new medical equipment.
The seven commissioners will consider approving the loan from KeyBank along with the 2014 operating and capital budgets and three-year strategic plan at their Nov. 20 board meeting at 6 p.m. at the Port Angeles hospital, 939 Caroline St.
Chief Financial Officer Julie Rukstad said the 25-year loan would be paid back at a fixed rate for the first 10 years. The current interest rate is 3.65 percent, Rukstad told commissioners Wednesday.
A slide shown at the meeting described the transaction as a debt issuance, in which a bank or other party underwrites debt at a fixed rate and puts it on the bond market. Rukstad on Thursday clarified that the $20 million is simply a loan.
The loan would bump OMC’s debt-to-capitalization ratio from 15 percent to 27 percent., Rukstad said.
“We would pay down the principal in debt every year, so that 27 [percent], of course, would go down over the course of the term,” Rukstad told commissioners.
Projects in works
OMC Chief Executive Officer Eric Lewis said the money would be used to pay for the following projects:
■ A 3,500-square-foot expansion of the hospital emergency room.
The ER would be expanded from 14 exam rooms to 22, with two rooms dedicated to patients with mental health and chemical dependency issues.
The entire $2.3 million cost is included in the proposed 2014 budget.
“The intent would be to design it as quickly as possible, perhaps by April or May,” Lewis said.
The expansion would be completed in late 2014 or early 2015.
“That would make the emergency room adequately sized for the coming five to 10 years,” Lewis said.
■ A 27,500-square-foot medical office building on an OMC-owned lot south of the hospital.
The building would house physician’s offices and a primary care walk-in clinic.
Depending on the exact square footage, the estimated cost ranges from $9.5 million to $12 million, with $3 million in next year’s budget for design.
“It would be designed in 2014, but most of the construction would be in 2015,” Lewis said.
■ A 22,500-square-foot outpatient surgery center in Sequim.
The Sequim campus expansion would provide space for endoscopy procedures and surgery offices.
The estimated cost is $9 million, with $2.6 million in next year’s draft budget for design.
Prices include medical equipment and information technology hardware.
“The first one we will bring to the board is the emergency room expansion,” Lewis said.
“The other two projects will take longer to fully get a scope and an architect contract in our budget.”
Each project will require a board vote on the architect contract and construction scope document, a vote on the call for bids and a vote on a construction contract to the lowest responsible bidder.
Dr. John Miles, OMC commissioner, noted that the total cost of the three projects “exceeds the amount we are thinking about borrowing.”
“How are we going to address that?” Miles asked.
Lewis said the scope of the projects has not been finalized, and the square footage may be reduced.
“I think there’s definitely going to be some tough decisions to make as we look at our budget and how big to make these buildings,” Lewis said.
In addition to the buildings, OMC is budgeting $3.5 million next year for medical equipment, including three 3-D mammography machines for $1.4 million.
“It’s a big investment, but it’s a whole new technology that gives us 3-D mammography capability where you can scroll through the image,” Lewis said.
“That allows earlier detection of breast cancer and much better views. So this is a quantum leap in technology that we want to bring to the board for consideration.”
All told, capital spending in the draft 2014 budget is $14.8 million.
On the operations side, OMC projects to spend $147.3 million next year and to collect nearly $150 million in operating revenue.
With nearly $3 million in net revenue, OMC projects a 2.0 percent net margin, meeting one of its major financial goals.
“This is an aggressive budget, in my opinion,” Rukstad said.
“We are projecting some increases in volume, and we’re holding expenses to those volumes and tighter.”
Volume growth is projected in primary care, the sleep lab and sleep clinic, women’s clinic, cardiac care and the Sequim cancer center.
Notably, the public hospital district projects a reduction in uncompensated care in 2014, which would break a trend that dates back several years.
Bad debt and charity care will cost OMC a projected $7.4 million in 2014, a 17 percent reduction from the $9 million projected in 2013.
“With the ACA [Affordable Care Act] and changes that we see are happening, we have projected provisions of bad debt and charity care at a lower rate than what we’re forecasting for 2013,” Rukstad said.
“As we project less in charity care and bad debt, we are projecting slightly higher in Medicaid [payments].”
The proposed budget takes the 1 percent increase in the annual property tax levy, which amounts to $38,520 for a new levy total of $3.9 million.
No members of the public spoke at the budget hearing.
Most of the 24 goals in the three-year strategic plan, which is updated every year, are the same goals that exist in the current plan.
“The biggest focus we have is going to be primary care, both family practice and internal medicine,” Lewis said.
“We want to make sure we have enough primary care to meet the community’s needs.”
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Reporter Rob Ollikainen can be reached at 360-452-2345, ext. 5072, or at rollikainen@peninsuladailynews.com.