Erlanger budget focuses on maintenance, infrastructure
After years of record expansion, Erlanger Health System officials are looking to invest their limited capital in rebuilding the hospital’s infrastructure for the future.
The budget and finance committee for the Erlanger Board of Trustees got its first glimpse Monday night of the proposed capital budget for the upcoming 2021 fiscal year, which begins July 1. The hospital’s budget process would normally begin in April but was postponed until May to give officials more time to assess the impact of the coronavirus pandemic.
Erlanger management received $110 million worth of capital requests from departments across the health system, according to Steve Burkett, the hospital’s interim vice president of strategy and business development. Of that, Burkett said about $75 million worth of requests were deemed needed, but Erlanger has $20 million to spend on capital.
Burkett said he believed the $20 million spend is a conservative, sound use of assets.
“There’s a legitimate issue with Erlanger having deferred some maintenance, financing growth, et cetera,” Burkett said. “There is a priority to re-establishing the foundation so that we can position ourselves for better days in the future.”
The biggest price tag items on the proposed budget relate to information technology, including $2.9 million for the hospital’s electronic health record system, $1.5 million for a nursing communication system and $3.5 million for other IT expenses. Erlanger is looking to spend $2.5 million on infrastructure improvements at its facilities and $2.1 million on an MRI upgrade at Erlanger East Hospital.
Britt Tabor, Erlanger’s chief financial officer, said starting in fiscal year 2016 the hospital began spending in excess of its depreciation expense — expenses that occur as investments, such as X-ray or MRI machines, lose value over time.
Health systems normally spend about 105-110% of their depreciation expense on capital, Tabor said. However, in fiscal years 2016 and 2017, Erlanger spent 166% of depreciation on capital, and 145% in 2018 before budgeting about 100% of depreciation on capital in the last fiscal year, he said.
Much of that spending went toward building Erlanger East as well as investments in orthopaedics and cardiology programs that were spearheaded by former Erlanger CEO Kevin Spiegel.
The budget and finance committee will meet with the planning committee to discuss both the capital and proposed budgeted volumes for next year before the whole board officially votes on the budget later this month.
Management and trustees acknowledged that they may have to tweak the budget in the fall because of the uncertainties due to COVID-19.
Erlanger is also looking to expand its footprint in Bledsoe County by striking a deal with the county to build and lease a new physician office building on the campus of Bledsoe Hospital.
The county has secured funds to construct the building so that Erlanger’s only expense would be a $2.04 million, 15-year lease with the option to renew.