The Van Diest Medical Center Board of Trustees approved the renewal of the hospital’s management services and affiliation agreement with Mercy Health Network Tuesday night during its regular monthly meeting.

The contract, which will be for a one-year term, was approved at a cost of $140,000. That represents an increase from the previous year of $20,000. Interim Chief Executive Officer Mike Trachta, who is filling in for CEO Lori Rathbun while on medical leave, said the terms of the contract changed last year from two years in length to one year.

“We thought there might be changes with the new joint operating agreement at Mercy Health Network. It turned out there were zero changes to the language. The only real change was the price increase,” he said.

Trachta explained that the central Iowa CEOs in the network asked the health system to add a clinic administration leader as a consultant for the hospitals and as an additional compliance resource.

“So we went ahead added those staff positions to our team,” he said.

Board Chairman Roberta Knutson said the finance committee of the board had recommended the approval of the contract renewal.

The trustees also approved the internal budget for Fiscal Year 2017-2018 Tuesday night.

Chief Financial Officer Alice Heinrichs gave an overview of the proposed internal budget. The budget includes a capital equipment fund of $195,610, down from the present year. She said there was also a margin improvement plan included.

Trachta said initially, the budget had a projected loss of $1.762 million and a total margin of $168,854.

“We had a great discussion about what should the right margin be, what should we be striving for,” he said. “We certainly want to do better than that both from a cash flow perspective but also from an operating performance perspective.”

He said with the margin improvement plan, the goal for the operating margin was moved to a loss of $762,000, which is -2.5 percent. Trachta said the Mercy Health Network target margin is 1 percent.

“Our goal is to stair-step our performance from where it was in 2016 at -8.6,” he said.

“We’re really trying to make sure we’re trending in the right direction for the long-term perspective.

Trachta said the goal would be for the hospital to come up with revenue enhancement ideas so there wouldn’t need to be more “difficult expense reduction activities.”

“But realistically, I think there will be some of both,” Trachta said.

Heinrichs also said the hospital anticipates an increase in volume due to the full year of operation of the family health clinic, along with labs, the infusion center and radiology. She added that she expected continued volume increases for surgical services and with the implementation of integrated medicine.

The board approved the internal budget which goes into effect July 1.

In other business, the trustees approved a retainer agreement with Davis Brown for legal services, at a cost of $14,000 for the year.