Hospital seeks savings to pay down deficit

Sault Area Hospital has a working capital deficit of more than $60 million, says its president and chief executive officer Ron Gagnon.

That's the how much the hospital has had to borrow to continue to operate in a deficit over the years.

In its next budget, the hospital will be looking to do more than just balance its operating budget.

SAH is looking to take three to five million dollars out of its operating funds to start paying down the working capital deficit it's built up.

"What we're doing is identifying another $5 million for contingencies or strategies so that, if something unexpected comes up during the year, we'll be able to deal with it," said Gagnon. "In addition to that, we know that in order to pay down our significant working capital deficit... our long-term debt... we need to be generating surplus so we will be targeting surpluses in the neighbourhood of between $3 million and $5 million a year."

Ambitious operating and capital budgets for 2011/2012 were presented to the hospital's board last night by Vice President and Chief Financial Officer Max Liedke.

"Of primary concern is the mandate to ensure that the hospital operates in a balanced position not only for the current year but into the future," Liedke said.

Liedke said there are several assumptions built into the budget, including one that the hospital's base funding will be increased by 1.5 percent next year and that SAH will be able to manage its occupancy levels.

One of the biggest risks to the budget is labour arbitration.

"The province has said, quite clearly as part of its last budget, that it is not funding any increases above zero percent. It's frozen salaries and salary structures for non-unionized employees," said Gagnon after last night's meeting. "Arbitrators in the province continue to award salary increases in excess of zero percent."

The next collective bargaining unit the hospital will have at the table is the Ontario Nurses Association, said Liedke.

That contract is up for renewal this month.

One issue the hospital is not overly worried about - at least for the foreseeable future - is over-crowding and this reduces one of the biggest risks to a balanced budget it faced in past years.

When SAH completed its move into its new building on Great Northern Road about three weeks ago, it also moved 68 of its alternative-level-of-care patients into an area of the old Plummer Memorial Hospital site set aside for this purpose.

The hospital worked with the North East Local Health Integration Network to have these temporary beds funded independently of SAH base operating funds, effectively removing them from its budget.

SAH has been operating close to or above 100 percent occupancy for most of the past several years, mainly because these patients didn't need the level of care an acute-care hospital is designed to provide and therefore didn't qualify for SAH base funding - but had nowhere else to go.

Essentially, they were unfunded or underfunded patients occupying beds intended for acute-care patients.

"We have every confidence that, with the strategies that we're implementing and will continue to implement, we will hit our targets in that area," Gagnon said. "The 68 beds that are now operating at the old Plummer site are a big piece of that as well."

Liedke said hospital senior staff will be closely monitoring budgets and will consult on a biweekly basis to make sure all departments are staying on track.

This will allow them to react to a developing situation before it gets out of hand, he said.

If the 1.5 percent increase in base funding is realized, then SAH will be looking at a total revenue of more than $160 million from the LHIN next year, Liedke said.

This accounts for approximately 70 percent of the overall budget, he said.

Total projected expenditures for next year's budget are around $178 million.

Liedke said 57 percent of these expenses are for compensation and benefits, six percent for medical staff remuneration and 10 percent for drugs and medical supplies.

Fifteen percent represents supplies and other expenses, nine percent is interest and long-term liabilities and another three percent covers amortization of equipment.

Liedke said SAH is projecting an operating deficit of about $6.4 million this year and a balanced budget for the 2011/2012 and 2012/2013 budgets.