Vineyard Hospital Hikes Rates to Ease Pressures on Rising Budget
Deficit

By JULIA WELLS

Fees went up at the Martha's Vineyard Hospital this week for
the third time in 18 months, as hospital leaders work to tame a stubborn
six-digit operating deficit amid an industry climate that is gloomy on a
good day.

"If misery loves company, then I guess we are okay, but we are
trying to present numbers here that really work," said hospital
chief executive officer Kevin Burchill this week.

The remark came as hospital managers released unaudited financial
summaries for the end of the fiscal year and also budget projections for
the new year just begun this week.

The predominant color scheme continues to be red ink.

Unaudited financial statements show that the hospital expects to
post an operating loss of some $376,000 for the 12-month period that
ended on March 31. Total operating revenues for the year were $20.8
million, while total operating expenses were $21.2 million, an increase
of about nine per cent over last year. The hospital will offset this
bottom-line loss with gift money; total gifts for the year are estimated
at $927,000.

Budget projections for the coming year predict even higher operating
losses. Total revenues are expected to be about $22.4 million, while
total expenses are expected to be about $23 million, an increase of 8.5
per cent. If the projections for next year are correct, expenses at the
hospital will go up more than 17 per cent in two years.

"There is a lot of pressure on the expense side throughout the
industry - and we are really seeing the same kinds of
increases," hospital chief financial officer Timothy Walsh said.

Meanwhile, a five per cent across-the-board fee hike went into
effect at the hospital on April 1. It was the third fee hike in the last
year and a half. Fees were raised five per cent in December of 1999 and
five per cent again in June of 2000, as trustees and managers struggled
to find ways to stem operating losses at the Island's only
hospital.

Mr. Burchill said the latest fee hike will bring an extra $400,000
to the bottom line in the coming fiscal year. He said the hospital also
is now all but assured of receiving designation as a critical access
hospital (CAH) in the next three months. The special federal designation
means the hospital will be reimbursed for its actual costs under the
Medicare program, which will translate to another $400,000 in operating
revenues.

Mr. Burchill and Mr. Walsh said three major contract renegotiations
with Blue Cross, Harvard Pilgrim and Medicaid will net another $725,000
in added revenues for the hospital in the coming year.

But even after all of that, the hospital still projects a large
operating loss.

Rising expenses placed against relatively flat revenues tell most of
the story. Mr. Walsh said most of the increase in expenses can be
tracked to salaries and to steep increases in the cost of drugs.

Drug prices went up 14 per cent, he said.

Both Mr. Walsh and Mr. Burchill admitted that the practice of
budgeting for a deficit is ill-advised.

"It's not a great practice, and it's certainly not
the practice in a perfect world that you'd like. In a perfect
world you'd like to have your budget break even," Mr.
Burchill said.

"What we have said is that we will make up for it with gifts
and endowment income," said hospital board chairman Fred B. Morgan
Jr.

"It's a good question for the industry because you
can't sustain operating losses indefinitely," said Mr.
Walsh. Hospitals of all sizes throughout Massachusetts are now
struggling to contain operating losses.

"We're doing better than the industry average, but it
doesn't give you a lot of comfort because the whole industry is in
trouble," Mr. Walsh said.

"Something's got to give," Mr. Burchill said.
"What we are going to do is manage the expense side and maximize
the revenue so that services don't suffer," he added.

"There is no alternative," Mr. Morgan said.

Not included in the budget projections for the coming year is the
plan to collect some $500,000 in tax money from the six Island towns to
help defray hospital expenses. Framed as an intermunicipal agreement,
Edgartown and Chilmark have already voted to approve expenditures in
their towns, but because the approvals came last year, voters must this
year approve an article to change the date of the expenditure. Voters in
Oak Bluffs, Tisbury, West Tisbury and Aquinnah will be asked to approve
the spending request at their annual town meetings this year. In West
Tisbury, the spending request must also be approved as an override
question on the annual town ballot.

Hospital leaders said they are hopeful that the agreement will be
approved.

In other hospital business, Mr. Morgan said hospital trustees had a
discussion about long-range planning at a meeting two weeks ago. Most of
the discussion focused on planning for facility renovations or
replacement, he said. "Should we spend $1 million to renovate the
existing emergency room or build a new $5 million emergency room? These
are the questions that are being tossed around, and eventually decisions
will be made," Mr. Morgan said.

He said the hospital hopes to complete a strategic plan by October.