Vineyard Hospital Hikes Rates to Ease Pressures on Rising Budget Deficit


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.