Hurt by falling patient volumes, especially in the area of orthopedic surgery, the Martha’s Vineyard Hospital is on track to end its year in red ink on an operating basis for the first time in nearly a decade.

Hospital chief executive officer Tim Walsh said this week that while steps have been taken to beef up orthopedic services, he is projecting an operating deficit of about $750,000. The hospital fiscal year runs from April 1 through March 31.

Hospital financials through Nov. 30 released this week to the Gazette show total operating revenues of $32.7 million, about $1.28 million under budget for the first seven months of the year. Total expenses through Nov. 30 were $31.5 million, slightly under budget. But the monthly numbers for November point more sharply to the downward trend as the hospital enters the deficit months of the year. Total operating revenues for November were just under $3.2 million, under budget by $467,000, while total operating expenses stood at just under $3.8 million, also under budget but only by about $70,000.

“We’ve seen a drop-off in volumes that started in August and we’ve been running under budget since then. And we are trying to make adjustments,” Mr. Walsh said.

One of those adjustments is in orthopedic services. Dr. Raymond (Rocco) Monto, the Island’s only orthopedic surgeon until two weeks ago, began performing surgery on Nantucket last spring, for the first time splitting his surgery time between the two Islands. Previously Dr. Monto had held clinic hours on Nantucket but performed all his orthopedic surgery on the Vineyard. His Nantucket patients traveled to the Vineyard for their surgery.

“We had projected about $1.5 million in gross charges from patients who came from Nantucket, and now it adds up to about a $2 million drop, all connected to orthopedic,” Mr. Walsh said. He said state statistics that track hospital inpatient volumes show a good deal of orthopedic surgery leaving the Vineyard, although he was not specific about the numbers. In response the hospital has now hired a second orthopedic surgeon — Dr. Willie Cater began practicing on the Vineyard full time on Jan. 2. Dr. Cater, who is familiar to some on the Island from when he did resident work here years ago, comes to the Vineyard from Carney Hospital in Dorchester.

Mr. Walsh said the Vineyard hospital also has been hurt by a drop in use of its so-called swing beds, beds normally reserved for acute care that are allowed to be used for patients undergoing rehabilitation following surgery. The swing bed designation (permitted because the Vineyard hospital is a critical access hospital, which means it receives reimbursement for the actual cost of services) has allowed the hospital to be more flexible in filling its 25 acute care beds, especially in the off-season. This has brought in more profits. Mr. Walsh said some of the drop in swing bed use is related to the orthopedic problem, which he hopes to turn around with the arrival of Dr. Cater.

“That [the orthopedic problem] was the one thing that was identifiable — everything else is soft across the board, and that I attribute to the economy. People are holding back, and we are all looking at how we live our lives and where we are going,” Mr. Walsh said. He added:

“But I feel comfortable that we do have our expenses under control.”

After gifts and other income, the hospital is projected to end the year with a gain of about $1.2 million on a total operating budget of $46 million.

Free care is down $1.2 million through Nov, 30, a fact Mr. Walsh attributes directly to the state’s mandatory health insurance program. “It has really worked, and we are seeing it in our numbers,” he said.

Meanwhile the hospital’s affiliate, Windemere Nursing and Rehabilitation Facility, will end the year in the black. Windemere, which operates under a completely different set of reimbursement rules and also has a different fiscal year that ended on Dec. 31, will see a modest operating gain of about $40,000 this year, Mr. Walsh said.

Windemere has three units, with a perennial waiting list for its Alzheimer’s and skilled nursing units. Mr. Walsh said recent architectural renovations made the third unit, for assisted living, more attractive and that unit is now completely occupied — making a full house at Windemere.

The Island hospital, which began as a cottage hospital more than 80 years ago, is no longer completely independent. Two years ago it was acquired by Massachusetts General Hospital and its parent company, Partners Health Care. The Nantucket Cottage Hospital was also acquired in the deal, which included a $5 million gift to each hospital for its capital needs. The hospital maintains a separate board of trustees (although 20 per cent of the board is appointed by Partners). Its real estate is owned by Partners and its budget is set by them. Gifts are kept separate.

Hospital financial statements show annual gifts holding steady this year, with $514,000 in gifts through Nov. 30, just $15,000 under budget. The hospital expects to end the year with about $900,000 in gifts, Mr. Walsh said.

Investment income — budgeted at $199,999 through Nov. 30 — is sharply down at just under $60,000, but that comes as little surprise to anyone who holds an investment portfolio.

And while Mr. Walsh watches his bottom line and prepares for the upcoming budget season — “we are really going to tighten our belt, and while I am not sure yet what that means, I intend to be very realistic,” he said — a spanking new $50 million hospital in mid-construction now looms over Beach Road in Oak Bluffs.

The construction is project is ahead of schedule and on budget.

And even the ordinarily unflappable Mr. Walsh sounds amazed.

“Knock on wood, I can’t believe it,” he said. “But I have to give credit to Columbia Construction [the Redding company that is the general contractor on the job] and Connie Bulman [the clerk of the works and Mr. Walsh’s former colleague at Carney Hospital]. They are doing a fantastic job.”

He said the building will soon be closed in and interior work will begin. A completion date is set for a year from now.

“We’ll move in next January if all goes according to plan,” Mr. Walsh said.

He also said pledges for the capital project have not been affected by the financial crisis on Wall Street. “We are watching that closely and so far we haven’t seen anything that would scare us. But we’ll know much better at the end of our year if there is any trouble. So far the major gifts are all still there.”

Mr. Walsh said about $12 million remains in outstanding pledges and is set to be collected over the next two years.

The $50 million hospital is the largest construction project in Island history.

Mr. Walsh said considering all the recent calamitous events in the national economy, he is grateful that the hospital capital project got off the ground when it did, more than three years ago.

“We could never do it today,” he said bluntly. “The timing was — I would like to say it was our outstanding management skills — but really it was just absolute luck.”