TONASKET – An audit of North Valley Hospital’s financials from Jan. 1, 2008 through Dec. 31, 2009 detailed the monetary problems the district is facing.

The audit was done by Washington State Auditor’s office and was completed on Jan. 4, 2011. State Auditor Brian Sontag has written a report which was released on Feb. 28.

“The District’s financial position has declined significantly over the past four years,” Sonntag wrote. “The District has experienced large, consistent operating losses over this period. The District has been paying its bills with registered warrants since 2005.”

According to the audit, in 2004, the NVH District did not have any registered warrants, but sustained an operating loss that year of $1,529,101 and had unrestricted net assets of $377,056. In 2005, the registered warrants balance was $1,517,980 while the operating loss for the year was $822,206 and the unrestricted net assets were lowered to $224,794. By 2006, the registered warrants outstanding balance was at $1,646,007 with an operating loss of $602,216 and a negative balance of $153,762 for unrestricted net assets. In 2007, the registered warrants outstanding balance lowered somewhat to $1,465,138 with an operating loss of $238,917 and a negative balance of $71,186 for unrestricted net assets. The registered warrants outstanding balance went up almost $300,000 for 2008, sitting at $1,723,546 with an operating loss of $939,193 and a negative balance of $589,037 for the unrestricted net assets. Finally, 2009 saw the worst of the financial troubles with the registered warrants outstanding balance rising to $3,359,011 with an operating loss of $1,516,532 and a negative balance of $584,553 for unrestricted net assets.

“As of mid-2010, the District has reduced its registered warrant balance to $2.9 million,” Sonntag wrote. “The $2.2 million balance does not include interest the District must pay to the County as registered warrants are redeemed. The District paid the County $98,201 in 2008 and $73,957 in 2009 in interest on its registered warrants.”

Chief Financial Officer Bomi Bharucha stated one main cause as the reason for the dramatic operating loss in 2004 that began the district’s financial woes.

“It was before we formed the division split and we had huge nursing home losses,” Bharucha said. “The nursing home was paying us based on 1999 costs and had not updated to more recent cost report rates. They’ve updated now but are still making budget cuts.”

The situation worsened in 2009, Bharucha said, because of the district taking over the entire emergency room management and having to hire staff for it.

“We incurred a lot of upfront costs from that,” he explained. “We were also trying to build up the surgery department without our own surgeon. Now, we know that was not sustainable for us.”

Bharucha wanted to make it clear that this audit was for the time period of Jan. 1, 2008 through Dec. 31, 2009, stating that the District has paid down nearly $1 million in registered warrants.

“We recommend the District continue to implement its plan to address its cash flow issues and to meet the County Treasurer’s office mandate to bring the registered warrant balance down to $2.5 million by the end of 2010,” Sonntag wrote in the audit. As of Dec. 31, 2010, the District had paid the warrants down to nearly $2.4 million. “Further, the District should closely monitor and evaluate actual results compared to the plan to ensure the District’s financial condition improves. The plan should be revised if expected improvements are not achieved.”

The audit provides the response from the district, which states that the district has a strategic plan in place that includes paying off the registered warrants by the end of 2013.

“The hospital district will be reimbursed by Medicare and Medicaid for the new addition’s depreciation,” Bharucha said. “Since the voters paid for the construction on the addition, the money coming from Medicare and Medicaid is bottom-line extra cash for the district. These payments will not come in until the middle of 2012, since we have to occupy the new addition for one whole year before we can file for the depreciation reimbursements. We are trying, through new cost report preparers, to file with Medicare and Medicaid to bump up our cost reports now so they don’t have to do such a large reimbursement next year because we are incurring expenses right now.”

Another part of the district’s plan to bring in more cash flow is the hiring of a new surgeon, who Bharucha said is getting referrals from all doctors in the district. Bharucha said the new surgeon’s numbers are starting to increase and he is becoming financially sustainable.

“Administrator Linda Michel is also focusing on improving customer service in the district,” he added. “Also, our new birthing suites are, we hope, encouraging women to give birth here rather than at other hospitals in the county.”

The district’s response to the audit goes on to state that the Okanogan County Finance Committee has required the district to have the registered warrants at or below $2 million by Dec. 31, 2011.

“I think we can make this goal,” Bharucha said. “We’re catching up volumes and our other efforts are really taking affect on the books. I think we’ll be able to catch up and get back on track. Two big challenges which are outside of our control are Obama care and where it’s going and the Washington State biennium deficit and what they’re cutting to get out of debt.”

To reach their goal, Bharucha said the district must make weekly payments in the amount of $10,000 and stated he has been budgeting for $15,000 payments to provide a bit of a cushion. Due to reimbursement checks from Medicaid and Medicare for care provided by the district being held up, most of the cushion the district had built as of Friday, March 18 had been used up and the district’s registered warrants amount was sitting at just under $2.4 million while the goal for this time in the year was set at $2.285 million.