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Jun 30, 2009 8:25 PMPublication: The East Hampton Press

Hospital makes a profit for first time in eight years

Jun 30, 2009 8:25 PM

With the help of a state grant that will help pay for a new obstetrics facility and renovated emergency room, Southampton Hospital ended the year 2008 in the black, the first time it had done so since 2000.

After running a $1.8 million operating budget deficit in 2007, the hospital closed last year’s books with a modest profit of $414,389 on total spending of $94.4 million, according to an audited financial statement hospital officials released this week. But the hospital’s president and CEO, Robert Chaloner, said he is wary of declaring victory over the hospital’s fiscal challenges just yet: He pointed out that without $3.2 million in grant money received last year through the Health Care Efficiency and Affordability Law for New Yorkers, or HEAL NY, the hospital would still be seven figures deep in red ink.

The HEAL NY grant totals $8 million and is being distributed over three years, so more state money will come the hospital’s way this year and next. The grant proceeds are considered revenue in the operating budget. “It’s real cash,” Mr. Chaloner said.

Though the grant was only an artificial and temporary fix for Southampton Hospital’s bottom line, the medical facility has made strides and is expected to at least break even next year as well, with more spending cuts anticipated. “We’re on track right now,” Mr. Chaloner noted.

The recession has not made things any easier for the hospital. The hospital’s pension fund and endowment have suffered. The hospital’s investment portfolio shrunk to the tune of $9.5 million in 2008. The losses could just as easily be erased if the investments bounce back as the economy does.

Fears that donations would dry up in the economic downturn were not realized in 2008. In fact, charitable contributions to the hospital went up by $64,895 to $4.6 million.

Hospital spending rose 7.2 percent to a record $94.4 million in 2008. More than half of the $6.3 million increase can be attributed to employee salaries. Over the last few years, the hospital has been recruiting nurses, hospitalists and specialists, which has swelled the payroll—but it has also allowed the hospital to admit more patients and realize more revenue.

That was part of Mr. Chaloner’s strategy for addressing the hospital’s chronic operating deficit upon taking over as president and CEO in December 2006: investing in medical staff and cultivating more medical practices to provide service to the community and attract more patients to the hospital. It paid off in 2008, as net patient service revenue—money paid to the hospital specifically for medical treatment—rose by 8.7 percent, to $84.7 million. The CEO said much of the increase can be attributed to the hospital’s aggressive negotiations with health insurance companies and the improved reimbursement rates for care that resulted.

When the recession hit, and construction and other business activity declined on the South Fork, it reduced the pool of hospital patients as well, Mr. Chaloner said. But the number of admissions stayed nearly the same in 2008: There were 6,628 inpatient discharges, down just six from the year before. There were 547 fewer emergency room visits in 2008, bringing the emergency department’s volume down to 23,336, an average of about 64 visits a day.

Southampton Hospital, along with Peconic Bay Medical Center in Riverhead and Eastern Long Island Hospital in Greenport, have been seeking higher rates of reimbursement from health insurers. The three medical facilities incorporated last year under the auspices of the East End Health Alliance to combine their clout in negotiations, share resources and develop a strategic plan for delivering health care on the East End while remaining financially viable.

As single hospitals, they struggled to get health insurers to pay them what they called the “market rate” for the health care they provide. But together they have neared market rate or met that goal with many health insurers after hard-nosed negotiations.

Mr. Chaloner said that Medicare, the federal program that provides health insurance to Americans 65 and older, used to be Southampton Hospital’s highest-paying insurance provider. Since the Health Alliance hospitals came together and negotiated better rates, now the private insurers are paying the most, as it should be, he said.

There is one exception, he noted, and it is a big one. Empire Blue Cross Blue Shield, the biggest private insurer on the South Fork, is still paying the hospital less than Medicare pays. The Health Alliance hospitals are in the midst of contract negotiations with Empire now and are looking to change that.

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As a former hospital administrator, I applaud Mr. Chaloner and his team. It is always a struggle in NYS. Readers should know that the operating margin for hospitals in NYS are always among the smallest in the country.
By number19 (111), Westhampton on Jul 1, 09 7:35 AM
Congratulations to Bob Chaloner and his crack team for outstanding administration and financial management!
Finally. Good work.
By Waincott Resident (42), Wainscott on Jul 1, 09 5:47 PM
UM, ok...whatever....this is the same story all over again....about how great Chaloner is...isn't anyone even the slightest bit curious about the demise of the last two hospitals he ran? Oh, sure...he can retort that their downfall, in succession, was due bad reimbursement, a bad climate for healthcare, blah blah blah...all true to a great degree of course- for every institution. However, this in no way detracts from the culpability of questionable decision-making and, most importantly, running ...more
By eastendlocal (28), southampton on Jul 2, 09 8:41 AM
Bob learned from his previous mistakes and is now doing a great job
By EastEnd68 (888), Westhampton on Jul 2, 09 2:07 PM
Well only time will tell...let's hope for the sake of Southampton Hospital that he can learn the THIRD time around!! How much learning does one person need??

In any case, even if by some miracle he does end up being the messiah of the East End, how does that help the hundreds of people who suffered from his "learning curve?" Residents having to find new employment mid-year, people on all levels not being paid for months on end, an internal divisiveness and lethargy that was the result of ...more
By eastendlocal (28), southampton on Jul 2, 09 3:54 PM
give it a rest
By marmalade1997 (1), Concord on Jul 2, 09 4:40 PM
Give it a rest??? That is incredible! Tell that to the countless people who suffered under Chaloner's leadership. People who lost their jobs, their stability, their careers...I would like to know how brave you would be to tell them to their FACES to "give it a rest..."

In addition, Southampton Hospital, with all of its flaws, is the single most important hub of healthcare for the East End. If Southampton Hospital were to befall the same fate as the TWO previous institutions under the purview ...more
By eastendlocal (28), southampton on Jul 2, 09 8:47 PM