SVMC Announces Audit Results, Focuses on Turnaround

For Immediate Release
25 June 2009
Media Contact: Kevin Robinson
802-447-5003

BENNINGTON, Vt. — Southwestern Vermont Medical Center (SVMC) today announced the results of its mid-year financial audit, showing a loss of $17.3 million for the six-months that ended March 31. Based on audit results, senior management projects a substantially higher deficit of $22.1 million by the end of the fiscal year in September.

"The current and projected shortfalls in our operating budget are intolerable," said hospital CEO Dr. Mark Novotny. "After my appointment as the interim CEO by the Board of Trustees in March, it quickly became clear that fiscal 2009 budget projections were seriously flawed. The board, former and current executives, and the senior management team all share responsibility for the outdated fiscal management practices, ill-informed decisions, and lack of adequate oversight that led to this serious financial situation."

In a memo to hospital staff, Dr. Novotny said, "Management relied on financial projections with massive errors, including revenue and expense estimates that proved impossible to achieve. I assure you the current leadership team understands the defects that got us here and the changes needed to ensure it does not happen again." He noted that, regardless of what corrective actions are implemented, "SVMC will never lose sight of its primary mission – providing patients with the high-quality medical care they deserve and have come to expect from their community hospital."

Dr. Richard Guerrero, chair of the Board of Trustees of Southwestern Vermont Health Care (SVHC), said, "The board is well aware of the gravity of the hospital’s financial situation. We’re responsible to the communities we serve. Upon learning of a budget shortfall, the Board took immediate actions that included appointing Dr. Novotny the interim CEO and commissioning a comprehensive mid-year audit.

"The audit now reveals a severe deficit caused primarily by past breakdowns in SVMC’s fiscal management and decision-making. The board supports the measures implemented thus far and is providing senior management with the guidance and resources needed to restore the hospital’s financial integrity as soon as possible."


Causes
The audit shows the biggest loss was a $10 million drop in the value of the health system’s pension plan investments due to the global financial meltdown. The pension investments have improved in recent months due to the rebound in the financial markets. Another major item was the deficit in "contractual allowances," the difference between what the hospital charges for care and what Medicare and Medicaid actually pay. SVMC expected to receive $6.7 million more in payments than actually came in during the first half of the fiscal year.

What’s ahead
Dr. Novotny indicated the hospital would be able to cover the deficit from hospital operating cash and unrestricted investments. An additional portion will be paid over the next several years. He noted that the fiscal recovery measures announced in May are expected to have a substantial positive impact on hospital finances in FY 2010 and future years.

"That’s a good beginning, but it is clear a major overhaul of hospital operations is needed," Dr. Novotny said. He told staff that "major changes will continue to be made to put our house in order. The policies of the past are being pushed aside to make way for long-needed improvements in how we do business."

Senior management is currently focused on three major financial objectives: closing the current budget shortfall, developing a 2010 budget based on solid data and projections, and returning SVMC to sustainable financial health.

On Wednesday, the hospital announced the appointment of Frank Skala, a highly-qualified interim chief financial officer (CFO), who will join the team on June 29. Skala, who worked with the well-known Hunter Group health care management firms, has extensive experience in managing financial issues and guiding hospitals back to fiscal health.

Dr. Novotny also said the hospital will be working closely with the Vermont Department of Banking, Securities and Health Care Administration (BISHCA) in developing a budget roadmap for the coming fiscal year. "Officials at BISHCA are very concerned about our situation. They have been helpful in working with us to develop a solid 2010 budget and the next phase of our fiscal recovery plan." He said senior management is working with hospital managers to develop a recovery plan to "propel the hospital into the next decade." Details of the plan are still in development and its possible effect on departments, service lines, or practices are not yet known.

Novotny closed his memo to staff by thanking them for their dedication to patients care during this difficult time. He also emphasized the need for their knowledge and help, indicating that managers and medical directors will seek their input on cost-saving ideas and hospital improvements in the coming weeks.

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