Understanding our financial position

Ontario’s hospitals, like most other companies and organizations, are trying very hard to balance their budgets and function within their means during these very difficult economic times.

The NHS had an operating deficit of $18.9 million for the 2008-09 fiscal year.

“Our operating revenue is not sufficient to cover the expenses associated with the delivery of services currently being provided,” says Chief Financial Officer Angela Zangari. “This is one of the key reasons the NHS developed a Hospital Improvement Plan (HIP) in July 2008.”

The HIP includes more than $28 million of savings over the five-year period through the creation of Centres of Excellence and improved quality and efficiency initiatives. The HIP will also help reduce costs by addressing the duplication of services, equipment, health professionals and infrastructure across NHS sites.

Approximately $16 million has been saved since the HIP was implemented, mainly from the consolidation of surgical services, bed closures and conversion of acute care services to complex continuing care.

Independent reviews

The NHS is an efficiently-run hospital system. Numerous third party reports and reviews demonstrate this fact. Niagara Health has undergone an efficiency review, an expenditure control review, the Dr. Kitts review, in addition to our annual financial audits, all which have pointed to the same thing – we are efficient, we manage our expenses well and there is a need for a funding/cash injection to the NHS.

Debt/Working Capital Deficit

The NHS debt/working capital deficit is more than $100 million.

“It is primarily attributable to factors beyond our control and stem from a number of unique circumstances from amalgamation of the NHS in 2000 and the governance transfer with the former Hotel Dieu Hospital in 2005,” says Angela.

Bridge Financing

The NHS received a cash advance of $90 million from the LHIN in April 2009 for the 2009-10 fiscal year. This is an upfront advance of our yearly funding, which needs to be repaid before March 15, 2010. NHS uses bridge financing from the bank to repay this advance until the annual funds flow again in April for the next fiscal year.

The cash advance and bridge financing are used to fund our negative cash position, which is approximately $110 million. This is funded by the $90 million from cash advances/bridge financing and $18-million line of credit.

Provincial Funding Increases

News articles continue to refer to a 43% increase in base funding. The nature of this increase is not well understood.

Much of the new monies received from the Provincial Health Ministry in the last five years are for new programs, not to fund existing operating costs or deficits.

Since 2004/05, we have received $85.4 million in additional funding; 62% of this money was specifically targeted to fund programs new to the NHS. More than half of the $85.4 million — $47 million — was transferred from the former Hotel Dieu Hospital to the NHS in relation to the transfer of programs to us, including oncology and chronic kidney disease. In addition, almost $5 million was for increased demand in the chronic kidney disease program.

The remaining funding increases received by NHS for the last four years were not sufficient to cover our growing annual operating costs, which include increases in salaries and benefits as well as utilities. This is the same situation being experienced by all hospitals in Ontario. For example, in 2009-2010, the average funding increase for Ontario hospitals was 2.2%, however, costs increased by approximately 3.5%.

“Niagara Health continues to work with our Local Health Integration Network (LHIN) and the Ministry of Health and Long-Term Care (MOHLTC) to address the financial situation, including dealing with some factors which are unique to Niagara,” says Angela.

What’s Ahead

As Ontario’s economy recovers from the recession, hospitals can expect that government funding will not be enough to cover increasing expenses. Although funding planning targets for the next fiscal year 2010/2011 have not yet been identified by the MOHLTC, all indications are the HIP funding assumption of a 3% funding increase will not be received for 2010/2011.

Hospitals have been asked to identify the impact of base funding increases 0%, 1% and 2%. Each of these scenarios represents a funding shortfall of $3 million to $9 million for Niagara Health System because our costs will continue to rise at a greater rate.

The NHS has identified sufficient additional savings to deal with a 2% funding assumption for next year without significant service reductions.  If base funding for 2010/11 is less than 2%, additional service reductions will be required. «