BENNINGTON- It wasn’t the news Southwestern Vermont Medical Center wanted to hear. Earlier this year, SVMC officials learned that SVMC was operating at a $1.3 million deficit. But the situation just got worse. Now auditors are saying they have a deficit of $22 million and SVMC will need to consider drastic changes in order to keep operating as a financially viable medical service.

Last week, SVMC got the results of their midyear financial audit. SVMC interim chief executive officer Dr. Mark Novotny said in a memorandum to SVMC staff that “the results are highly disturbing and they will require substantial changes in hospital operations.”

SVMC’s troubles began when it learned in March it was operating at a $1.3 million deficit. SVMC trustees initiated a midyear audit to find out what happened. But the accounting firm of Berry, Dunn, McNeil, and Parker said the audit revealed a much larger number than predicted. Novotny wrote that “the hospital’s operations budget has a significantly larger deficit than expected, totaling $7.3 million.”

The audit also recognized a $10 million reduction in the SVMC pension fund, “due to the national and global financial meltdown.” As a result, Novotny concluded that “based on the audit, we project an equally discouraging shortfall for the end of the fiscal year. The projected total deficit is $22.1 million.”

Novotny said the board of trustees, former and current executives, and senior management all share responsibility for the current financial situation. Novotny also included himself stating, “In retrospect, I regret not having voiced my concerns more forcefully during my tenure as chief medical officer.”

In addition to poor decision making, Novotny wrote that past and present hospital officials made “significant budget miscalculations” and provided an “inadequate analysis of the impact of rolling the physician practices and the Visiting Nurses Association into the hospital.” He cited “deficient financial controls, the financial market’s impact on pension investments, and budgeting higher payments from Medicare and Medicaid than the hospital actually received” as other external factors that contributed to SVMC’s current problem.

Hospital officials said the audit was accepted by the board last Monday and senior management staff are developing an action plan to prevent further problems from occurring. Looking ahead, hospital officials say SVMC will hire an interim chief financial officer, develop the 2010 budget, and plan the next phase of the fiscal recovery plan. No specifics were provided, however, part of the deficit will be paid for out of cash reserves and unrestricted investments. SVMC will also pay a portion of the debt over several years.

According to an SVMC document, hospital officials say they “are looking ahead to fiscal year 2010 to determine what actions will be needed to ensure expenses do not exceed revenue.” The SVMC management team “will consider all prospective measures and will work with employees and medical staff to determine the most effective course of action.” The SVMC document was not clear whether senior management staff is willing to take pay cuts to help offset the $22 million deficit.

However, “all SVMC managers have already given up pay this year through the elimination of incentive compensation along with significant amounts of paid vacation time.”

No information was provided whether SVMC will be laying off additional workers. The SVMC document said senior management is currently working with managers, doctors, and staff to find additional expense reductions and revenue improvements. SVMC officials expect to have a plan withing the next few weeks. “We intend to develop a fiscal 2010 budget that is based on solid information and realistic projections. The strategies and actions needed have not been determined, but we will communicate openly with staff when they have been more fully developed.”

In May, SVMC laid off 60 hospital employees and reduced work hours for 30 additional staff. The phlebotomy service at SVMC’s Deerfield Valley Health Center campus in Wilmington was under consideration for potential cost-cutting measures. The service was spared.

“Our fiscal year ends September 30, so we do not expect to make any changes that will affect this fiscal year’s budget. There simply isn’t enough time for changes in fiscal year 2009 to have an impact,” said Kevin Robinson, SVMC communications director. “We do not know what the fiscal recovery plan will mean in terms of specific impacts in departments, service lines or practices. As an organization, our goal is to maintain high-quality patient care and seek ways to address the financial challenges with as little impact on services and staff as possible.”