SOUTHAMPTON Hospital Is In 'Crisis' Situation, Further losses are likely, president says

Southampton Hospital has reached a "crisis" situation, according to recent statements from Senator Kenneth P. LaValle and Annette Leahy, the hospital's president and chief executive officer.

In a recent letter to bondholders, the hospital reported a net loss of $3.3 million through June of this year compared to a loss of $3.1 million in the same period last year.

Ms. Leahy said last week that the loss increased to $3.4 million through July: "The situation is financially fragile through July, August, and September."

In announcing recent staff layoffs, the hospital blamed decreased inpatient stays during the summer, usually its busiest time. The numbers for August are not expected to be better. Ms. Leahy said last month that over the course of the summer, the hospital lost more than several hundred thousand dollars.

The hospital was fortunate to have an increase in inpatients and operating income in the winter months last year to offset some of the summer losses. Ms. Leahy said that she does not expect a similar increase in volume and income this winter.

One long-range trend affecting the hospital has been the opening of urgent care centers that take a number of paying patients away from the hospital's emergency room. In addition, doctors have begun offering M.R.I.s and outpatient surgery in their offices.

Ms. Leahy said she will unveil a new long-term strategic plan at a board meeting on Nov. 19 in which she will address some of these issues, including the fact that insurance companies encourage doctors to offer more services in their offices by paying them "a great deal" more in reimbursement fees. If more of those services continue to be done outside of the hospital in the future, she will decrease the staff as necessary, Ms. Leahy said.

Senator LaValle called the hospital's situation a "crisis" and said, "I strongly encourage Southampton Hospital to have discussions with Stony Brook Hospital to join Central Suffolk and Eastern Long Island Hospitals" in its network. Mr. LaValle has said that involving the state in the operation is in the hospital's best interest.

Assemblyman Fred W. Thiele Jr. said that Southampton Hospital officials met with Stony Brook officials last week to discuss affiliation. He agreed that such a move would be prudent given the hospital's growing financial problems, and could make Southampton eligible for state aid.

In the wake of several recent hospital bankruptcies, a new state commission is examining how hospitals are functioning and plans to target certain underperforming ones for closing or consolidation. Given the geographic realities of the area, none of the three regional hospitals in the Peconic Health Corporation are likely to close. However, recommendations that certain departments of the hospitals be consolidated could be issued.

Once hospitals are more efficient, the commission plans to reconsider its Medicaid reimbursement rates, which are one of the main causes of diminished revenue for the hospital along with bad debts.

Last year, when Southampton announced its affiliation with the New York-Presbyterian Healthcare System, hospital officials said that they were reluctant to join either the state hospital at Stony Brook or the North Shore Long Island Jewish Health System. The perceived pressure to consolidate the three area hospital services in the other two systems was one of the reasons Southampton said it chose New York-Presbyterian.

Now, they may have no choice. The hospital has hired a financial consultant to restructure its $40 million debt for which it is paying principal and interest of $3.5 million per year. Fund raising continues to lag behind expectations.

Ms. Leahy said she had deferred her salary increase for this year to May 1 and senior staff members had decided not to accrue any time-off benefits. The staff layoffs and cutbacks in services are supposed to result in the equivalent of reducing 26 full-time positions even though only 13 actual positions were cut from a staff of 700 employees. The letter to bondholders states that the hospital has had "difficulty acquiring needed medical equipment this year."

Construction of the hospital's new maternity center, which it has been advertising in local newspapers, had to be delayed because the hospital said it could not solely rely on a multiyear pledge for the project's flow of funds.

Last week, Ms. Leahy said that many steps remain to the project's completion. Both construction and new equipment need to be funded. As construction is completed on each new space, it must be inspected for code compliance. A certificate of need must also be filed with the State Department of Health and approved before construction can begin. Ms. Leahy said she planned to file that before the end of the year if the funding is adequate.

Additionally, the letter said Southampton has an unfunded pension liability of $9.3 million. Its self-funded malpractice trust investment returns are not keeping pace with the trust's expenditures. The hospital must also pay an additional $350,000 in malpractice insurance premiums, which tripled from last year, over and above its trust expenditures.

The letter concludes that the hospital management "needs to address the unusually large debt of $40 million and looks forward to discussing this matter with the trustee and bondholders."