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.  This is one of the key reasons the NHS developed a Hospital Improvement Plan (HIP) in July 2008. 

The HIP is a framework for the NHS to enhance quality of hospital care across Niagara over the long term while at the same time balance financial pressures, the needs of Niagara’s aging population and the challenges of the ongoing shortage of doctors, nurses and other health professionals.  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 cost by addressing the duplication of services, equipment, health professionals and infrastructure across NHS sites.  Approximately $16 million has been achieved in savings related to HIP changes that have gone into effect since 2008.  These savings come mainly from the consolidation of surgical services, bed closures and conversion of acute care services to complex continuing care.

All aspects of NHS’s operations have been reviewed compared to industry best practice guidelines. Since amalgamation in 2000, the NHS has demonstrated its operations are efficiently run. The NHS is performing better than its peer hospitals with respect to the operating costs per patient that are set by the MOHLTC. Although further detail is required, this suggests that MOHLTC funding of the NHS is lower than that of peer hospitals for the level of patient activity provided.

In addition, the NHS has undergone numerous financial reviews to ensure due diligence in the expenditure of taxpayer dollars:

1. Annual financial audit - no major issues identified
2. Third party efficiency review – In November 2007 the NHS engaged HCM Consulting in an operational benchmarking review to identify additional saving potential.  The review identified $12.3 million in savings and indicated that NHS was one of the most efficient in its peer group.
3. Dr. Kitts Review - indicated that NHS requires a funding adjustment:
   

   “The NHS scores well on measures of operational efficiency compared to peer hospitals. Preliminary review of MOHLTC funding suggests that the NHS may receive less funding than peer hospitals for their level of patient activity.”

4. Deloitte Special Review Engagement - The NHS engaged Deloitte Canada in February 2009 to provide an objective assessment of the current process and controls around expenditure, cash management and the budget and reporting process.  The overall Deloitte report supports that the NHS has efficient effective policies, procedures and management oversight with only minor control weaknesses and opportunities.

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.

The following is a summary of pressures:

• Debt inherited at amalgamation of eight individual hospital corporations in Niagara:
  • Inherited long term debt of $23.6 million upon amalgamation
  • Inherited short term debt of $5.3 million upon amalgamation
  • Inherited working capital deficit of $12.4 million upon amalgamation
  • Capital investment required in plant, equipment and information systems
  • Unfunded restructuring costs resulting in increased operating and working capital deficits for NHS 
  • Approximately $7.5 million of annual salary and benefit costs for pay equity/wage harmonization incurred by consolidating all bargaining unions as a result of amalgamation.  These costs were not funded until three years later, resulting in additional working capital deficit.
• Governance Transfer with Hotel Dieu - August 2005:
  • Additional $30-million working capital deficit transferred from Hotel Dieu to NHS
  • $2.0 million in unfunded restructuring costs
  • Operating deficit of $4.0 million transferred from Hotel Dieu to NHS. 

The NHS remains committed to implementation of the Hospital Improvement Plan (HIP) to both achieve the financial savings associated with the clinical vision and take advantage of the critical mass of patients in Niagara.  The plan will allow the NHS to move towards a balanced budget position by 2012/13.

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.

News articles continue to refer to a 43 per cent 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 per cent, however, costs increased by approximately 3.5 per cent.

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.

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 funding, of which 62% of this money was bottom line neutral to the NHS because the funds were for specific new programs. For example, $47 million was specifically for the transfer of programs from Hotel Dieu to NHS that were new to NHS.  Almost $5 million was for increased demand in the Chronic Kidney Disease.  An additional $6.4 million was for wage harmonization created by amalgamation; this money was received in 2004, although the NHS had been incurring additional costs for the three years previous.

The increases received by NHS for the last four years were economic only and like every hospital, were not sufficient to cover growing annual operating costs.

It is logical that the number of NHS employees who earn more than $100,000 has increased in recent years consistent with the economic increases that have occurred between 2004 and 2008.

• Negotiated wage rates for health professionals including registered nurses and allied health professionals have increased – the average annual salary for registered nurses and other allied health professions (pharmacists) excluding overtime payments is $80,000 to $90,000.  These settlements are negotiated provincially for Ontario hospitals.
• The number of front-line staff (RNs, pharmacists and other allied health professionals) earning more than $100,000 has increased from three in 2004 to 112 in 2008. 
• Overtime payment is a key factor in the increased number of health professionals earning more than $100,000 annually. NHS has developed a comprehensive nursing retention and recruitment strategy to increase our number of nurses and reduce our reliance on overtime. We are successfully recruiting new nurses and other health professionals to reduce our overtime reliance.  Overtime hours at the end of October 2009 are 15.5 per cent lower than October 2008. Our overall vacancy rate has decreased to 5.33 per cent for October 2009 as compared to 5.7 per cent for the same time last year.
• A key responsibility of every hospital board is to attract and retain the most experienced, best qualified hospital leaders in a competitive labour market. This involves paying its employees at levels that reflect their high level of education, experience and responsibility.
• Compensation levels for all positions in the NHS, including our senior executive, have to be competitive with the province’s healthcare sector.  Through our external benchmarking, our salaries are competitive with, and in many cases lower than, similar-sized hospital operations across the province.
• According to a study conducted by G.P. Murray Research Limited, the hospital sector in Ontario ranked ninth out of nine in terms of percentage increases for the twelfth year in a row last year.
• According to this same study, since 2004, the lowest percentage increase in both numbers of employees and total compensation with respect to Public Sector Salary Disclosure has been recorded in the Hospitals sector; the highest percentage increase in both numbers of employees and total compensation was in the Municipalities sector. 

The Alternate Financing and Procurement (AFP) process that the project was procured under not only includes construction cost but equipment, financing charges for 30 years (like a mortgage), and 30-year life-cycle costs (ie. roof, elevator, HVAC replacements), for a total of $1.5 billion. 

The procurement was done jointly with Infrastructure Ontario, a crown corporation, which utilizes strict procurement and fairness procedures. 

Road improvements planned for the west end of St. Catharines were required for growth in that area by the Region and the City of St. Catharines, based on an independent study, and not solely as a result of the new health complex.  The cost of the new health complex includes a hospital share of infrastructure and road improvement costs.

The complex is fully contained on the site, and there is no need to expropriate houses.

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 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.