At the time River Valley Hospital closed, local officials estimated that the hospital was approximately $17 million in debt. How long does it take to get millions of dollars in debt and how does it happen? It depends on whom you ask.

Red flags came early

According to audits conducted by the Huntington, W.Va., firm Hayflich & Steinberg, CPA, the hospital ended fiscal year 1998 with a profit of $146,171, but ended with a loss of $3.9 million the next year.

What happened? Not enough, said three accounting professors at Marshall University.

Dr. Marie Archambault, professor of accounting, said that the information on the audits for the years from 1995-1998 showed that the hospital was breaking even in those years, showing relatively small profits.

However, the audits from 1994 to 1999, specifically note several trouble points:

&t;The hospital was not sending bills to patients in a timely manner. The 1997 audit stated that this could result in a "significant cash flow shortage."

&t;The hospital was not paying its own bills in a timely manner.

&t;Some outstanding checks were more than six months old

&t;The cashier's access to the patient accounting system should be curtailed, as full access could result in errors that would neither be detected or corrected.

Each year the same items were listed as being "material weaknesses" that were apparently never corrected.

Accounting experts said little things add up to big problems if left unresolved.

"They ought to have been doing those things," said Dr. Loren Wenzel, head of MU's Accountancy and Legal Environment Division. "When the accountant says it's a material weakness, that's a biggie."

In March 2000, the Hayflich & Steinberg audit for 1999 stated that "the hospital's financial position was extremely poor as of Dec. 31, 1999, and there was a significant deterioration in the results of operations during the year. These matters raise substantial doubts about the hospital's ability to continue as a going concern."

According to the audit, the hospital's liabilities at that time exceeded its assets by 57 percent.

These words were red flags to Wenzel, Dr. Marie Archambault and fellow professor, Dr. Jeff

Archambault, also professor of accounting.

"The 'going concern' footnote, you don't get one of those until you're ready to go," Wenzel said.

The cash flow statement for that year showed they were going into debt and getting into new leases at a time when clearly, all effort should have been made to cut expenses.

Dr. Marie Archambault noted that in 1999, the hospital lost 7 percent of its patient services revenue from commercial ventures - third party payers, which had comprised 63 percent of their revenues.

"If third-party payers are 63 percent of their revenues and they lost 7 percent (from that) and if billing is a problem, I can see why they had cash flow problems," Wenzel said.

Dr. Marie Archambault also noted that net patients revenues were down 10 percent in 1999, even though expenses stayed constant.

The 1999 audit showed that hospital management had to transfer $500,000 from its current cash fund to its limited cash fund, most probably after being in default on a loan.

"What's disturbing to me is that it didn't seem like they were doing a whole lot to respond to the dip in revenues," Dr. Jeff Archambault said, noting that the hospital shut down little more than a year after receiving the audit. "You've lost about $4 million and you've got about a year, or a year and a half's amount of receivables and cash to pay for them."

Dr. Jeff Archambault noted that even in 1999, the hospital was still in expansion mode, with $1.8 million going to capital activities. More than $1 million of that was going into new equipment - at a time when the patient census was down and revenues were down.

"When you see it that bad (finances),

you've got to take parts of the operation that are not profitable and say 'this has got to," Dr. Jeff Archambault said. "There was no response whatsoever. They had a year, a year and a half's worth of cash and they drive it (the hospital) off a cliff."

Both Archambaults said the obvious response would have been to cut staff and or services.

While some staff cuts were made, the hospital closed its doors with 415 employees. This figure comes from the fact that 415 employees signed the class action lawsuit in early 2001, asking for accumulated sick time and other benefits. In order to qualify to join the suit, the employee had to be employed between Jan. 15 – 27, 2001.

In Aug. 5, 2000, River Valley Hospital

Chief Executive Officer Terry Vanderhoof said officials had scaled back some programs, such as home health services and skilled nursing, and had laid off between 25 and 29 employees and thought at that time that all of the "adjustments" the hospital had needed to make "had been completed."

Vanderhoof said at that time that hospital officials had been reluctant to lay off employees and was pleased the hospital had been able to keep 400 employees.

"We tried to deal with it by not replacing vacant positions and through attrition," Vanderhoof said in 2000.

Indeed, the 2000 audit conduct for the last year of operation noted that total expenses were only cut by little more than $2 million, resulting in a $7,040,572 operating loss for the year. Salaries were cut by less than $1 million.

This came at a time when the hospital's patient census reportedly averaged less than 50 people, dropping sometimes to fewer than 30.

According to figures from the Ohio Hospital Association's hospital statistics for Ohio hospitals, the average patient-to-employee ratio in 2000 was 6.44 patients per employee. This figure would include all employees from housekeeping to nursing. For a patient census of, say, even 50 patients, the RVHS figures were much higher than average.

"I don't see any conspiracy," Wenzel said.

"But they might not have been making the best decisions," agreed Dr. Marie Archambault.

A day late, several million dollars short

Admittedly, the hospital faced some problems that were not of its own making.

One significant problem in the late 1980s and 1990s was the loss of thousands of middle-class manufacturing jobs - for decades the bulwark of the local economy.

When large employers such as Ironton Iron, and Allied Chemical closed, those employers not only represented a loss of jobs but a loss of potential patients with private payment insurance as well.

Once the hospital had fewer sources of private health insurance patients, a larger percentage of the hospital's income came from Medicare and Medicaid patients. This in turn created another problem:

In 1997, federal lawmakers approved the Balanced Budget Act of 1997. Among other things, the BBA cut the amount of money hospitals and other health care providers were reimbursed for various services and procedures. This was done in an effort to help balance the federal budget. It went into effect in 1998.

The same year River Valley closed its doors, three others hospitals did the same: Doctors Hospital North in Columbus, which was transitioned to an outpatient facility; Columbus Community Hospital in Columbus, due to financial losses; and Mercy Hospital in Hamilton, also due to financial losses.

Between 1998 and 2000 - the time between when the BBA went into effect and when the Balanced Budget Relief Act went into effect - Ohio lost 10 hospitals.

Ohio Hospital Association spokeswoman Tiffany Himmelreich said the projected loss to Ohio due to Medicaid reductions was $368 million in 1998, $567 million the year after. In the Sixth Congressional District, of which Lawrence County is a part, the Medicaid reductions amounted to an estimated

$8.5 million in 1998, $12.7 million the year after. These figures are based on statistics from The Lewingroup, an e-commerce and network consulting group.

Yet while all health care providers were affected by the BBA, most survived. Some people within the community argue that River Valley management knew well in advance that changes needed to be made, but did not do enough to counter the effects of the area's economic changes and the effects of the BBA.

Indeed, many residents assume that, had hospital officials had a firm grip on finances, they would not have waited until an audit was conducted and handed to them to know that changes needed to be made. The 1999 audit containing the $3.9 million deficit was two years after federal lawmakers approved the BBA.

"When solid industries left the area, this took a number of third-party payers," Greater Lawrence County Chamber of Commerce Executive Director, Dr. Bill Dingus said. " (But) there was no good plan to fix it. … The hospital just did not change with the times."

Dingus also served on the hospital board briefly at the end of 2000 at the time the hospital closed. He said having an affiliation with a larger health care organization would have given the small local entity access to experts who could have provided insight into the federal and other changes and how to maneuver around and survive those changes.

Keith Molihan, retiring executive director of the Ironton-Lawrence County Community Action organization, agreed. "It seems they were just operating by the seat of their pants and didn't have an agenda," Molihan said.

Former board member Ron Davis concurred. "People want to blame cuts in Medicaid. Well if you've got cuts in Medicaid, then you've got to make cuts in-house."