The Washington State Auditor took a critical look this spring at the financial health of the Snoqualmie Valley Hospital.

But King County Hospital District No. 4 officials say the facility’s finances have turned the corner, and that the hospital is finally profitable.

In audit results released in April, auditors found two areas of concern. Reports stated that from January 2006 to December 2007, the hospital did not have sufficient funds to cover obligations, and did not properly account for bond activity.

Auditors found that increased operating expenses and insufficient revenue from operations led to a continued decline in the hospital’s financial position. The hospital’s net deficit steadily increased over the last five years, reaching more than $12 million in 2007.

The hospital district issued $17 million in long-term general obligation bonds in 2006 and 2007 to pay off prior bonds and make capital improvements. However, the hospital used nearly $5 million of those bonds to pay for operating expenses.

Auditors stated that if the financial decline were to continue, the district would not be able to meet its daily operating expenses. The report called on the district to make a long term plan to improve its finances.

Auditors also found that the district improperly used nearly $5 million in bonds as an inter-fund loan, taking them from the capital projects fund to the current expense find, then using them for operating expenses. The district did not approve an interfund loan agreement until last November.

In the black?

In its written response to the findings, drafted by hospital officials, the district laid out the steps it began in 2004 to increase services and care to the community, including getting Critical Access status and making technology and inpatient capacity upgrades. The district closed an underperforming primary care clinic early last year, and suspended operations in its new surgery program.

Hospital officials said that the district has finally built a critical mass of services and awareness in the Valley.

“2009 is looking like the year that is going to work,” the hospital’s chief financial officer Don Galer told the Valley Record. “We fully expect to be profitable in 2009, and have been every month to date.”

So far, the hospital sees a cumulative profit of $240,000 for the first quarter.

The hospital’s revenues have slowly climbed over the last few years, Galer said. Its two main sources of revenue are inpatient services and emergency care, and about a fifth of its income comes from taxes.

Around half of the district’s annual tax revenue covers its debt payments. Money for debt service are assured by the collection of taxes.

District officials maintain that what appear to be losses in financial statements are the start-up costs for developing a viable healthcare network.

“Today, the district’s primary care clinics post thousands of visits a month,” the hospital said in its response. “Hundreds more utilize its emergency department and the hospital’s inpatient population is steadily growing.”

Moving forward with construction of a new hospital, the district has a purchase and sale agreement for nearly seven acres of land on Southeast 99th Street near Snoqualmie Parkway. The agreement should be finalized within the next 30 days, Galer said.

The hospital’s newfound profitability will help fund new hospital construction, hospital officials hope.

“Turning the corner makes that much easier,” Galer said. “You’re not having to explain losses to bondholders.”

The hospital sold its current campus to the Snoqualmie Tribe. The district’s contract with the tribe calls for payment of $30 million by June 2010.

Galer said the tribe is expected to pay on schedule.

The tribe has said it plans to use the existing hospital campus as a tribal clinic.

The district previously pulled out of a deal to buy the Leisure Time camp property on Snoqualmie Ridge.

Leisure Time, however, has contested the move, and the matter could end up in court, according to Galer.