The budget for the hospital and its eight associated physician practices anticipates net revenues of nearly $27 million and an operating margin of .8%, or $206,122. Including non-operating income will result in an overall net income of $360,444 in the fiscal year that began Oct. 1. Net income is reinvested back into the nonprofit community hospital to fund depreciation, acquire new equipment and develop new programs.

Chief Financial Officer Dennis Allen said Mayo typically budgets an operating margin in the range of 3%.

Mayo CEO Ralph Gabarro said the hospital has accepted a tighter operating margin this year in response to numerous challenges presented by the current healthcare environment. They include an uncertain regional economy, low reimbursement from Medicare and Medicaid, Maine’s continuing state budget difficulties, the impact of the state’s Dirigo Health program, escalating health insurance premiums and medical malpractice insurance trends.

Mayo’s response has concentrated on reducing expenses, and the 2004 budget shows an overall expense increase of only $118,619, or .46%. Specific expense-reduction actions include the elimination of general wage increases and wage scale adjustments in 2004, a projected decrease in full-time equivalent positions from 291 to 285 through staff attrition, and a reduction of $800,000 in spending.

Allen said the budget was constructed to achieve two voluntary spending cap measures contained in the Dirigo Health program. The two are a profitability or operating margin cap of 3%, and an expenses growth cap that encourages hospitals to limit growth in operating expenses to 3.5%. Mayo’s operating budget meets both targets.

Although the budget does not provide for wage increases and includes use of a productivity system to manage FTEs and reduce employment levels through attrition, salaries and benefits still account for nearly $14.5 million, or 54% of the budget total. Mayo’s work force is the third largest in the Penquis region.

“We have managed to preserve jobs through this budget and avoid the reductions in force we have seen at other Maine hospitals,” said Gabarro. “Yet the challenges we have experienced in the past year have not gone away, and we must continue to be thoughtful in the use of our resources and disciplined in our spending.”

Allen said the new budget anticipates no significant changes in overall utilization of hospital services. Admissions are expected to show a 2.2% growth, to 1,412 per year. The budget estimates an average daily census of 13 patients. Outpatient revenue is expected to account for 69% of Mayo’s budget. Medicare and Medicaid should account for 67% of the payer mix for gross charges.

HAD 4 directors also authorized a hospital capital equipment budget of $799,682. Some of the larger items in the capital equipment budget are for digital mammography equipment, an ambulance vehicle, operating room equipment and resurfacing of the hospital’s parking lot.