SMITHFIELD - Johnston Health leaders say they are buckling down for the year ahead with a budget designed to carry the hospital through the economic slump.

"It's a hard thing ... with the way the economy is," said Ralph Stewart, chairman of the hospital's Board of Commissioners. "Everything's an estimate, so you hope you estimated right."

Hospital leaders are not planning for much of an economic rebound in the fiscal year that began Oct. 1.

"We anticipated flat volumes," said Stephen Sawyer, chief financial officer. "Basically, [as] if the economy stays the way it is."

The budget predicts the new Clayton hospital will turn its $17 million in operating revenue into abouta million-dollar profit. Also, some Clayton patients will require longer-term care in Smithfield, giving that hospital a boost in inpatient revenue. But aside from the positive impact of the Clayton hospital, the budget forecasts little increase in patient counts or revenue.

"We built a very conservative budget that we think we can achieve," said Sammy Jackson, treasurer of the hospital's board.

The board approached this year's budget gingerly after seeing last year's predictions mangled by the recession. By September of this year, net income was down 11 percent, or $17 million, from budget. As a result, the hospital had posted a $2 million operating loss for the first 11 months of its fiscal year.

"We're a public hospital, and we've got to report the good, bad or ugly," Jackson said. "In '09, the financial performance was disappointing."

Like many other businesses, the hospital found significantly less demand for its services this past year.

In general, fewer people visited the hospital: By September, discharges were down 10 percent from the year before. Just as bad, those who did come in were less likely to pay on time. By September, patients owed $31 million in bad debt, $6 million more than the year before. Jackson and other board members blamed some of the hospital's financial performance on that bad debt.

While the hospital did not live up to its budgeted growth, its revenue and expenses were not much different from the year before.

"Everything was flat until you got down to bad debt, and that just blew the thing up," Jackson said.

The numbers bear him out. By September, year-to-date revenues were up slightly from the year before, while expenses had increased $8 million, with most of that in bad debt.

Board members said the hospital would try several avenues to meet its budgeted net income of $5.7 million for 2010. The hospital has tried to discharge patients more quickly, reducing the expense burden they put on the hospital.

Jackson said a more intense focus on collecting bad debt would also help balance the books. "Upfront collection efforts have got to improve, but we can deal with it," he said.

Sawyer, the finance officer, said the hospital had put many debtors on payment plans that would help recoup some losses.

The hospital is also cutting costs by avoiding new hires, except when needed to staff its new operations; it also laid off 31 part- and full-time employees in July.

"We did the reduction in workforce, trying to cut everything down right to the bone where we can run as lean as we can," said Stewart.

This year's budget has a thin profit margin -- 0.87 percent, or less than a penny on every dollar taken in. By contrast, the fiscal 2009 budget had a projected operating margin of 3.3 percent.

Sawyer said the thinner margin was a result of lower profit expectations in the down economy. Capital spending on a hospice house, bed tower, linear accelerator and the Clayton hospital will also thin profits.

But though new buildings might tax the budget, hospital leaders hope they will drive future growth as the recession fades.

"We're very positive about '10 and what's going to happen in '10," said Jackson. "We hope to position the hospital this year for some good things in '11 and '12."

In the past few months, the hospital has seen a few more patients, but no reason for celebration yet, said Sawyer.