SMITHFIELD - In fiscal 2009, the county's hospital system lost money as it faced falling revenue and rising expenses. In the coming year, Johnston Health must use its new hospital in Clayton and patient tower to build its cash reserves and pay down its debt, an auditor told hospital leaders last Thursday.

This past fiscal year, Johnston Health had almost $5 million more in expenses than revenue, compared to a $7 million surplus the year before, auditor Keven Leder told hospital commissioners. In fiscal 2009, operating revenue dropped 4 percent, while expenses rose 3 percent.

The rise in expenses was relatively small and showed good management of costs, Leder said. But managing costs alone won't be enough this year, he said.

"You can't really contain your way to prosperity," Leder said. "That results in, unfortunately, decreased profitability."

To be profitable, he said, Johnston Health must capitalize on the new Clayton hospital and the recently-finished expansion in Smithfield, which collectively added $144 million in debt to the hospital's tab.

"Are you going to see the return from the investment you made?" Leder asked. "Hopefully, those things will start generating the revenue."

And as the hospital looks for new revenue, it could have to deal with new payment systems for patient services, Leder said. Single, centralized payments could soon be the norm, he said.

Leder said the message to take from his audit is that the hospital should build its cash reserves while tackling an increasing debt payment. He suggested that the hospital increase its cash reserves from 40 days worth of expenses to at least 90 in order to bring itself more in line with its peers.