Niagara Falls Memorial Medical Center says it has stemmed the flow of red ink on its books.

That’s the good news.

The bad news is the center has not succeeded in stopping its financial losses.

After the local “safety net hospital” hemorrhaged more than $3 million in 2007, it has rung up a $700,000 deficit so far this year. It expects to be $1.5 million in the red by the end of the year.

“This year is significantly better than last year,” Memorial President and CEO Joseph Ruffolo said. “But (the $1.5 million projected deficit) gets added on to last year’s deficit and it just keeps growing.”

The root cause for Memorial’s problems hasn’t changed in the last year.

Almost one-third of the hospital’s patient volume is made up of Medicaid, self-pay and charity care. Those patients, most of whom are served through the emergency room, don’t provide nearly enough revenue to meet Memorial’s operating costs.

“We’re subsidizing the ER about $3.2 million,” Ruffolo said. “Yet we are a safety net hospital which means we, by definition, provide significant care to low-income and uninsured people.”

Ruffolo says Memorial has achieved substantial success with a host of measures imposed last year, when the hospital’s fiscal crisis first exploded.

In addition to closing its dental clinic and adolescent behavioral health unit, the hospital slashed 100 full-time jobs, almost 10 percent of its work force and cut salaries for those who remain.

The result has been 2008 operating expenses that are almost $2.5 million less than what had been budgeted. Ruffolo said 2008 expenses will be almost $2 million less than 2007 expenses, even though the medical center will treat more patients this year than last.

After complaining about Niagara County’s handling of Medicaid applicants from the hospital last year, Ruffolo said that problem has been largely solved.

“That process has significantly improved,” the hospital chief said. “We’ve almost doubled our number of applications per day and the denial rate has dropped from 38 percent to 19 percent.”

Still, the center faces a problem with patients who apply for Medicaid coverage and are denied because their income is too high and others who “have no incentive to apply.”

“Because they know, if they get sick, all they have to do is walk through our door and we have to treat them,” Ruffolo said.

So, despite its successes, Memorial still faces massive financial challenges and a worsening economic climate will make matters even worse.

“What hits Wall Street, hits Main Street and it hits 10th Street,” Ruffolo said glumly.

The hospital chief said surgical experts and other medical specialists are refusing to work in Memorial’s ER because of low reimbursement rates. In addition, the hospital is entering contract negotiations with unionized employees and is facing increased wage competition for nurses.

Ruffolo said the hospital has some additional ideas for dealing with its crisis, but none of them are magic bullets.

Top hospital officials have begun meeting with area HMOs, including BlueCross BlueShield and Independent Health in an effort to renegotiate reimbursement rates.

“We’re trying to impress upon them that everyone needs to share in the need to care for the uninsured,” Ruffolo said.

The medical center is also appealing to the state to “reform funding formulas for safety net hospitals” and to give the hospital an additional $5 million in state aid.

Ruffolo admits that request is a “hail Mary.”

“They (state and federal government) are talking about slashing Medicaid across the board and who is going to get crushed? The inner city safety net hospitals,” Ruffolo said.

The final option, hospital officials said, is to “radically redefine our future direction and mission.” Reinventing Memorial would mean an emphasis on cardiac, stroke and renal care.

However, the hospital will go forward with a reconstruction of its adult behavioral health unit because it is already capitalized.

“The hospital board feels that is a high priority,” Board Chairman James Roscetti said, “because there is no substitute for it in this area. No matter what, we have to reinvent. We’ll have to cut services and deal only with the most needy.”