The issue is that Sitka, which lies on the western coast of Baranof Island in Southeast Alaska, has two hospitals for consumers to choose from: Sitka Community Hospital and Mount Edgecumbe Hospital, the only Indian Health Service hospital in Southeast Alaska.

Health care workers, including more than two dozen physicians, are a critical pillar of the economy, along with fishing, government, transportation and retail services.

Sitka Community Hospital, owned by the city and borough of Sitka, serves primarily the community of about 8,800 residents. Mount Edgecumbe, under the administrative umbrella of the Southeast Alaska Regional Health Consortium, serves primarily Alaska Natives in Southeast Alaska.

A former administrator, Bill Patten, said last November he anticipated the community hospital would turn a profit in 2004, after losses for several years. Lee Bennett, the community hospital's interim chief executive officer and chief financial officer, said at the end of fiscal 2004, the hospital was in the black, but barely, largely due to major grants.

The hospital, which has a budget of about $10 million, did not obtain similar grants in 2005, Bennett said. "We've seen our bad debts and charity write-offs increase to $800,000 a year due to economic problems in Sitka," he said. That $800,000 is almost 10 percent of the hospital's total revenue.

Even its status as a critical access hospital isn't enough to keep the ink flowing black, Bennett said.

The critical access status allows the Sitka hospital, which is licensed for 27 beds, including 12 acute care beds, to be reimbursed by Medicare for actual costs, rather than a federal formula rate system which pays less. Only a small number of patients are on Medicare, but 15 percent to 20 percent are on Medicaid, which pays only a percentage of actual costs, and that's where the community hospital is losing money, Bennett said.

"We basically lose money on every Medicaid patient that comes through our door," Bennett said.

At Mount Edgecumbe Hospital, with a budget of about $33 million, Medicaid covers about 13 percent of the patients, said Frank Sutton, vice president of hospital services for SEARHC.

Sutton, who also serves as administrator of Mount Edgecumbe, said his hospital gets nearly 50 percent of its funding through the federal government to provide services for all American Indian and Alaska Native people, whether they have insurance or not. The hospital's other funding comes from private insurance carriers, and Medicaid and Medicare reimbursement. Although the hospital still has bad debt, it is holding its own financially, he said.

Mount Edgecumbe is in the midst of a $1.8 million project to renovate an old hospital wing. The hospital is also in the design phase of a separate building to provide housing for patients coming in from the surrounding area. That 32-bed facility is expected to begin construction next spring, Sutton said.

While Mount Edgecumbe caters primarily to people covered by Indian Health Service benefits, it also provides health care benefits to its non-Native employees, residents who might otherwise seek care at the community hospital.

Other Sitka area residents who are non-Natives can only seek care at Mount Edgecumbe if they get a referral from a private physician in Sitka, said Susan Carlson, medical director at Mount Edgecumbe.

Where patients get referred may depend on the medical care needed. Mount Edgecumbe employs specialists in treatment of the ears, nose and throat, plus audiologists, radiologists, and practitioners in neurology and pediatrics. The community hospital's physicians include specialists in orthopedics.

Mount Edgecumbe is also adding expensive magnetic resonance imagery equipment which is not available at the community hospital, Sutton said.

Sitka Community Hospital, which marks its 50th anniversary this year, doesn't have that kind of money to spend, Bennett said. "As long as the hospital is owned by the city, taxpayers have to cover the hospital's expenses if we can't," he said. The problem is coming up with capital to finance equipment, which can cost hundreds of thousands of dollars. The hospital does not have a dedicated funding source from the city, Bennett said. Instead, the hospital administrators have to go to the city with requests when funds are needed.

Overall, Sitka Community Hospital faces the same financial issues of other hospitals in Southeast Alaska, except that Sitka differs in that it faces local competition, he said.

"We are trying to get an amendment onto the ballot for the election in October that would dedicate a funding source," he said. "There's money in Sitka, you just have to walk around the harbor and see some of the boats, or see some of the houses."