SEBASTOPOL -- In its first real budget outlook since aligning with Marin General,  Palm Drive Hospital reported improved cash flows while significantly lowering its deficit, all positive develops, though challenges still remain.

The 37-bed hospital had a net income of $68,214 in April, on a budgeted income of $153,126, or $84,912 under budget. That's a marked improvement from February, when net income was just shy of $14,000, according to Rick Reid, chief financial officer and  interim chief executive officer, who presented the financial data last week at a board meeting. Additionally, over the last three months, the hospital's net loss has been reduced by $138,273, while income totaled $389,676.  The year-to-date loss now stands just north of $740,000.

"We set a goal to reduce the annual loss to $750,000. It was on a run rate of $1.5 million," Mr. Reid said. "We actually achieved that in April."

Of the revenue increase, he said, " It's slowly climbing upward. A lot of the revenue strategies we started are showing up on the income statement and we've done a good job of controlling costs."

Since entering into a network of district hospitals that includes the much larger, 235-bed Marin General at the helm and Sonoma Valley Hospital, Palm Drive has taken steps in increasing its revenue streams, resulting in an improved outlook for the small hospital that emerged from Chapter 11 bankruptcy protection just two years ago.

At the end of May, the hospital had $509,586 in cash on hand -- a major improvement from the beginning of March, when it had just $175,306 on hand

Marin General Hospital is the largest district hospital in the North Bay, while Palm Drive is the smallest. Mr. Reid's appointment to CFO of both Sonoma Vally and Palm Drive is the result of separate accords struck between the three hospitals to explore cost-saving measures.

 "This is the first budget with that collaboration in place, and you can begin to see the benefits," said Nancy Dobbs, president of the health care district that oversees the hospital. "Not only are we able to benefit from cost-saving measures, but we're following in their footsteps."

Mr. Reid said one of the key pieces of improvement was a pricing increase implemented on March 1, bringing the hospital's charges more in line with other health care providers in the region, most of which are much larger.

Other efforts will follow soon, including adding certain specialties such as orthopedic surgery that generate more revenue than typical inpatient care. The hospital also now has its own MRI system and will soon implement a digital mammogram, both of which are expected to draw more patients from around Western Sonoma County, where few other health care providers operate, save for West County Health Centers, a nonprofit, federally qualified health center that focuses on primary care.

"I think the key issues we need to work on is getting some of the volume back that we lost," Mr. Reid said. "The orthopedic surgeon will help, we now have MRI capacity everyday and we'll be implementing the digital mammogram. Those are some growth strategies we're working on."

Talks are also under way to sell the Palm Drive Medical Center, its outpatient center, to the Prima Medical Group, a physicians group based in Novato. The Medical Center's volume was under budget by 206 visits. The hospital's governance committee is in discussions with Prima about selling the facility, which could fetch approximately $500,000, Mr. Reid said.

Both Ms. Dobbs and Mr. Reid said much work remains in achieving long-term stability for Palm Drive, but Ms. Dobbs said the partnership with Marin General has so far been a significant step.

"There's been real tangible change and real tangible experience that we can learn from them," she said.