COLLINGWOOD - Faced with a $2.6 million deficit, the G&M Hospital's CEO says 2012 will be a "defining year" for the facility.

Speaking at the hospital's annual general meeting, Thursday, Linda Davis said the board and hospital management will work with the Local Health Integration Network and the Ministry of Health to deal with the "structural deficit" faced by the hospital.

The G&M has been designated as the regional orthopaedic centre for the Simcoe-Muskoka region; other services provided by the hospital to the immediate community are 'core', says Davis, and would be difficult to chop.

"I do not see a service we offer that the community doesn't need," Davis told the E-B after the formal part of the AGM concluded. "The board and management has already gone that direction, and I don't believe there is anything there that the community doesn't need provided."

Indeed, the board and management went through a process last year to streamline hospital services, cutting some beds and realigning staffing requirements - which in itself resulted in a reduction of Registered Nursing positions.

The hospital also benefited from one-time funding from the LHIN, which allowed it to not only avoid another deficit, but post a modest $7,100 surplus.

While Davis says there are no services to be cut, she also notes the hospital "cannot support the level of services we have."

Davis said she welcomed a new funding formula from the ministry, which could recognize that not only does the hospital serve the immediate needs of the community, but also 4.5 million visitors to the area annually.

But, she said, it will take several years for those changes to work their way through the system, as the ministry balances the scale between underfunded hospitals, and those that would be considered overfunded.

"That process cannot occur quickly to avoid destabilizing" those facilities, she said.

This year, the hospital also posted a deficit in its working capital account, a situation Davis acknowledged can't be permitted to continue.

"We need to make something very different happen this year," she said.

The LHIN has provided the G&M a cash advance to cover expenses and meet payroll, but that money needs to be paid back, she said.

Meetings will be held in the fall with ministry officials to plead the case of the local hospital; that's 'Plan A' for the board, she said, noting the board will have to consider a 'Plan B' if that is not successful - which could mean service cuts.

However, any cuts to services needs to be done in discussion with the LHIN.