Wanna Buy a Hospital?

On April 11th, new and returning interim Chief Executive Officer (CEO) at Mendocino Coast District Hospital (MCDH), Wayne Allen, emailed a Request For Proposal (RFP) to five hospital groups in northern California. The proposal amounts to an invitation to another hospital entity to lease or buy MCDH. That institution has been in financial difficulties dating back to, and preceding, one of Allen's earlier tenures as an interim Chief Financial Officer (CFO) and CEO (2011-2014).

At the MCDH Planning Committee meeting of April 14, Hospital Board chair Jessica Grinberg had scarcely uttered the words that opened the floor to public comment when several members of the audience took the opportunity to excoriate Grinberg and fellow MCDH Board member Amy McColley for not informing the public about the RFP before sending it out. Perhaps most notable was Jade Tippett, former candidate for the board seats won by Grinberg, McColley, and John Redding last November. After McColley, who was Skyped into the meeting from a San Francisco locale, mentioned some technical difficulties had temporarily impaired her hearing, Tippett shouted his comments. He did not stop shouting when he returned to the podium later in the meeting. If this was an attempt at humor it seemed lost on the assembled room.

Despite Tippett's misplaced tone, he and others were right to question the lack of transparency in the roll out of the RFP. The only problem is that their complaints and hostility were addressed at the two board members present and not at the culprit himself, Wayne Allen.

According to all reliable accounts, Allen authored a draft of the RFP, similar to what was sent out, on April 7. He sent a copy of that RFP draft to each MCDH Board member, asking for suggestions or edits to the RFP. There were murmurs in the Planning Committee audience about this RFP roll out including a Brown Act violation, meaning more than two MCDH Board members colluding on a hospital matter behind closed doors.

CEO Allen's letter appears to nullify such thoughts because the RFP draft was sent to the members all at the same time on purpose, to avoid serial communications. It also appears that there was little individual feedback from the board to Allen between the afternoon of April 7 when Allen first sent the draft and the morning of April 11 when Allen sent the RFP to five hospital groups (see last week's AVA article for descriptions of these). 

Allen authored the RFP, gave the MCDH Board members roughly two and a half days (this was a holiday week for some individuals) to comment, then sent it out. Allen's name is the only one on the document. Four-fifths of the hospital board started on the job in January, 2019. Even holdover board member Steve Lund has done no prior work on an RFP of this sort. Allen specializes in getting paid to be an interim CEO or CFO at potentially failing hospitals. He has years and years and years of experience at just this sort of thing. He has also attended at least one MCDH Board meeting in 2019 and witnessed large turnouts as well as the keen sense of public input from community members. He had to know that the members of the public who attend hospital meetings would not sit or stand for this RFP being rolled out without their input.

At the April 15 Planning Committee meeting Allen sat silent until near the end of the affair. He made little or no attempt to deflect criticism away from the board members after the opening public comment session. Discussion of the RFP was on the agenda at the meeting, but conveniently near the end when much of the fury had subsided. (MCDH CEOs usually have a say in how the planning agenda is made).

Regardless of Allen's role in failing to notify the public in a timely manner, the RFP is out there. It asks prospective buyers or lessees to:

“Describe your commitment to assume all pre-transaction and post-transaction liabilities of MCDH and provide indemnification of MCDH against such liabilities, along with evidence of appropriate financial resources to support such indemnification.

“Describe the specific amount, terms, timing, and form of capital commitments you are prepared to make in a relationship with MCDH.

“Describe the proposed governance structure and the ongoing role of MCDH’s current Board.

“Describe your commitment to operate MCDH as a full service acute care hospital for the foreseeable future. Describe the proposed management organization structure for MCDH following the closing of a transaction

“Describe your commitment to provide MCDH, or a surviving organization, with rights of reversion of the operations and assets of MCDH in the event you fail to meet your commitments or if there is a bond default or sale, insolvency, or bankruptcy of your organization.

The RFP also inquires about the “Retention of current MCDH staff, who are currently under the employment of the current lessee of the Hospital.” Yes, there are two too many forms of current in that sentence. Perhaps lending further credence to the idea about how little this document was read, let alone proofread, before sending it out.

The RFP goes on, “Describe your commitment to retain MCDH employees following the closing of a transaction. Describe any anticipated employee benefit changes. Demonstrate any staffing or other plans to achieve economies of scale.

“Describe your commitment to take steps to ensure that, subject to patient choice, all medical services for which there exists financial capability at MCDH will be performed locally rather than at outlying, tertiary care facilities, whether or not owned or controlled by your organization.

“Describe your commitment to maintaining existing clinical services at MCDH and indicate the minimum timing that you are prepared to make for maintaining such services.

“Describe any new services you anticipate implementing during the next five years.

“Describe commitment to expend significant financial resources to recruit new physicians to the community and grow MCDH’s current complement of clinical services, and specify what level of capital commitment you are making to do so.

“Describe which, if any, clinical services may not be maintained at MCDH.

“Describe your commitment to develop and implement a proven plan for improvement of the medical staff, nursing staff and non-physician practitioners with corresponding education and training programs, including development and implementation of centers for excellence in specific clinical areas.

“Describe your commitment to needed capital improvements, including funding of growth initiatives intended to maintain facilities, equipment, and other capital items at a state-of-the-art level for comparable community hospitals.

“Describe your commitment (a) not to own or operate any other entity which competes with MCDH in its service area and (b) to afford MCDH or a surviving organization with the right of first refusal in the event you should seek to sell the assets or operations of MCDH following the closing.

“Describe the strategic vision you have for your presence and role in Mendocino County. How does MCDH fit into and allow you to achieve that vision? Describe the strategies that are currently beyond the reach of MCDH and that are possible with your involvement to deal with evolving payment systems, including a well-designed strategy for Accountable Care and population health management readiness.”

After Mr. Allen outlined the key elements in the RFP he responded to a query about potential community input if and/or when affiliation becomes a reality. Allen's reply, indicating that a community advisory board would be a requirement, seemed to mollify those in the audience who had been so vociferous at the outset of the meeting. One could almost see Mr. Tippett, the defeated board candidate, licking his lips at the possibilities inherent while sitting on such a committee.

The deadline for outside hospital groups to formally respond to the RFP is May 10, 2019. At the planning meeting Mr. Allen stated that he'd already received a couple of informal questions about the RFP from potential interested parties. Other sourcing indicates Allen had talks with at least one of the other hospital groups, beside Adventist Health, prior to sending out the RFP.

The Planning Committee get together of April 15 also saw committee member John Allison double down on his financial analysis that, continuing at the present rate, and without outside assistance, MCDH would be devoid of cash by the end of 2020. See the March 27, 2019, AVA for more detailed analysis of MCDH's financial situation. 

Any scenario along the lines of the one Mr. Allison described does help back up Mr. Allen's desire to get going on potential affiliation. It also explains the May 10 deadline the interim CEO imposed on the outside hospital groups. If MCDH continues losing money at current rates those hospital groups may lose interest in a big hurry. The five things MCDH has going for it in the RFP process: It is still operating, no small matter in a time when smaller, rural hospitals are going under at an alarming rate; Cal-Mortgage, which owns much of MCDH's debt, appears to take a favorable view of affiliation; and location, location, location. This means the Mendocino Coast where there is no competition for hospital services beyond much smaller scale clinics. It does not mean the literal location, which makes MCDH subject to a seismic retrofit that may very well cost $50 million or more.

(*Th-th-that's all folks! Find more at: malcolmmacdonaldoutlawford.com)

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