Independence or Affiliation?

Two clearly defined camps have arisen around the possibility of Mendocino Coast District Hospital (MCDH) partnering with a larger hospital group. The first camp consists of those favoring affiliation as the only means of saving the coast hospital from financial ruin. The second is made up of those who want to retain independent local control of MCDH. This mindset was in evidence at the hospital's finance committee meeting of April 23rd. During the “Community Comment”section Robert Becker and Carole White read a prepared statement expressing the view of those who want to maintain local control of MCDH. They titled their document, “Hospital Rush to Affiliation Devalues Community & Planning.”

The opening of the text read, “The Hospital Board's rush to get voter approval for affiliation this November is misguided and risky in four major ways: 1) Haste undercuts an elected Board’s core obligation: to understand and represent wide community interests. We all must come together to evaluate where we are and where we want to go. 
2) In-depth assessment — the promised budget/department “deep dive” and strategic planning — are the only ways to maximize our bargaining leverage, whether or not we pursue affiliation. 
3) The CEO and CFO have repeated that, while money pressures are real, NO imminent cash flow or financial crises loom that jeopardize our independence or stability. Why does the Board majority see rushing to affiliation as the sole or paramount alternative? 

4) Undue haste reduces transparency and accountability, inviting poorly-examined decisions and reduced local healthcare services.”

Saying that the Chief Executive Officer (CEO) sees no imminent financial crises looming flies in the face of what interim CEO Wayne stated at that very meeting. In regard to the short term cash on hand, less than fifteen days worth, Allen cautioned that just two significant cash outflows could essentially shut the doors of the institution.

The statement by White and Becker, went on to criticize the new MCDH Board of Directors for a lack of transparency, especially in regard to putting forth a request for proposal (RFP) to five hospital groups, soliciting their interest in affiliating with MCDH, without board approval of the matter at a formal board meeting.
 The statement was signed by Mr. Becker, Ms. White, Katy Pye, Tanya Smart, and Myra Beals, with the addendum that they are members of a group called “Friends of the Hospital,” but they were only writing and speaking for themselves. Such a caveat suggests that this handful of citizens didn't have the backing of enough of the “Friends of the Hospital” or it would have been signed with a far greater number of names.

The emphasis for this fivesome of hospital observers is on planning, specifically creating a long range strategic plan for the hospital. A close read of part of their statement gets at why this bunch comes down in the independent hospital camp. “We do not oppose the idea of affiliation — but only after an inclusive, Hospital-led, transparent exchange that addresses the full realities of affiliation. Without a planning process, how can we know whether to give up or keep our independence in November? Without a consensus map, or clear destination, do we not risk losing far more than we gain? 
 “Our research proves affiliation elsewhere can shred the hard-won, invaluable services endorsed and paid for by Measure C, namely Emergency Room (ER)/Ambulance, Surgery, and OB (labor and delivery). The spate of OB closures in rural hospitals nation-wide show women’s health, not just labor and delivery, are often an affiliate’s first budget-cutting target.”

The latter paragraph contradicts the claim “We do not oppose the idea of affiliation.” It's the last sentence that is going to be a sticking point if the potential affiliation partner is Adventist Health.

Speaking of inherent contradictions, or at least complexities, the Seventh Day Adventist Church conducts itself essentially as a “pro-life,” anti-abortion entity. However, Adventist Health hospitals have proved a more perplexing organization, with spokespeople for Adventist hospitals making statements such as, “Adventist HealthCare is owned by the Seventh Day Adventist Church, which has no religious policies governing health care. Adventist hospitals perform abortions and provide a full range of reproductive care. We understand that these are decisions made between a woman and her physician, and we do not interfere with that individual decision…”

That statement was made by an administrator for Adventist Health in Washington state. At present abortions are not part of the services listed by Ukiah Valley Medical Center (UVMC) or Howard Hospital in Willits, the Adventist Health facilities in Mendocino County.

As the most likely partner in an affiliation, the stance of the church presents an easy target for those without the willingness to accept the complexity of actual practice within Adventist Health. Since an affiliation requires voter approval, that issue alone may be the most problematic. For some, the abortion issue will be their primary reason for wanting MCDH to remain independent.

Those who favor a relatively fast track toward affiliation cite the financial woes that beset MCDH. The coast hospital's operating loss for the first three quarters of this fiscal year was slightly more than $2.25 million. Even with nearly $1.2 million collected from the parcel tax the net income of the coast hospital is nearly half a million dollars in the hole. In the short term MCDH has about two weeks worth of cash on hand to pay unexpected costs. There are still millions of dollars worth of deferred maintenance projects that should be completed in the coming year. The argument of those favoring affiliation with another hospital group runs along the lines, 'Do it now before it is too late.'

At the April 25th MCDH Board of Directors meeting, opposing views were also at play. Board President Karen Arnold delved into a “New Business” agenda item aimed at ratification of the RFP sent out by interim CEO Wayne Allen on April 11th. Finance Committee Chair John Redding wanted Arnold to acknowledge that the manner in which the RFP was introduced, without a public hearing, was improper and a Brown Act violation. Arnold was reluctant to go there. Through clarifying intervention by board members and the audience, it was eventually established that there had been no Brown Act violation by individual members of the board, in that they did not discuss the matter among themselves outside of the public, but that sending out the RFP without a public meeting to consider it first did cross the Brown Act line. Apparently, the board's legal counsel had offered up the “ratification” agenda item as a method of fulfilling the board's duty to the public.

Board member Redding made a motion to send the RFP back through the planning and finance committees before bringing it to the board in late May. He also did not believe that the deadline imposed for responding to the RFP was lengthy enough. The proposed deadline of the April 25th agenda item was May 17th. CEO Allen stated that it was his experience that interested hospital groups could respond before the deadline.

After some consternation, Redding's motion failed by a three - two vote (board member Steve Lund voting with Redding). As former candidate for the board Jade Tippett pointed out, “The bell has already been rung,” on the RFP, meaning the hospital may as well go ahead with the process. Board member Amy McColley offered up a bit of a compromise. Though Board President Arnold remained reluctant to do so, McColley acknowledged the board's error in not bringing the RFP to the public before sending it out. She also motioned to go ahead with the ratification of the RFP, but proposed an extension of the response deadline for interested parties to June 30th. That motion passed, 4-1, with Redding dissenting.

Perhaps the obvious path forward is to follow both paths. The RFP is out there. There is no guarantee that any hospital group will respond, but simple appearances such as the presence of Adventist Health' Mendocino County CEO for a brief informational talk at the February MCDH Board meeting indicates that hospital group has interest. Perhaps one or more of the other RFP recipients will also show interest. Those other hospital groups are St. Joseph Health, Sutter Health, Common Spirit (formerly known as Dignity Health and before that as Catholic Healthcare West), and American Advanced Management Group (who now run the oft failed hospital formerly known as Sonoma West Medical Center).

On the other hand, folks like Finance Committee Chair Redding will undoubtedly continue to do their best to prepare a budget for the upcoming fiscal year that can result in numbers turning from red to black, economic improvements that will keep the facility independent enough for the time being so that the doors stay open. At the April 25th meeting, Revenue Cycle Director Colene Hickman pointed at swing bed revenues that are decidedly trending positive, with a gain of almost $1.2 million above budget and a gain of more than $1.3 million above last year's swing bed revenue.

There are contrasting figures as well. Inpatient revenues are down more than $250,000 from the three-quarter point a year ago and are approximately $500,000 less than this year's budget anticipated. Outpatient revenue, which makes up almost four times as much revenue as inpatient charges, is down $400,000 from last year and about $670,000 below the budgeted estimate. MCDH's clinic, North Coast Family Health Center (NCFHC) has declined in revenue as well, bringing in $874,000 less than it did last year. The budget for the current year projected a $160,000 drop in total operating expenses. As of the end of March, 2019 those expenses had actually risen by $917,000.

As contradictory as it may sound, one can look at the bottom line numbers and take something positive from them. Last year at the three-quarter benchmark MCDH's total net income amounted to a loss of almost $3 million. As of March 31, 2019, that loss had been reduced to under $500,000. Of course the projected budget called for a number that was much better, about $400,000 better.

To be remain financially independent, MCDH will have to create a budget that projects a bottom line at break even or slightly in the black and meet or exceed that budget. The problem that those who are looking at affiliation see all to well, MCDH has no recent history of consistently meeting budget or breaking even on the bottom line. 

(To catch up on the MCDH situation, check out any April AVA issue at: www.theava.com)

4 Responses to "Independence or Affiliation?"

  1. Calligula   May 3, 2019 at 10:32 pm

    Becker has his head in the sand so to speak.
    What percentage of the budget goes to writing off charity cases?
    How profitable is doing abortions?
    Where are the profit centers? These should be preserved and the rest cut.
    The Swim center mentality is alive and well here. The swim center board members wanted it all and figured someone with deep pockets would save their over the top spending. So does this outfit. Get real or get out of the business.

    Reply
    • Mark Scaramella   May 4, 2019 at 1:32 am

      Trouble with trying to determine which services are “the profit centers” is that it greatly depends on who’s doing the costing of each service. Back when Bryan Ballard and his cohorts did that it turned out that he manipulated the calculations to make services like the Hospital’s ambulance look unprofitable by assigning bogus costs to that “department.” And it always turns out that the people determining what is and is not profitable are never THEMSELVES even on the list.

      Reply
  2. benjamin graham   May 4, 2019 at 2:00 am

    Determination of “profit centers” can be influenced by individual bias, as Mark suggests, partly because there are factors that make these types of determinations difficult–due to the interdependence of “profit centers” not seen in other businesses. For example, North Coast Family Health Center, as cited in the article above, has declined in revenue. In isolation it may not be profitable. However, each primary care physician generates(national figure, Merritt Hawkins) $1.5 million for the hospital in ancillary services(Lab, Xray, etc.).
    Buz Graham, MD

    Reply
  3. George Hollister   May 4, 2019 at 6:37 am

    “However, each primary care physician generates(national figure, Merritt Hawkins) $1.5 million for the hospital in ancillary services(Lab, Xray, etc.).”

    Hopefully, other hospitals are looking at this the same way, and will see an advantage to an affiliation with MCDH. Hopefully. That said, there needs to be a focus on what the primary healthcare needs for the MDCH tax payers are, and not on profit centers. It appears to me that the focus on profit centers is a part of the problem. We need a high quality emergency room, to begin with.

    Reply

Leave a Reply

Your email address will not be published.