The Cost of Independence

In April, Mendocino Coast District Hospital (MCDH) sent out a request for proposal (RFP) to five different hospital groups in California offering to affiliate in a buy or lease scenario. As of June 27, MCDH had received only one formal reply.

The sole response to that date came from American Advanced Management Group (AAMG), which is based in Modesto and has taken over several previously failing hospitals within the state. Those medical facilities include a senior nursing facility (SNF) in Modesto called Central Valley Specialty Hospital – SNF. In the latter half of April Central Valley Specialty received this letter from the western division manager of certification and enforcement at Medicare headquarters in Baltimore, “Notice is hereby given that the provider agreement between Central Valley Specialty Hospital - SNF and the Secretary of the Department of Health and Human Services, as a provider of skilled nursing services under the Health Insurance for the Aged and Disabled Program (Medicare) will be terminated effective April 24, 2019. The Centers for Medicare & Medicaid Services has determined that provider has failed to maintain compliance with Medicare requirements. No payment for services rendered by Central Valley Specialty Hospital - SNF may be made under the Medicare program, except for inpatient skilled nursing services rendered to Medicare beneficiaries who were admitted to the provider on or before the close of April 24, 2019. Payment for skilled nursing facility services rendered to beneficiaries admitted prior to April 24, 2019 may be available for up to thirty (30) days after the effective date of termination.”

In shorter terms, Medicare stopped all payments to Central Valley Specialty as of April 24th,  seemingly shutting down the operation, though a Modesto Bee article from the same week reported, “The federal government is demanding that a long-term care hospital in Modesto improve practices such as infection control and nursing services, or the facility will be removed from the Medicare program.”

However, the report went on, “The matter was kicked upstairs to [Medicare], which notified Central Valley last month that its agreement with Medicare will end June 20 if it fails to make corrections.”The bottom line: AAMG doesn't look all that suitable as an affiliation partner for Mendocino Coast District Hospital.

Finally, on Friday, June 28, two days short of the deadline to respond, Adventist Health submitted its formal proposal to affiliate with MCDH. At press time full details of that proposal were not available.

One day earlier a bizarre editorial appeared in the coastal papers. The piece provides an object lesson on informed reading. Lesson one: The editorial's second paragraph begins, “The fact remains…”

My mother taught me decades ago that if a person begins a statement with, “The fact is…” or any facsimile thereof, watch out for a subjective opinion coming around the corner after that claim to fact. That second paragraph's first sentence in full: “The fact remains that rushing a decision this momentous seems unwise for anyone who will have to live with the consequences.”

That is not a fact, my fellow friends and voters, it is nothing more than unverifiable opinion. The next sentence presupposes that the affiliation will be a sale of the hospital. A more likely deal will involve a proposed lease agreement with an option to buy down the line. Readers can check to see which turns out to be closer to fact.

The third paragraph of the editorial in question addresses the healthcare district's Measure C, the $144 per year parcel tax. The coastal paper maintains that the approximate $1.5 million garnered from this tax will “very likely go straight into the revenue stream of whatever company takes over the facility.”

That is one possibility. Another possibility that the coast editorialist failed to consider is the MCDH Board of Directors canceling the parcel tax entirely as an encouragement to voters when affiliation goes on the ballot. This idea runs counter to the coast publication which presents only a “this or nothing proposition” when it comes to the voters' choices.

Nowhere in the editorial are the current finances of the hospital addressed in a quantitative manner. At the end of May, the hospital had a net operating loss of $2,780,000 for the fiscal year to date and a total net loss of $644,000. Only one month in the last six showed a small net profit. The losses have often been in the hundreds of thousands of dollars per month. The same trend goes back into 2018. These are numerical facts.

The interim CEO and interim CFO both estimate the hospital's cash on hand will be a mere $250,000 at the end of June, the close of the fiscal year. MCDH is out of compliance with two of its three bond covenants. A close look at the one bond covenant the hospital meets, “Days Cash on Hand,” reveals a disturbing underlying fact. The “Days Cash on Hand” was 42.9 at the end of May. Three-fourths of that amount, about $4 million, comes from what is called a Local Investment Agency Fund (LAIF), essentially the healthcare district's only savings account.

Aside from the LAIF savings account, the hospital has just over ten days worth of cash. According to a Becker's Hospital Review assessment of February, 2017, a hospital should maintain a benchmark of “Day's Cash on Hand” five times larger than what MCDH possesses, even including its LAIF account.

If all the LAIF money were to be used, it might be employed to try to offset the $10-11 million in state mandated deferred maintenance MCDH faces over the next year or so. Serious maintenance problems can, and do, arise beyond the list of planned-for repairs, renovation, and replacement.

As most fourth graders can tell you, $10 million doesn't divide into $4 million.

These are some of the financial facts. Expenses for basic hospital supplies, medicine, and registry employees are all expected to go up in this coming fiscal year. In addition, there is a potential multi-million dollar settlement in the Hardin lawsuit looming ever closer.

In point of financial reality, MCDH has only kept its doors open in the first half of 2019 due to the largesse of Cal Mortgage, the hospital's main creditor, through a formal waiver to continue operations. The January waiver, which the coastal paper should be well aware of, was granted in large part because of the $1.5 million coming in from the parcel tax. Despite that new influx of dollars, MCDH's bottom line is more than $600,000 in the hole this fiscal year and the total deficit will likely grow by the end of June.

At this juncture it is extremely reasonable to assume that a Cal Mortgage waiver for the second half of 2019 will not be based on potentially positive financial numbers, rather Cal Mortgage will be granting another waiver based almost entirely on the possibility of MCDH affiliating with another hospital group.

Essentially the coast paper's editorial offers up no solution other than MCDH remaining an independent and financially failing institution, waiting for the doors to close. The coast papers and any segment of the healthcare district populace who are staunchly clinging to the concept of independence at all costs for MCDH must produce a plan for the millions and millions in funding necessary to keep the doors open at the hospital. They need to propose concrete financial solutions now. Really, they should have produced them already. The problem is they can't and they won't.

(A litany of archival info on MCDH at the AVA online or malcolmmacdonaldoutlawford.com.)

3 Responses to "The Cost of Independence"

  1. mr. wendal   July 3, 2019 at 9:38 am

    Thank you for the news about a second proposal. It’s no surprise that AAMG’s short track record does not look good. I’m eager to learn about the Adventist Health proposal. I wonder how their proposed merger with St. Joseph Health would affect us.

    This is an important decision. Everyone in the district should attend or watch (on mendocinotv – you can play them and listen as you go about your day if you don’t have time to watch) every recent board and committee meeting, read the budgets and reports, read the articles written by Mr. Macdonald, and read the articles and opinions in other the local papers. Collect the facts, discard the conjecture, and what do you have? Remaining independent is not a realistic option and I also challenge anyone who wants to remain independent to show how it is financially feasible.

    Reply
  2. benjamin graham   July 3, 2019 at 1:56 pm

    Right on, Malcolm!
    The only things I’ve heard from the “independent” folks are “deep dive”, “new services”, “marketing plan”… same old, same old

    Buz Graham, MD

    Reply
  3. Norma Gene   July 9, 2019 at 12:40 pm

    Were the property tax to rise to 50 percent of the value of all parcels, no change in course would be required and the ship could sail on.

    I’m just waiting for one of the Board Members to ask the property owners for a big increase in the tax.

    The larger the tax, the less efficient the service is Norma Gene’s motto.

    Reply

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