The year 2007 was a tumultuous one in the world of health care, but it might have been just a warm-up act. In the race for the White House, the health care issue is running a very close second to the war in Iraq.
Statewide, voters may be asked in February or November to approve a health care tax package if Governor Schwarzenegger and the Legislature can agree on a plan by the end of the year. The plan would, at the very least, need to provide for nearly 7 million uninsured Californians and possibly ensure all citizens have access to coverage.
But that’s big picture stuff. Expect the main events closer to home.
The health care issue affirms the axiom that “all politics are local.” Nowhere in the North Bay is the truth of that statement more evident than in Sonoma County, where the politics of health care are being played out on every point of the compass.
The dramas turn on the difficulty hospitals and health care systems have paying their bills, the state’s 2013 deadline for making hospitals earthquake safe and hardball competition for every penny of every health care dollar. Hot spots begin in the center and spread out from there.
In Santa Rosa, Sutter Health System wants to pull out of its 1996 agreement with the county to run the 248-bed Sutter Medical Center that used to be Community Hospital. Citing millions of dollars in losses stemming from caring for uninsured and MediCal patients, and doubting the local market’s ability to support three major hospitals, Sutter proposes to turn over much of its business to crosstown rival, Santa Rosa Memorial Hospital. Concerns by the larger medical community that Memorial might not be able to carry that increased load, and that Memorial, which is owned by the Catholic St. Joseph Health System, has prohibitions against certain women’s reproductive services induced the Board of Supervisors to hold up the deal pending further talks.
Meanwhile, as Sutter talks with the county and Memorial waits in the wings, the third health care giant, Kaiser Permanente, continues to grow. As 2007 comes to a close this month, Kaiser reports about 161,000 Sonoma County members, 50,000 more than 10 years ago. A two-year expansion is under way to nearly double most of the operations at Kaiser’s Santa Rosa facility, increasing the number of beds from 117 to 195.
The churn goes on in the south county, where the Petaluma Health Care District, which owns Petaluma Valley Hospital (it leases the facility to St. Joseph’s Health System), is finalizing plans with Basin Street Properties to build a 40,000-square-foot medical office building adjacent to the PVH grounds. There’s hope that the new structure will help recruit new physicians to the area and begin leveling the playing field with rival Kaiser Permanente.
And to the east, west and north, the Sonoma, Sebastopol and Healdsburg district hospitals have united in an attempt to ensure their place in the countywide health care delivery system. The struggles and initiatives of these taxpayer-supported district hospitals are producing a new set of footprints on the health care landscape, a collaborative plan for survival and a health care delivery concept that could present some new options for providers and patients.
Stepping up
Each of the district hospitals has its own set of unique challenges. Palm Drive Hospital in Sebastopol is trying to overcome years of billing and management problems and strategic missteps that led to huge annual losses and bankruptcy. Its future depends on its ability to raise about $23 million in bond money to pay debts, ensure sufficient cash flow during a three-year recovery program and refinance old bond obligations.
Sonoma Valley Hospital in Sonoma will seek voter approval of a construction bond—possibly next spring—to finance a new hospital that meets earthquake safety standards and provides for growth. The plan is to build a new hospital in the center of town. It would be near the existing hospital site, which would be remodeled for administrative and other support services. The cost has not yet been determined. All of this comes after several years of bitter community infighting over a $148 million bond issue to build a new facility on prime farmland on the edge of town. The plan was so unpopular, the district leadership ultimately withdrew its support, and voters killed the measure by a 77 percent margin.
Ten long and difficult years after heading off a threatened corporate closure, Healdsburg District Hospital is turning a profit and enjoys widespread financial support from the community. But the profits and philanthropic funds are being poured back into the facility to make the hospital more competitive and keep Sutter, Kaiser and Memorial from luring patients—and revenue—away.
It’s a never-ending struggle for these district hospitals, which begs the question: Why not just shut down and leave health care to the big hospital systems?
“We’ve found that local residents in our health care districts want community-based medicine,” says Geza Kadar Jr., a Santa Rosa attorney specializing in health care delivery systems, who serves as consultant to the three district hospitals as well as the newly established Joint Powers Authority and North Coast Integrated Health, which this article will explain. “We’re confident we have popular and political support for a collaborative approach to improving primary care services in our communities,” he says, and the numbers support him.
In Healdsburg, a community-driven $14.5 million capital campaign is nearing its goal. Voters approved two parcel taxes to support the hospital, one in 2001 that passed by 84 percent and a second in 2004 that carried with 71 percent. In Sonoma Valley, voters approved similar taxes in 2002 and 2007 by comparable “yes” votes, 84 percent and 74 percent. And in Sebastopol, a bond measure and two parcel tax proposals were approved by 90, 83 and 69 percent of the vote.
Linda Johnson, who chairs the board of directors for Palm Drive Hospital, says the smaller community hospitals perform services that larger, city-centered medical systems just can’t deliver.
“The moment one of your children needs ER care—and they’re going to, eventually—the local hospital will be there,” says Johnson, a mother and grandmother who’s spent a career as an occupational therapist, including running the program at Children’s Hospital in Oakland. “Health care is important; it’s right up there with water and schools.”
Jim Sato, the interim chief executive officer hired to get Palm Drive through its most recent financial emergency, says the issue is a matter of minutes.
“Doctors will say you have about 30 minutes to an hour to survive a bad heart attack or stroke,” he says. “When you’re living in Bodega Bay, Jenner or the Russian River area, you don’t want to lose that golden 30 minutes.”
He continues: “The first 10 to 15 minutes are usually lost to decision making: Am I really having a heart attack or stroke? Should I call the ambulance? Once the decision is made, it’ll take the ambulance 15 or 20 minutes to arrive, get you aboard and take you to the nearest hospital.
“That gives you about 30 minutes to get to the hospital for that first emergency treatment that will determine if you’re going to make it.”
Joining forces
Convinced their hospitals are needed and wanted, the boards of directors of the three hospital districts have agreed to collaborate on a strategy for improving community-based primary health care. Under the umbrella of a new Joint Powers Authority (JPA), the health care districts established the Northern California Health Care Authority in July. A fourth member, Mendocino Coast District Hospital in Fort Bragg, has also joined the JPA.
The collaborative agency enables the four hospitals to share certain operating expenses and medical programs, pool resources, increase purchasing power, improve programs for encouraging and supporting young doctors who want to set up practices in rural areas and, finally, offer new coordinated health services for the customers of health plans like Blue Shield, Health Net and others.
The JPA by itself, however, is only a first step in the vision the member hospitals have for assisting each other, serving their communities and playing a role in the county’s overall health care delivery system.
As a result of a series of events—the Sutter Hospital closure proposal, the advent of the JPA, ongoing plans to create a managed care model for delivering health care to some 46,000 Sonoma County MediCal recipients, and frustration over inaction on the state and federal levels—the Sonoma County Board of Supervisors created a Health Action planning council earlier this year. The council, which began meeting in October, brings together the medical community, business, government and labor to focus on the current state of the county’s health care delivery system and devise strategies for expanding access to health care for local residents.
Evan Rayner, CEO of Healdsburg District Hospital, believes the time is right for a collaborative approach. “It’s a great opportunity to rethink the whole thing, align incentives and to restructure the health care market countywide in the best interests of all,” he says.
Rayner, Sonoma Valley Hospital CEO Carl Gerlach and the other leaders of the JPA are already moving in that direction by working on a health care delivery model that will link district hospitals with community-based primary care physicians and specialists, community health centers and providers covering other health services, such as substance abuse, mental health, senior services and women’s reproductive health.
Unlike the full-service program Kaiser operates under one roof, the JPA’s model exists under a virtual roof with each district hospital aligned with a health center, family doctors’ offices, a lab, a specialty clinic and a shared center for ancillary programs.
The JPA board of directors breathed some life into the concept in October, when it established a nonprofit management company called North Coast Integrated Health (NCIH). With this subsidiary agency, the JPA, which is open only to public entities, can introduce other health care providers to this collaborative program.
“The NCIH business model can improve the quality of care patients are getting, it can reduce duplication of costly equipment and services, and it can make the community hospitals more financially viable,” Kadar says, adding that the goal is to improve primary care. “District hospitals can’t provide things like complex coronary disease treatments, neurosurgeries or ER trauma centers. That’s better left to the larger facilities like Memorial,” he says. “But we can do a better job serving most of the primary care needs of residents in our communities.”
Kadar envisions local physicians and medical groups from Marin to Mendocino counties participating in the NCIH system, a collaboration that could produce support from government, philanthropists and insurance companies. “Collaboration among providers, better integration of health services and chronic care management are goals they’re all interested in funding,” he says.
It’s pretty bold action by leaders of three district hospitals that have struggled through one crisis after another in recent memory. But in creating the JPA and NCIH models, the group’s leaders concur both are essential to the success of the individual hospitals and the larger, countywide health care delivery system.
“This is about the pronoun ‘we,’” Carl Gerlach, CEO at Sonoma Valley, told the JPA board in support of establishing the NCIH.
The next step is organizing a NCIH governing board, recruiting health care providers that want to participate and securing funding. Meanwhile, with joint initiatives under way, JPA members are focusing on their separate challenges.
Palm Drive Hospital
Palm Drive District Hospital has been a publicly owned district facility less than 10 years, and as hospitals go, it’s been in critical condition almost all of that time.
The west county rallied in 1998 and 1999 to buy the hospital from Columbia/HCA, which was weeks away from closing its facility rather than lose more money. Voter support for saving Palm Drive has been unflagging. Measures to create the district, sell $5.9 million in bonds to fund the purchase and two parcel taxes to raise operating funds passed with super majorities.
Yet the first nine years under community ownership were difficult. The hospital slipped into a crisis mode earlier this year. It had lost $4.9 million in 2006 and, in March 2007, could not meet payroll nor pay its bills. Money raised from the sale of assets, including adjacent property, were gone. Purchase of a nearby residential care facility produced unanticipated financial liabilities. Closure of the ICU to save money backfired, because physicians and ambulance drivers stopped taking critically ill patients to Palm Drive. Health insurance payments covered only a small portion of actual costs, sometimes as low as 20 cents on the dollar. A near-total breakdown in hospital recordkeeping and billing produced piles of unpaid claims.
In quick succession, hospital directors called in help. First, they hired a new interim CEO, Jim Sato, who specializes in salvaging failing hospitals. Then they turned, once again, to Dan Smith, one of the original saviors, who helped rescue the hospital from closure nearly 10 years ago.
Smith is a business software entrepreneur who sold his firm, OMware Inc., to Intuit in 2001 for $42 million. He now owns the French Garden Restaurant in Sebastopol. Smith answered the call and put up cash and $3 million in stocks to guarantee short-term financing, make payroll and keep the hospital open through the spring and summer.
After filing for reorganization under Chapter 9 bankruptcy laws, Sato worked to fix internal problems that were killing the business. By fall, there was significant progress.
• The ICU is operating again. An improved, five-bed unit, it includes the high-tech medicine of Dr. James Gude from Sutter Medical Center. Gude made Palm Drive the base for a robot-supported “off-site care” program that will link patients at Palm Drive, Healdsburg and other hospitals, via the Internet, to specialists all over the country (or world) for immediate and cost-effective consultations.
• Daily inpatient load and ER visits, x-ray and lab use are all up. Fixed costs are stable. Sato is negotiating with Kaiser to send overflow patients to Sebastopol.
• Billing and collections systems are nearly repaired. Revenues that were $1.2 million in June were up to $1.8 million in September.
• Negotiations are progressing to increase health insurance payments, which could add $2 million or more to the bottom line.
• The hospital is moving to get out from under the obligation of running the neighboring residential care facility.
With these changes and the JPA, Sato says Palm Drive has a good chance. “The JPA is the future,” he says.
Meanwhile, Dan Smith is shepherding a three-year financing plan to stabilize the hospital, pay some bills and bond debt, provide cash flow and reserve, and fund facility improvements. At a recent meeting, Smith boosted board morale when he said he’s confident the refinance plan will work, and that the hospital will have a positive cash flow just a year after it was losing $500,000 a month.
“I wouldn’t say your future looks so bright that you gotta wear shades, but the future is looking much brighter,” he told the board. “You certainly won’t run entirely out of cash.”
The morale got another boost when, following Smith’s financial report, Palm Drive Hospital Foundation board member Heidi Gillen announced that $124,000 had been raised at an event at Smith’s restaurant, money that will be used in part to launch a $10 million capital campaign.
“In April, when we were seeing the darkest of our days,” said district board member Irma Cordova, “I never thought we’d be hearing good news so soon.”
The good news, however, remains tempered by the continuing onslaught of huge numbers reflecting how poorly the hospital was doing before it declared bankruptcy in April—and how much money is needed for Palm Drive to survive the next several years.
An independent audit in October showed the hospital lost $2.5 million with tax support during fiscal 2006-2007 (which ended in June). The district needs to sell bonds to raise close to $14 million to pay bills and provide resources for the next three years, and another $9.2 million to refinance old bonds. Board president Linda Johnson acknowledges the news isn’t good, but she remains confident now that the hospital is negotiating much better returns from health insurance carriers. “We should be cash flowing if we had all our new health insurance contracts,” she says. “We’re very optimistic.”
Healdsburg District Hospital
The Palm Drive experience mirrors events in Healdsburg in 1998, when that community saved itself from Columbia/HCA’s plan to sell off the local hospital as a money loser. It’s been a rugged 10 years, but Healdsburg District Hospital has a lot to be hopeful about.
It went through the same financial bumps that Palm Drive is experiencing. The hospital had to cut back services in some areas, including the temporary closure of its ICU as well as obstetrics, which remains closed. And like Palm Drive, it depends on taxpayer support, which is solid, and produces $3 million in annual parcel tax revenue to help pay expenses.
After posting a $332,000 loss in 2005, the hospital posted $1.5 million in income at the close of 2006 and is projecting $1.7 million in income at the end of this fiscal year. And a capital campaign launched in 2006 by Healthcare Foundation Northern Sonoma County had, at press time, raised $11.1 million of its $14.5 million goal.
“We’re very lucky to have a very supportive community,” says Evan Rayner, who arrived in June 2006 to take over as CEO. Rayner credits increased surgeries and admissions through the ER, cost savings and diversified new business thrusts for the income turnaround. He thanks the community and philanthropy for giving the hospital the chance to make important improvements.
The capital campaign and hospital revitalization program is building a new Emergency Department, named for vintners Maggie and Harry Wetzel, who donated $2 million for the $4 million ER project. The existing four-bed ER will be expanded to 4,500 square feet and eight beds.
Funds also are going to improve the ICU, which will be part of Dr. Gude’s robotic network of ICUs for fast consultations with specialists almost anywhere. Rayner said the ER and ICU improvements, as well as other upgrades funded by the foundation, provide a “a catalyst for growth. The availability of these improved services will provide high-quality health care close to home.”
He anticipates benefits from the JPA relationship with Palm, Sonoma and Mendocino hospitals through cost sharing, coordinated physician recruitment and increased leverage with vendors and payors. There’s also a chance that Rayner will share his CEO functions with Palm Drive after interim CEO Jim Sato leaves Sebastopol. That idea, however, awaits approval by both hospitals’ boards of directors.
Sonoma Valley Hospital
The future of Sonoma Valley Hospital is scheduled to go back before the voters, possibly as early as spring. They’ll be asked to remodel the existing medical center on St. Andrieu Street for administrative and other support services and to build a new hospital on about six acres of vacant property nearby.
Cost of the property was estimated at about $8.8 million. Construction costs will depend on facility design. The ultimate plan will need the approval of two-thirds of the 19,940 registered voters in the district that runs down Sonoma Valley from just north of Glen Ellen to the San Francisco Bay and Napa County lines.
In addition to future construction, CEO Carl Gerlach and the board of directors face the same issues the other district hospitals face. Sonoma Valley Hospital needs to increase usage and revenues, recruit more primary care doctors and specialists, establish flexible staffing systems to hold down labor costs and, with the other district hospitals, offer residents a health care delivery system comparable to the larger hospital programs.
Next year’s ballot measure, however, will take center stage. It comes two years after a controversial hospital proposal split the community. Facing a 2013 earthquake safety deadline, the board proposed using eminent domain to take property on the edge of town, owned by the popular Leveroni farming family, for a new $148 million facility.
Tactics and price killed the idea. Certain of defeat, the board withdrew support for its own proposal. By the time the measure lost by 77 percent in May 2006, proponents and opponents had already formed a coalition to heal the wounds and try to come up with a compromise.
The coalition produced several options for a new facility that included remodeling the existing hospital in the middle of town, building a completely new hospital at the southern border of the city, or modifying the existing building in conjunction with construction of an additional facility nearby. That’s the option the board finally approved in October.
Urgency, trepidation, desperation and a whiff of inevitability all went into the long birthing of this latest action plan, which, some board members believe, will still face opposition.
But Gerlach is confident. “I believe the people in Sonoma Valley want a hospital, and I believe we can demonstrate the benefit is worth the costs,” he says. “I also recognize that some people are opposed to any taxation for a new hospital. I would hope to convince them to change their minds in the spirit of what’s best for their families, neighbors and coworkers. I would ask them to imagine life without the hospital.”
Board members weren’t so confident during the final weeks of deliberation. During one board session, director Michael Smith said the district had to pick a plan and move forward, despite fears of a difficult campaign. “It’s going to be a tight sell on the bond issue,” he told the board. “But if we don’t move on this, we’re going to be dead in the water. We only get one bite at the apple.”
Arnold Riebli told fellow directors success or failure will depend on location, not the bond amount. “It’s not the cost of the damn thing, it’s where it will be built,” he says. “We’re going to make some people happy. We’re going to make some people unhappy. That’s the way it goes.”
Mendocino Coast Hospital
After struggling financially for years—it lost $5 million in 2006—Mendocino Coast District Hospital reported a $1 million profit in July 2007. CEO Raymond Hino credits the turnaround, in part, with higher returns for Medicare patients the hospital enjoys because it reduced its 51 beds to 25 and was declared a “critical care access hospital.” He also cites cuts in expenses, improved billing systems and better utilization for the increased revenues.
But Hino, who began his second year as CEO last month, guardedly celebrates the hospital’s being in the black. “We’re more stable than we’ve been in years, but we’re not out of the woods,” he says. “We had a positive bottom line, but that doesn’t mean we have a million in the bank. Every penny went to try to get ourselves out from under a mountain of debt.”
Hino says the hospital has “a couple of million in debt,” lingering community distrust based on previous hard times and all the issues plaguing little hospitals, such as poor insurance reimbursement rates, uncovered indigent care, rising costs and competition from larger health care facilities. There’s also a $5 million earthquake retrofit due by 2013 and the need to recruit and keep new physicians.
Hino says the hospital also must rehabilitate public trust, which suffered badly in recent years and led to the defeat of a parcel tax issue in 2005. No tax issues are on the horizon. Instead, the hospital has embarked on a private, $2 million fund-raising drive “within the family.”
“We started by going to our hospital board and the hospital staff. We need to prove to the community that we have a cohesive, unified medical family,” he says.
After 80 percent of the “family” had committed or donated $255,000, the campaign went public in November, he says. And now, too, Mendocino Coast has the collaborative support of the Sonoma County district hospitals in the JPA.
“Small, independent hospitals have no ‘clout’ and no leverage in negotiations with big health plans,” he says. “Our JPA may not level the playing field, but it could give us an advantage that we don’t currently have.”
With all the struggles these district hospitals have seen over the years, it seems banding together and garnering community support may be the keys to success. And wouldn’t that be comforting to us all?
