NorthBay biz explores the David vs. Goliath struggles of small town hospitals and finds them on their way to a full recovery.
You could risk complicated travel time—ambulance, helicopter, rush hour traffic—to get to the city hospital. Or, you can go to your local hospital—Palm Drive, Healdsburg, or two or three others in the outlying areas—where, within minutes, the right specialist will see you and save your life. Impossible?
Within minutes of the neighbor’s arrival, she was introduced to “Herb,” the InTouch RP7 robot, which looks like a television mounted on a giant fire plug, topped with a rotating camera. Herb connects the patient—virtually—with a neurologist somewhere on the network. (Imagine a full-frame face on a computer screen, atop a robot that’s rolling toward you, camera rotating, asking you how you feel.) The neurologist, part of an on-call network of specialists in the San Francisco Bay Area, examined Smith’s neighbor, determined the type of stroke she was having and gave instructions. She was treated, put in the Palm Drive ICU and, because of the speed and accuracy of the treatment, went home the next morning, fully recovered.
This high-tech drama isn’t the embattled, on-life-support, held-together-by-gaffer-tape image associated with the community hospitals in the news a few years ago.
For the last 10 years, four local hospitals— Mendocino Coast District Hospital, Healdsburg Hospital, Palm Drive Hospital and Sonoma Valley Hospital—have faced financial crisis, community strife and Goliath-sized competition. To survive, each has had to make do-or-die decisions and put its community to the test. Now, all of them, with their same and different challenges and assets, have managed to gain community support, are pulling out of the red and, despite—or because of—continuing challenges, are morphing into images of success with advanced capabilities. In the process, they’re transforming the idea of the rural, district or small community hospital.
Palm Drive Hospital
Palm Drive Hospital CEO James Russell, who came on board just over a year ago to steer the hospital out of bankruptcy [see Editor’s Note at end of story], says one of the single factors in getting the hospital out of the financial mire was to hire Dr. James Gude, a critical care specialist (also called an “intensivist”) who, after having been at Sutter Medical Center since 1971, first as coordinator of medical services and then as ICU director, was ready to move on. Gude was brought in to run the Palm Drive ICU and to contribute his expertise to the growing network of Northern California hospitals sharing robotic technology for diagnosis, treatment and patient monitoring.
In a time of financial constriction, investing in new technology might seem risky, but, “The thing I understood right away,” says Smith, who’s lived in Sebastopol since 1967 and owns The French Garden restaurant, “is that a small hospital is primarily a fixed-cost business. This means you’re going to have those costs no matter what the volume of your sales is.” Much like a restaurant has to stock eggs and flour regardless of the number of patrons on a given night, a small hospital has to have a pharmacy, emergency room, nursing, etc., all running 24/7. According to Smith, those who’d led the hospital before he and Russell took over didn’t understand those basic facts and kept trying to cut costs as the hospital was going down. “But you can’t do that,” he says. “You have to build your revenue stream to support your fixed costs.”
For example, the former board shut down the intensive care unit (ICU) in 2006, he says, and the hospital went into a “complete tailspin,” with all of the more acute patients having to be shipped elsewhere. “What Dr. Gude and the robotic program lets us do,” says Smith, “is have available, 24/7, the same level of specialty care you’d find in a large urban hospital. So instead of shipping that seriously ill patient elsewhere, you can provide the same level or even better care in a small hospital setting.”
Gude, whose conference room bookshelves are lined with works by literary physicians, and who starts his “morning rounds” with a poem (on the morning NorthBay biz visited, it was from Beowulf) speaks in tones of restrained excitement. “I came here in July 2007 because this hospital was in dire straits,” he says. “What the hospital needed to survive was the ability to take care of sick people. We managed to do this by opening the ICU so they didn’t have to be sent elsewhere.” Gude, who’s taught medicine for nearly 40 years, is a believer in community, community hospitals and networking. Four Northern California hospitals—Palm Drive in Sebastopol, Healdsburg District Hospital, Ukiah Valley Medical Center and the Frank R. Howard Memorial Hospital in Willits—are already part of the robot network, and at press time, Mendocino Coast Hospital in Fort Bragg was in the initial stages of installing a robot in its ICU as well.
Healdsburg District Hospital
The robot is about sharing, but that doesn’t mean the spirit of competition isn’t alive and well. Healdsburg District Hospital CEO Evan J. Rayner says that actually, while Palm Drive may have had the robot in its ICU first, “we’d provided it hospital-wide first!”
He laughs, and points out that Healdsburg District Hospital is the first Critical Access Hospital (CAH) in California to use the InTouch remote presence technology to help augment the emergency department, the ICU, the surgical department and other units. To him, it’s a huge advantage. “Being able to couple the ICUs with intensivists and then having remote, real-time access to specialists brings depth and another level of health care to these rural hospitals,” he says. “Some of the lives we’ve saved will testify to that.”
As a CAH—this designation means qualifying hospitals can receive cost-based reimbursement from Medicare, a great financial advantage—Rayner says his hospital’s finances aren’t as dire as some of the others in this article, and he’s cautiously optimistic about the future; still, taking on new projects bears an element of risk. But the measure is always the mission. “If it’s good for the patients, it should be good for the hospital. In certain circumstances, having a higher level of care available in your hospital will let you keep health care close to home. And keeping families and health care close to home is one of our missions.”
Mendocino Coast District Hospital
Raymond Hino is CEO of Mendocino Coast District Hospital in Fort Bragg. Like Healdsburg, Mendocino Coast District Hospital has become a CAH, and that’s helped financially.
“We were on the verge of bankruptcy before we went critical access,” says Tom Birdsell, current chair of the Mendocino Coast District Hospital board of directors. But it’s not basing its survival on that. It boasts specialties that some smaller hospitals couldn’t support. “We enjoy very high market share for our obstetrics (OB) service,” says Hino, “and for all of the services [from obstetrics through hospice] we offer at our hospital because we’re isolated and people need us.”
Hospitals without doctors
“The biggest difficulty in recruiting physicians,” says Hino, “is the state doesn’t let hospitals employ doctors. That puts us at competitive disadvantage to hospitals in other states that are recruiting the same doctors we are. The physicians I’ve spoken to have a choice of coming to the Mendocino Coast or going to Oregon, Idaho or you name it. Usually, among the very first questions they ask are, ‘How many days off per year am I going to get; what’s the salary; and what’s the benefit package?’ And we have to say, ‘We’re not allowed to employ doctors in California.’ They say, ‘Thanks,’ and move on.”
Why would the state handicap the rural and district hospitals? According to Hino, the California Medical Association says a physician’s practice should never be compromised by having to work solely for a hospital or corporation. However, Dr. John Rochat, an oncologist whom the hospital was able to hire a few years ago thanks to a pilot project (Senate Bill 376), has been actively testifying on behalf of proposed new legislation (Assembly Bill 648) to let rural hospitals directly employ physicians. According to Hino, Rochat tells them that, “Administrators don’t tell me how to practice medicine, insurance companies tell me how to practice medicine.”
Dan Smith points out that this law gives Kaiser an advantage, too. “Kaiser has hired away a lot of the physicians that used to work in our community,” he says, “including specialists. Kaiser goes to these doctors who are struggling in their practice, and says, ‘We’ll pay you this, and you don’t have to think about anything; we’ll take care of it all, and you just practice medicine.’ So it makes sense. Why would you want to go and set up a practice when you’re not going to make any money and you can’t pay back your student loan?”
The work-around
These hospitals realize they need to be creative in attacking the problem. One way they’ve found is they can form medical clinics or health centers through which they can hire doctors on contract. Through them, as Hino says, “We’re able to tell doctors that we can’t employ them, but we can contract with them.”
“Primary care doctors can’t build practices and hire staff by themselves anymore,” says Jim Russell, “it’s too expensive and they don’t make any money. But they can work in what’s called a 1206D clinic, where all they have to do is see patients. We get the patients and we handle the staff. It’s like a mini-Kaiser.”
The word, “Kaiser” isn’t spoken of kindly in most conversations with small hospitals. “Kaiser’s just been killing this market,” says Carl Gerlach, CEO of Sonoma Valley Hospital. “I don’t know any hospital leader who wouldn’t tell you Kaiser has essentially won. It now has a dominant market share and provides high-quality service. And it’s what we compete with, like it or not.”
Sonoma Valley Hospital
Up until recently, competition was only part of Gerlach’s problem. He needed to get a general obligation bond approved to keep Sonoma Valley Hospital afloat. Finally, in November 2008, the City of Sonoma passed a $35 million general obligation bond to preserve emergency services and upgrade the hospital’s infrastructure to allow for state-required retrofitting. This was a milestone. After several years of bitter community conflict over where (and whether) the hospital should buy land and build (or not build) a new hospital, the success of Measure P, by an 80.8 percent vote, gave Gerlach the financial support and community solidarity needed to move forward his vision of a strong hospital with a network of powerful affiliates delivering excellent community health care.
Critical to the success of that vision is the hospital’s ability to attract doctors. It seemed a conundrum. But this spring, Gerlach announced a physician-attracting breakthrough. He has now linked with Marin IPA, a local health care group administering benefits for members in Marin, Petaluma and Sonoma Valley. In this business arrangement, doctors who want to work with Sonoma Valley Hospital can be employed by the local, physician-owned Prima Medical Group. “That’s a winner,” he says. “We’re not asking a doctor to come here and fly solo. We recruit them by having them become an employee of Prima Medical Group and part of the Marin IPA enterprise.” If that sounds familiar, it is.
“What we’re trying to do is be as much like Kaiser as we can,” he says slyly, “without the requirement that everybody works for the same organization.”
Strength in numbers
Each of these hospitals has realized that none can meet their collective and individual challenges alone. In his conference room, Palm Drive CEO Jim Russell, a calm, concise man with a careful manner, directs his attention to a large map of Sonoma hanging on the wall behind the table. He points to four pins on the map: Healdsburg, Sonoma, Sebastopol and Mendocino. These four hospitals, he says, currently participate in a Joint Powers Agreement (JPA), which represents a step away from the vulnerability of isolation and toward a new model of networking.
Carl Gerlach has talked about affiliation and sharing since he came on board in 2007 with a mission to turn the hospital around. “I’m now focusing on the JPA in cost sharing,” he says. “Finding opportunities to share. That’s my main focus for the JPA.”
While sharing is essential, it’s not necessarily simple. While Gerlach hopes to find possible time and cost-reducing opportunities, he notes that regional issues and hospital cultures make sharing difficult. For example, he had attempted to work with Palm Drive on some cost sharing IT functions, but incompatibilities and problems within the Palm Drive system proved the effort impractical.
Ray Hino likes that the JPA relieves the isolation of the small hospitals, and sees possibilities in sharing specialists and staff, in particular where one doesn’t necessarily have to live in close proximity to do the work. “We’ve always felt that maybe in some of the hard-to-fill categories, such as information technology or sharing programmers, we might be able to fill in with the other JPA hospitals.”
But while he definitely welcomes the advantages of the JPA, Hino also sees certain blessings in his isolation. “It lets us preserve and keep services here that a lot of small hospitals really struggle to keep, such as our OB department. More and more, smaller hospitals are unable to sustain these because of the low volume and the high cost of providing that service.”
While some seek tangible, numbers-based results, others focus on the larger picture. Recently, when Sutter Medical Center of Santa Rosa announced a plan to build a new hospital, the JPA wrote a position paper cautioning the Board of Supervisors as to possible consequences for rural hospitals. “We believe the JPA hospitals represent half the county’s population,” says Russell, “and 80 percent of the geography of it. Therefore, we feel we should have a say in how the county moves forward with health care, or the state. So we’ve become very active politically, at the county, state and federal levels.”
Dick Kirk, a Sonoma Valley psychiatrist and president of the JPA board, sums up the JPA as a network of Northern California health care districts designed to extend and preserve the mission of those health care districts as best they can through joint effort. “What I’m most interested in with the JPA,” he says, “is developing a community-based, responsive and responsible system.”
That’s the sentiment that prevails throughout the network and describes the overall aim of each of these hospitals.
Reflecting on his efforts to secure the long-term health of Sonoma Valley Hospital, Carl Gerlach imagines the satellite hospitals in terms of the capillary system. They’re small, and may seem insignificant, but what would happen, he wonders, studying the palm of his hand, if the capillaries dry up? Local consequences radiate outward. That’s why each of these CEOs and all these hospitals are working so hard. It’s not just to survive. It’s a principle: that local communities want and deserve quality health care close to home. And one way or another, each of these hospitals is determined to provide it.
Editor’s note: As we go to press, Palm Drive CEO Jim Russell has been placed on administrative leave following a public dispute between himself and members of the board of directors, including board president Dan Smith.
