Hospital stakes future on Turnaround Plan

Voters in the North Sonoma County Hospital District
(which stretches from Cloverdale to Windsor) are being asked to
approve a $150 per year parcel tax for Healdsburg District Hospital
in a special election on April 13. If approved, the tax will
replace a $85 parcel tax that the voters approved in November 2001,
when the hospital district was formed. According to hospital
leaders, the publicly-owned hospital will not last out the year
without the extra money. This is part four in a series exploring
the history of the hospital, what has led to this crossroads, the
current structure of the hospital district, and what may happen if
the measures passes, or if it fails.
By Ray Holley, Staff Writer
Last summer, Healdsburg District Hospital leaders took a risk.
They were scheduled to place a measure on the November 2003 ballot
that would increase the parcel tax in the North Sonoma County
Hospital District from $85 up to $125, or perhaps higher.
Instead of putting the question before the voters in November,
the district board put it off until this year, in order to show
voters in Cloverdale, Windsor, Geyserville, and Healdsburg that the
“12-Step Turnaround Plan” implemented in early 2003 is viable, and
that the hospital can survive with a little more help from the
voters.
“The Turnaround Plan is working,” said hospital Chief Executive
Officer Dale Iversen, “but the hospital cannot stay open without
additional cash.”
The Turnaround Plan was adopted in January 2003, after hospital
leaders looked at the hospital’s cash flow and declared that they
could not sustain the facility past March of 2003 without major
changes in operations.
“The status quo is not an option,” became the new slogan for the
hospital’s Chief Financial Officer Dan Hull, who helped develop the
plan and is one of the primary leaders behind its
implementation.
The plan was developed with the assistance of a consulting firm,
HealthWorks, and it has been continually updated by Hull and the
district’s Finance Committee.
Joe Schwartz, a tax consultant who sits on the district’s board
of directors, has put hundreds of hours into developing the plan
into a computer model that can be updated regularly.
“What I did,” said Schwartz, “was take the spreadsheet and go
through and validate the formulas while Dan was making sure the
data was right. My involvement was to give them a tool so they can
put a raw number into the financial model and see the results of
the change.”
While “the model” is now a tool that helps hospital leaders stay
focused on cash flow, other variables – income, expenses, and
timing – have both helped and hindered the progress of the
Turnaround Plan during the last 14 months. Some of the new ideas
started working right away, and some are just now getting
started.
When it was adopted by the district, the plan had 12 components,
or “steps.” Although the original plan was filled with specific
numbers and targets, the results are less precise.
The Turnaround Plan
Step # 1 – Improve operating efficiencies including general cost
reduction
The hospital set a goal of reducing expenses by $53,000 a month,
5 percent of its expenses. Hull said that the hospital has “hit our
5 percent goal,” but he was unable to track it specifically, saying
that there are too many variables of income and expenses. He
offered a variety of examples, including $4,000 a month saved by
changing how the pharmacy is operated, $5,000 a month saved by
“outsourcing” certain record-keeping functions, a new laundry
contract that saves 10 cents a pound, and more.
Hull and Iversen say that every hospital department manager has
cost reduction as part of his or her performance evaluation. “Even
the volunteers come in with good ideas,” said Iversen.
Chief Nursing Officer Pat Carini said that by winning a “swing
bed” designation from the state Department of Health Services, the
hospital is able to save money by assigning nurses based on the
combined number of patients in two areas, rather than by staffing
separately for each.
Hull also noted that some costs have gone up, such as workers
compensation insurance.
Step #2 – Increase prices to competitive levels
The hospital set a goal of $35,000 a month in new revenue from
increasing prices. Hull said that each department examined its
pricing structure, in comparison to “others in the marketplace,”
primarily Santa Rosa. The hospital did not use a single percentage
figure for price increases, “some prices actually went down,” said
Hull. The goal was to be competitive.
Hull said that Healdsburg is in line with other hospitals on
most prices, but that the cost of a basic overnight stay is much
lower.
Iversen pointed out that some prices could not be raised,
including those that are locked in by contracts with various health
plans. He also said that not all hospitals get the same rates from
health plans – larger organizations have more negotiating clout and
get better rates. “If we were getting Sutter’s rates, we wouldn’t
need a tax initiative,” Iversen said.
Step #3 – Increase contractual rates from private health
plans
Hospital leaders say that reimbursements from health plans were
so low that the hospital actually lost money on many procedures and
services. The plan called for 7 to 10 percent increases in payments
from insurance plans, and Hull – who is the hospital’s negotiator
on health plan contracts – said that the goal was more than met.
Hull said that contracts with Blue Cross, Blue Shield, Health Net,
and PacifiCare have been successfully renegotiated, “in aggregate,
14 to 20 percent.”
Blue Cross, which represents $3,591,000 in annual revenues, was
about 14 percent, said Hull.
This does not mean that hospital revenues are soaring. MediCare,
the hospitals’ largest payer, doesn’t negotiate, and it pays an
average of 38.8 percent of what it is billed. “None of them (the
government-sponsored plans like MediCare and Medi-Cal) cover their
full cost,” said Hull.
Step #4 – Bring staff wages into alignment with regional
norms
Raising salaries while losing money was one of the most
controversial aspects of the Turnaround Plan, but hospital leaders
say that it helped in a variety of ways.
Carini points out that, in the 12 months prior to increasing
nurse’s wages early last year, she was able to recruit only five
new employees. In the 12 months after the increases, she recruited
21 new employees to full and part time positions, the equivalent of
14.8 full time employees, or 25 percent of her nursing staff. She
also said that turnover has decreased.
Hull estimates that Healdsburg was paying 20 to 25 percent less
than hospitals in Santa Rosa for nurses. Since the hospital must
have nurses, it was forced to hire “travel nurses,” who work for
nursing registries, similar to employment agencies. While raising
nurse’s salaries 20 percent cost a bundle, Hull and Carini said the
hospital saved half a million dollars in registry costs in
2003.
Other salaries have also been increased, for hard-to-find
specialties such as radiology and telemetry technicians. The
Turnaround Plan calls for the rest of the hospital employees to
receive salary increases this summer. Iversen and Hull said the
raises are not automatic, that each department is being evaluated
so that the hospital can hire competitively, but that “our staff
has been very patient” with low wages for too long.
Step #5 – Increase referrals from Alliance Medical Center
Alliance Medical Center, a very successful rural health clinic,
opened a new 20,000 square foot building next door to the hospital
last year, and both sides say that proximity is a good thing.
“We have a very good relationship with them,” said Iversen. “All
of their doctors are on our medical staff, and we’re seeing
inpatient admissions from the Alliance physicians.”
Jack Neureuter, the Chief Operating Officer of Alliance, offered
an example of a recent situation where Sutter labs had been unable
to draw blood from a newborn for a blood test, and Healdsburg lab
technicians came through. “We know we can count on them,” said
Neureuter.
The Alliance referral situation is another example of where the
hospital’s Turnaround Plan had a specific target – $17,000 a month
in increased revenue from Alliance referrals – but the current
situation is less clear. Hull said that he knows that Alliance is
helping the hospital, but can’t provide exact figures on admissions
and referrals.
Step #6 – Increase Surgery Services capacity
The hospital hoped to open a second operating room that would be
used two-to-three days a week. Structural work was completed on the
room more than a year ago, but qualified staff could not be found.
Hospital leaders decided to recruit from within, and trained
members of its existing staff in operating room procedures.
Equipment took longer than predicted to acquire and install. The
Turnaround Plan had budgeted $200,000 for equipment, but the
hospital only spent $54,000, which was funded by grants from the
Healthcare Foundation Northern Sonoma. The room finally saw its
first seven surgical procedures in February, and at press time, has
had no surgeries so far in March.
According to Carini, one reason for the low volume is that local
surgeons were away at conferences during March. The original
operating room handles an average of 100 cases a month, and Iversen
hopes the new capacity will allow the total to increase to 150
cases a month, but “it will probably take a year to build up to
that.” The Turnaround Plan called for 300 surgical cases a year,
some of which would be made possible by a new service called
“telemetry.”
Step #7 – Establish Telemetry Services
When the hospital closed its intensive care unit in 2001, it
saved money but hurt itself in other ways, since doctors were
reluctant to admit patients who had complicated conditions that
required more advanced care. While the Turnaround Plan was being
developed, local physicians suggested that telemetry capacity
(wireless heart monitoring) would encourage more admissions.
This initiative also ran behind schedule. Trained telemetry
technicians were not to be found, so the hospital again looked
inward, and trained its existing staff to use the new equipment.
The Turnaround Plan called for the first telemetry patients to be
seen during the summer, but it took until September. The plan
called for 175 telemetry patients per year, mostly transfers from
the emergency room. According to Carini, the target average of 14.5
patients per month is being met, and that each patient stays in the
telemetry unit about two days.
Step #8 – Modernize and expand the Emergency Room
The hospital’s Emergency Department has not changed much in 30
years. It is small, and while it stays up to date with equipment
and procedures, its size and lack of privacy can be challenging.
Dr. Walt Maack, director of the department, said, “We can do
everything here that we ever have.” But he adds that the “community
deserves a better facility.”
The Healthcare Foundation Northern Sonoma has raised $1 million
to fund the construction of a new department, but hospital leaders
don’t see much point in breaking ground if the hospital will not be
open, so they are waiting for the results of the April 13 parcel
tax election.
Iversen said the delay has had at least one positive
side-effect. Since the original plans were approved last year,
state regulations have changed to allow hospitals to use a modular
construction technique. Much of the construction will now take
place in a factory elsewhere, which allows the hospital to avoid
more expensive prevailing wage rules. Since only one manufacturer
has been approved for the new construction technique, it will also
eliminate the competitive bidding process.
Iversen noted that the modular plan calls for the new Emergency
Department to be built as an addition to the hospital, at the
northeast corner, and will add 4,000 square feet to the hospital.
If the parcel tax passes and the plans are approved by the state,
the new Emergency Department could be open in July 2005.
Step #9 – Add a new Sub-Acute Care program
Ever since the March 2001 downsizing, hospital leaders have
looked at the empty beds and wondered how they could be filled. The
Turnaround Plan called for the hospital to set up a “sub-acute
care” facility, primarily for patients whose condition required
them to live in a hospital-type setting. According to Carini, many
sub-acute patients have permanent respiratory problems, and use
ventilators or other devices to keep them alive. Other sub-acute
patients might have spinal injuries, head injuries, or degenerative
diseases.
The hospital had originally agreed to work with a firm called
VitalCare, which would have come in and operated the unit. The
Turnaround Plan predicted that VitalCare would have the unit open
by November 2003 and that it would generate $39,000 a month for the
hospital.
Further study indicated that the hospital could “cut out the
middleman” and operate the unit itself, said Iversen. The unit
started admitting patients recently, and at press time, had si beds
filled. Carini hopes to admit two more this week, and to reach the
capacity of nine patients soon afterwards. The hospital has plans
to expand the unit to 17 patients. The gross revenue so far in 2004
from this unit has been $504,000.
Step #10 – Organizational Mindset
In the Turnaround Plan, hospital leaders described the
hospital’s condition as “the goal line stand in the fourth quarter
of the Super Bowl,” and called for an “all hands on deck” sense of
teamwork and urgency. They also felt that years of repeated
financial problems and changes in ownership had affected staff
morale. “This is an organization that’s been browbeaten into
cutting back, into doing without,” said Hull. “Our job is to
re-instill the art of possibility in our people.”
Carini said, “we’ve worked really hard within the organization
to get people involved.”
Hull said that the changes are apparent, and that “people are
engaged in going forward instead of hunkering down.”
Step #11 – Gain Foundation and other community support for
funding initiatives
Before any of the 12 steps in the Turnaround Plan could be
taken, the hospital needed cash to keep the doors open while the
plan unfolded. Hospital leaders approached the county, which
approved a $2.5 million line of credit, guaranteed by the tax
collections of the district. The loan was not much of a risk to the
county, since north county taxpayers are required to pay it back if
the hospital closes, but the county was cautious, nevertheless.
In supporting the loan, the county allowed the hospital district
to retire two previous notes that were used for operating capital
and to purchase the hospital. The total of the new note was $7.8
million, $2.5 million of which was available immediately. Most of
the $2.5 million has been spent on offsetting monthly losses and
launching the Turnaround Plan.
Fourth District Supervisor Paul Kelley supported the line of
credit, saying that it protects valuable health care services while
providing a secure loan. “I had to think long and hard about it,”
said Kelley at the time. “One of the aspects of this is that this
is a good standard for requests from other hospital districts – so
we can look the taxpayers in the eye.”
Other funding has come from the Healthcare Foundation Northern
Sonoma County, which has given the hospital more than $300,000,
primarily for the purchase of equipment for the Turnaround Plan.
Iversen said without the foundation, the plan would not be
possible. “They’ve gone out of their way to help us, they have not
turned us down on anything we’ve asked,” he said.
Step #12 – Consider seeking a tax rate increase
The final step in the Turnaround Plan involves going back to the
owners of the hospital – the voters of the North Sonoma County
Hospital District – and asking for more money.
The original plan called for increasing the annual parcel tax
from $85 to $125, but several factors came along to raise the
amount. “When we did a careful re-assessment of our current and
projected costs, we think that $40 (more) just won’t be enough,”
said Herb Polesky, chairman of the board of the hospital district.
“We need the $150.” Polesky added that the actual projected
increase is $65. “The $150 will be instead of the $85, not in
addition,” he said.
The district has higher payroll and workers compensation costs,
and is facing cuts in payments from government-funded health plans,
such as Medi-Cal and Medicare. The hospital is also going to need a
reserve fund, in order to keep weathering hard times, said Polesky.
“To be prudent you need to have some sort of cash cushion for
unforeseen circumstances,” he said. “We really need to build in a
contingency fund.”
Iversen adds that the tax increase is the “cornerstone” of the
Turnaround Plan. “The hospital can not stay open without additional
cash,” he said. “We haven’t found an alternative source.”
So, in summary, is the Turnaround Plan working? The answer seems
to be: “yes and no.”
Costs have been reduced, new revenue-producing initiatives,
while behind schedule, are finally starting to show promise, and
the outcome of the tax measure is still uncertain.
According to Hull, the new revenue sources are so far behind
schedule that, if other revenues had not gone up, the hospital
might not have made it through 2003. The most significant factor in
the recent history of the hospital is that local doctors are
admitting more patients. “It was the physicians who are admitting
their patients, referring their patients, and supporting us,” Hull
said. “Without them, we’d never make it.”
Next week, the series continues. What is the basis for the $150
tax? How will the money be used? What happens if the parcel tax
increase does not pass?