Hospital unveils turnaround plan to ensure survival

RAY HOLLEY, Tribune Editor
Healdsburg Hospital is once again teetering on the edge of
financial disaster, but hospital leaders say they have a plan to
turn it around.
They don’t have much time. “If we maintain business as usual,
we’ll be going out of business in mid-March,” said hospital Chief
Financial Officer Dan Hull.
“This started out as a business plan … now we’re calling it a
turnaround plan,” said Chief Executive Officer Dale Iversen. The
plan calls for a series of 12 initiatives, which include increasing
surgical services, cost-cutting, asking the taxpayers for help, and
securing $3 million in emergency financing, through fundraising and
a loan from the county.
The hospital is owned by a public agency, the North Sonoma
County Hospital District, which was formed by voters of Cloverdale,
Windsor, Geyserville, and Healdsburg in November 2001. At the same
time, voters approved an $85 a year parcel tax to fund the district
and make up for deficits at the hospital.
The $85 figure was not based on accurate projections of the
hospital’s needs. In fact, the figure was developed after a
telephone poll showed that it was the amount that taxpayers were
most likely to approve. In order to sell the tax plan to the
voters, financial projections were adjusted to indicate that the
$1.9 million raised by the parcel tax would be just enough to cover
operating losses.
Now reality has set in, and losses continue to mount. Hull has
been with the district since June of last year, and has been
crunching numbers with his staff ever since, trying to develop a
picture of the hospital’s finances. He said that he, “has finally
looked in all the dark corners,” and can now show accurate
financial reports.
The numbers are staggering. Healdsburg Hospital loses $325,000
every month. The parcel tax covers approximately $150,000 of that
loss, but that leaves the hospital looking for $175,000 a
month.
Hull and Iversen are borrowing ahead on the tax collections from
the county and slowing down bill payments, but recognize that
changes have to be made as soon as possible.
In a series of presentations to the hospital staff, doctors, and
volunteers, Hull has repeated his new mantra, “the status quo is
not an option. If we keep going in the direction we are now, we’ll
run out of money in March.”
Iversen and Hull worked with a group of doctors, district board
members, and volunteers from the Northern Sonoma Healthcare
Foundation to finalize the turnaround plan. Support from the
foundation is key to the plan’s success. The foundation has
committed to raising $1 million in the next six weeks. Alson Kemp,
president of the foundation board, said that he sees more positive
activity in the past few weeks at the hospital than in the previous
three years. “There is a reservoir of unrealized hospital usage
that can be tapped, and this administration is aimed at and seems
capable of doing that.”
Kemp, Hull, and Iversen cite a number of examples of new
business available to use the hospital.
The city of Healdsburg, for example, has offered in the past to
send its pre-employment physicals and occupational medicine work to
the hospital, but could never work out an arrangement to do so.
In addition, the Alliance Medical Center is planning to send
more laboratory work, radiology procedures, and outpatient
surgeries to the hospital. Max Dunn, Executive Director of
Alliance, had offered in the past to send the work to the hospital,
but the hospital never agreed to match the price he pays at Unilab
and Sutter. “They agreed to match the price, and we’ve already
started,” sending the work over, said Dunn.
According to Hull and Iversen, the new plan has cost-cutting
measures that will save upwards of $50,000 a month. Employees will
be asked to evaluate every expenditure, and help come up with
creative ways to save money. “This will be a real effort of will,”
said Hull. “This is not just a matter of going without dessert, we
will have to take some staples off the plate.”
One of the boldest – and possibly most controversial – aspects
of the plan is its focus on spending more money. The plan calls for
well over $1 million in new expenses, including a remodeled
emergency department, a second operating room, pay raises for some
of the nursing staff, new telemetry equipment, and leasing 17 beds
to a “sub-acute care” organization that will bring in patients with
long term illnesses such as spinal cord injuries and degenerative
diseases.
Eric Ziedrich, a former hospital district board member, was put
off by the plan. “It doesn’t make sense to me that when you’re
losing money you increase expenses,” he said.
Iversen admits that increasing expenses seems counterintuitive.
“People will want to know why we’re giving pay raises when we can’t
make payroll,” he said, but noted that increasing nurses’ pay can
result in a decrease in the use of registry nurses, which cost much
more than a regular employee.
Hull adds that each of the expense initiatives was developed
with the advice of local doctors. He believes that Healdsburg can
end up with 300 new surgical cases a year. Hull said that Dr.
Thomas Miles, an orthopedist, is planning to use the new operating
room often, and that other doctors have committed to more usage as
well.
Dr. Dave Anderson, Chief of Staff at Healdsburg Hospital, said
that the medical staff offered its unanimous support to the plan,
and will send more patients and work to the hospital. “The medical
staff feels the plan is very workable and do-able, and we
wholeheartedly stand behind these plans,” said Anderson.
The plan calls for an increase in the parcel tax. Voters in the
Sonoma Valley area pay $125 a year to support their hospital, and
Healdsburg voters may be asked to increase their annual tax to that
amount as well, bringing another $70,000 a month.
Prices will also go up. Hull and Iversen say that Healdsburg
Hospital’s prices are below those charged by other area hospitals.
Raising prices will not affect contractual reimbursements from
health plans for inpatient procedures, but will bring in more money
for outpatient work, where the plans and the patients each pay a
percentage of the bill.
The plan calls for a 7-10 percent increase in reimbursements
from Blue Shield, Blue Cross, and HealthNet, an idea that seems
unreasonable when compared with previous contracts, but Hull said
that he sees upcoming changes in how smaller hospitals negotiate
contracts, and thinks the projections are realistic.
The success of the plan depends on a large influx of cash – $3
million in the next eight months. Hull said that a little over half
would be used for capital improvements and new services, and $1.4
million would go to cover monthly losses, until the new initiatives
start bringing in new revenues.
If the foundation is successful in raising $1 million, as Kemp
hopes, another $2 million is still needed. Hospital leaders have
approached the county about a loan.
Tom Ford, Treasurer/Tax Collector for Sonoma County, confirmed
that he has been approached about a loan, but has not seen any
detailed financial data. “Until we see what they’re offering as
security I don’t know if there’s much we can do for them,” he
said.
Ford said that the cash would have to come from the county’s
investment pool, so it would need to be a prudent use of taxpayer
money. “It would have to be a secure investment,” he said. Ford and
his staff will be going through Hull’s financial projections to
determine if they justify the loan.
County Supervisor Paul Kelley has also been approached for
support. If Ford’s office finds that the loan is financially
prudent, the Board of Supervisors would have to approve the deal.
“I think their turnaround plan has some compelling components,”
said Kelley, who added that the county can not do all the work
required to help save Healdsburg Hospital. “At some point the
cities within the district need to be brought into it,” Kelley
said.
Healdsburg City manager Chet Wystepek has already been
approached about helping. Members of the healthcare foundation
board asked Wystepek to consider whether the city could buy the
land on which the hospital sits. “We’d be interested in helping the
hospital, but that’s not the way to do it,” said Wystepek. “We’ve
already put all our eggs in the other basket,” referring to the
city’s financial support to building a new home for the Alliance
Medical Center.
Even if the city had the money, the land can’t be sold at this
time. When Nuestro, the former owner of the hospital, went
bankrupt, it defaulted on $6 million in bonds that were issued to
buy the facility from Columbia HCA. The bondholders have challenged
the eminent domain proceedings that the new district used to
acquire the hospital from Nuestro, and no one has clear title to
the land.
What happens if the new plan doesn’t work? Hull and Iversen
developed two alternate plans. One would call for a transition to
an urgent care center with laboratory and radiology services,
outpatient surgery, and a 24-hour emergency room. The other plan
called for closing the hospital.
After considering the new business opportunities, Iversen and
Hull felt that a case could be made to give it one more try.
Kemp agrees, and plans to go out and raise money right away. He
said that the community can help by writing checks to the
foundation, writing letters to political leaders at the county, and
most of all, by using Healdsburg Hospital, not hospitals in Santa
Rosa. “The future is always iffy,” said Kemp, “but if I did not
believe the turnaround plan had a good chance of success, I would
not be working as hard as I am to obtain support for it … we have
no choice … we cannot allow our community hospitals to fail.”
If the hospital ends up closed, the parcel tax could live on.
Ford noted that it would have to stay in effect until all the bills
are paid, and that the district could choose to direct the money to
other health care needs, such as Alliance Medical center, an urgent
care clinic, or an ambulance district like the one in
Cloverdale.
Iversen plans to prevent that from happening. “Healdsburg
District Hospital, like many hospitals, is confronted with reduced
payments from health plans, changes in medical practice, and
ever-increasing costs,” said Iversen.” We are convinced that this
new plan will help us turn the corner.”