Coast Hospital: Slouching Toward Bankruptcy
by Malcolm Macdonald, October 5, 2016
The Mendocino Coast District Hospital (MCDH) Board of Directors held a meeting Thursday night, September 29th. Maybe you didn't hear about it. No worries, they only approved $4 million worth of uninsured new debt revenue bonds. Don't know what that is? Well, join the crowd of taxpayers and voters from Rockport to Comptche to the southern borders of Mendocino County's coastline. There was apparently no notice in the coastal newspapers about this meeting. This writer didn't note anyone from those papers at the meeting and the email list that yours truly is on for agenda packets includes about 55 people in total; most of those are affiliated with either the hospital itself, its clinic the North Coast Family Health Center (NCFHC), or the Hospital Foundation.
So the audience at the September 29th MCDH Board meeting was predictably made up of 15-20 folk affiliated with the hospital itself, its foundation, or NCFHC. I spotted only two people who could be clearly identified as simply concerned, taxpaying citizens without hospital affiliation.
Other than this writer there were no ordinary citizens at the MCDH Finance Committee meeting of September 27th. Oh, yes, you could have had two days forewarning about the new debt revenue bonds had you made it to the Sept. 27th meeting. Wake up all you folk who complained about four-five days notice before the Fort Bragg City Council voted on the Hospitality Center move into the Old Coast Hotel. By the bye, that was the second noticed meeting on the Hospitality Center locale, there having been one nine months prior regarding a proposed site at 300 N. Harrison Street. In a strictly technical sense the City of Fort Bragg didn't have to hold a second meeting, the Hospitality Center could have simply said something like, “You didn't like 300 Harrison St.; fine, we found the Old Coast Hotel. It would be our pleasure to see you at the Grand Opening.”
That little detail is conveniently overlooked by many of the harshest critics of Hospitality Center. Do not mistake my attention to detail for any kind of wholesale support for the Hospitality Center. Critics should have stuck to the simplest of facts. For years the Board and employees of Hospitality Center have demonstrated an inability to simply manage the delivery of food dispersed at their Fort Bragg flagship, Hospitality House. Feeding the poor and homeless is a worthy endeavor, but Hospitality lets too many of its clients leave the grounds with the food. Much too much of that food ends up dumped, trashed, deposited on the near and not so near neighbors of Hospitality House. It's been going on for years. It's still happening in September, 2016. If the high school or middle school or any Fort Bragg school had a fraction of these kinds of food trashing incidents, the city, from teachers to school administrators to police to parents right up through and including municipal government would be on the case in no time, putting a stop to it. If students dumping school food popped up again as a problem several years on, it would be met with a similar concerted effort. However, a do-gooder non-profit is allowed to let an unhealthy portion of its clientele trash businesses and residences for years and years with the mildest of admonishments at best.
I digress from the hospital situation, but MCDH is a metaphorical mess that has been allowed to limp along for years until it got a pretty full fledged admonishment, bankruptcy. Now it's limping along again only a year or so removed from bankruptcy. MCDH has millions and millions and millions of dollars (I can go on with the millions into the teens, maybe further) of needed repairs that it apparently doesn't have the money for. We are not talking boards and nails kind of stuff. Well, there's millions of that too, but there's four million dollars or more worth of operating room sterilization, nurse call system, automatic transfer switch system (for the times when the PG&E power goes off and state regulations mandate a switch to generator power within ten seconds), and more intricate types of repairs as well as equipment replacement and mandated upgrades in the electronic health records system. That one alone will cost $2 million to $2.5 million. All the others cost a hundred thousand or hundreds of thousands of dollars each. The top five priorities in these repair projects will cost $4,115,000.
Is the dollar figure of $4 million and change (as The Donald might refer to a piddling $115,000) starting to sink in, sound a little repetitive? The $4.115 million amount is eerily close to a $4.15 million figure the MCDH Board and its CEO and CFO are touting as potential proceeds from the issuance of the aforementioned debt revenue bonds.
Risk to us the taxpaying public? Very little according to the bond and an investment expert from William Blair & Company, the firm hired to assist MCDH with the debt revenue bond process. But who knows? Don't ask me to explain the finer details, I was merely a witness to the ramming through of the multi-million dollar bond procedure.
To be completely fair to MCDH administrators the bond idea was first broached in the last week of August at a Finance Committee meeting with breathlessly zealous words about the imperative of voting on the matter as soon as possible to take advantage of lower interest rates. Some plausibility there, in that the Federal Reserve has been holding back all year on what seems an inevitable interest rate hike. However, I must repeat that it seems odd that the MCDH administrators made little or no effort to publicize the multi-million dollar matter during the last month (I use the word “little” in a completely benefit-of-the-doubt manner).
Public representation? The closest you were going to get on this matter lay in the MCDH Board of Directors. Board member Peter Glusker did raise multiple questions. New board member Steve Lund stated that this would be the last time he could vote for such a muliti-million dollar measure. However, ultimately MCDH's Board approved taking on the “new debt revenue bonds” with only Dr. Glusker dissenting in a 4-1 vote. Board members Tom Birdsell, Sean Hogan, Kitty Bruning, and Lund voted in the affirmative.
Was there public input prior to the Board vote? Not unless some reader can point to an as yet unknown letter or email. The nearest thing came from former (as of Tuesday, Sept, 27th) Finance Committee member Kaye Handley. At the Sept. 29th Board meeting Glusker asked that a letter from Handley be copied into the official minutes. Presumably it will be, but who's going to see it? Here's how Handley's letter began, “I am writing to [each Board member] to express my concern about the new $4 million bond issue proposed to fund equipment purchases… While it is clear the new equipment is critical, I am concerned about the “business-as-usual” approach to funding it with new debt. The proposed additional bonds will bring the hospital's long-term debt up to $18 million, barely a year out of bankruptcy. Annual debt service is currently about $2 million and will increase to $2.5 million assuming the proposed terms are achievable. That is roughly equal to all budgeted cash flow from operations for this fiscal year, leaving no cushion or funds for capital investment.
“The problem is, simply, that the hospital is already spending nearly all its free cash flow on debt service with little left for equipment and capital investment. That has apparently been the case for many years — with predictable results. Capital investment needs presented by management for the next three fiscal years total $17 million, at least $3 million of which is deemed urgent. And this does not address the new facility required by 2030.
“Now we find ourselves with critical needs and no available strategy. This debt proposal is an opportunity for the Board to show leadership in taking the difficult steps necessary to bring the hospital's cash flow up to a level that will maintain equipment and infrastructure. This is essential to restoring the hospital's competitive position and attracting/retaining quality physicians. Given the level of deferred expenditures in recent years an annual improvement of at least $3-4 million will likely be needed to maintain a viable independent facility.”
Handley goes on to enumerate cash flow improvement opportunities. One of which is passage of a parcel tax; however, she concludes, “Such a tax alone is not sufficient and voters may be reluctant to 'throw good money after bad'.”
About the idea of closing or significantly modifying the Obstetrics Department Handley states, “An ad hoc committee was supposed to research [the idea], yet this effort has not moved forward. While the public has expressed strong resistance they, too, need more info to develop an informed view.”
Handley's take on the possibility of changing MCDH operations to a “Hospital Fee Structure” in order to qualify for potentially millions more, annually, in state reimbursement monies: “This is potentially the single biggest opportunity to improve cash flow, but it has sat in limbo since January, despite several volunteers willing to explore the issue.”
Handley goes on, “Other potential areas for significant savings should also be explored. These could include ways to improve employee retention in an effort to stop the dramatic rise in Registry costs, as well as working with employees to initiate some level of contributions to health and pension plans.”
Perhaps Handley is unaware of recent administration tactics in negotiating with the hospital's employee union. Until now employees and their immediate family members received full medical benefits without any monetary contribution by the employees. The Administration's negotiating tactic was not asking for something like a ten, fifteen, or twenty percent employee contribution, MCDH administration's first and apparently only negotiating stance was a straight 50/50 split in medical benefit payments. Reportedly the union, after months of stalled bargaining, offered this: employees would pay 10% of family members medical benefit costs. Seemingly, something along these lines is in the final agreement ratified by union vote in mid-September. Substantive rumors about the labor agreement cite a 5% raise for employees countered by a 1% decline in employer contributions to retirement funding. Supposedly, MCDH administration initially wanted the retirement plan to be simply on a matching basis, but the union negotiators balked at this because new and lower paid employees would most likely find it difficult to contribute. From an administration point of view this would have netted sizable savings because the employer contribution would only be triggered once the employee first made their own retirement contribution.
Handley concludes her letter to the Board with this, “There seems to be a perception by the public that difficult changes are not really necessary. I often hear comments that the hospital will ‘muddle through’ or that ‘someone will bail it out.’ Approving this new debt with no further actions will only reinforce such perceptions. This is an opportunity to make it clear that failing to invest in capital needs or continuing to fund them through debt is not an option if MCDH is to become truly competitive and remain an independent entity.”
Two sources stated on Tuesday, September 27, that Handley had resigned her position on MCDH's Finance Committee. Precise reasons/causes were not immediately forthcoming. However, Handley was one of the Planning and Finance Committee members invited to attend a joint meeting with the Board of Directors in late spring, 2016 (the scheduled joint meeting was listed on the committee agendas). When the appointed meeting date arrived MCDH Board Chair Tom Birdsell ignored Handley's efforts to be recognized for comment. A similar event occurred at a late summer committee meeting when the committee chair brought down the gavel to close the meeting rather than hear Handley's remarks on the new debt revenue bonds.
Handley, Lund, and Birdsell are vying, along with several other candidates, for three MCDH Board seats in the November election. Voters may want to check out Mendocino TV's (mendocinotv.com) recent MCDH Board candidate forum. Birdsell apparently refused to take part.