Adventists Come Calling

On Friday, June 28, Adventist Health (AH) submitted its formal proposal to affiliate with Mendocino Coast District Hospital. Oddly, the final proposal proved to be remarkably similar in length and verbiage to one acquired about nine to ten days ago.

Adventist's intentions include this summary language:

“Mendocino County has three hospitals… The opportunity exists to create deep collaboration and coordination of care for the county for all patients who need acute care services involving emergency care and hospitalizations. By sharing the scarce resources of specialized physicians and providers, our communities will be able to receive more specialized care in our own communities, as opposed to the need to travel outside the county to seek higher level health care services.

“Partnership HealthPlan has contracted with Adventist Health to manage the inpatient care of 31,000 Mendocino County residents. By strategically collaborating between the three hospitals in the county, and through coordination of care with additional providers at the FQHCs [Federally Qualified Health Centers] and additional primary care clinics in our communities, we can improve the health of our residents through proactive care management. This coordinated effort, across the care continuum, will improve the delivery of health care services and ultimately the quality of life of our county residents.”

Throughout the west coast and Hawaii, Adventist Health runs 21 hospitals (with almost 3,000 beds total), 280 clinics and outpatient clinics, as well as 60 rural health clinics. The organizational headquarters are located in Roseville, California. In the past five years they have acquired four hospitals in Tehachapi, Lodi, Tulare, and Marysville, with a fifth pending affiliation for a facility in Delano.

Affiliation and acquisition are the themes for Adventist. The Adventist Health proposal for MCDH would involve forming a separate 501(c)(3) corporation which would lease the assets of the coast healthcare district for what is described as fair market value. The local district would still be responsible for regulatory compliance with seismic retrofit codes, which could involve raising tens of millions of dollars to meet standards that must be in place by 2030.

Adventist Health, through its subsidiary Stone Point Health, proposes leasing the existing facility from the District. Those lease payments would be paid in the form of capital improvements to MCDH's facilities. The lease would run FOR 30 years, with an option for Adventist Health to terminate the lease every five years in the event the Coast district cannot obtain funding to achieve seismic compliance.

However, if MCDH chooses to construct an entirely new facility, Adventist, through Stone Point Health, would offer up 25% of that cost in the form of prepaid rent. MCDH would need to find the other 75%. Adventist Health believes that a public bond would be the necessary means to raise that money. 

In a previous AVA piece discussion was raised about the MCDH Board of Directors offering to rescind the Measure C parcel tax in exchange for a favorable public vote on affiliation. The rescinding of the parcel tax might be used alternatively by the MCDH Board as an inducement for a vote for a bond measure to foot the bill for a seismic retrofit. (Readers should put California Senate Bill [SB] 758 in their search engine. This potential legislation could dramatically change the requirements for hospitals and the rules relating to seismic retrofitting.)

Regarding local governance, should this deal come to fruition, see if you can disentangle Adventist's somewhat confusing intentions. Adventist Health claims that each of its hospitals operates independently, with its own local governing board. Adventist Health has its own board for the entire system. The wording of the proposal says this overall board delegates significant powers to the local governing boards, however it does not specify what the limits on those powers are beyond overseeing “quality, medical staff, community mission, clinical delivery, operations, and strategy.”

If this deal with Adventist is approved first by MCDH's Board of Directors and second by the voters of the Coast healthcare district, local administrators would oversee day to day operations of the hospital. Adventist promises the following to MCDH staff: “As of the closing date, all active MCDH employees in good standing will be retained at their existing compensation at substantially similar positions within the organization, and all current MCDH employment agreements will be honored. MCDH employees will retain their current years of service and vesting in MCDH’s or any successor benefit programs. Except for cause, employees will not be laid off or terminated for a period of ninety (90) days post-closing.”

On the subject of clinical services, Adventist says they are committed to existing services “as long as they are safe for patients, match the community’s chosen location for the service, and do not compromise the overall financial viability of the hospital.”

Speaking of MCDH Board members voting on affiliation, On July 2, the hospital, through its interim CEO, Wayne Allen, released the following: “Regarding potential affiliation conflicts of interest, the Fair Political Practices Commission’s (FPPC) ruled on June 26, 2019 that MCDH Directors Karen Arnold and Jessica Grinberg be prohibited from taking part in the affiliation process. Wayne Allen, interim CEO, stated that 'Directors Arnold and Grinberg voluntarily submitted their employment facts to the FPPC about two months ago and asked the FPPC for its decision. Directors Arnold and Grinberg adamantly did not want any affiliation decision to be jeopardized by a conflict of interest controversy. Director Grinberg’s ruling will be appealed as there are several issues of fact that may have been misinterpreted. The MCDH Board of Directors is small with only five members and losing two members‘ participation in the affiliation effort places an extraordinary heavy load on the remaining three members. Furthermore, the affiliation process will be a monumental and high priority healthcare issue for the next several months.’ 

“Allen further stated that ‘Directors Amy McColley, Steve Lund and John Redding will handle the affiliation process well and in the best interests of the health and well-being of our community. Directors Arnold and Grinberg will continue to participate in non-affiliation issues’.”

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Meanwhile, the corporately owned coast paper continues to get things wrong. The misguided publication claims the MCDH Board passed a $60 million annual budget at its June 27 meeting.

What was passed was a three month “budget assumption.” Pro-rated out to a full year. That budget assumption showed total operating revenues of just over $56 million and total operating expenses at $60.56 million with a grand total net loss of more than $1.5 million. This presumed budget, which appeared to be the work of interim Chief Executive Officer Wayne Allen, depicted the hospital starting the fiscal year, July 1, 2019, with $225,000 in cash on hand and finishing at June 30, 2020 with the same amount. The caveat to that unlikely real life scenario is that this balancing out, albeit at a dangerously low amount of cash on hand, would be accomplished by plundering MCDH's only savings account (known as the Local Agency Investment Fund or LAIF) to the tune of $2.9 million, about three-fourths of the total amount in LAIF.

Essentially, this “Assumed Budget” is a scare tactic on Allen's part, designed to wake those who haven't fully realized that the good ship MCDH isn't in sight of the iceberg, it has already hit it. 

The coast paper even misrepresented the board's vote on this matter. They reported it as 4-0. The actual vote was three in favor, one abstention from board member Amy McColley, and a No vote from board vice-president Jessica Grinberg. That No vote was based on questions from her clarifying that such a significant use of the LAIF money would push MCDH into a financial position that is out of compliance on its bond covenant, which requires the hospital to keep “Days Cash on Hand” above a 30-day total. In that case, MCDH would be out of compliance in all three of its bond covenants. Cal Mortgage, the hospital's chief creditor, would be thoroughly justified in closing the hospital's doors if all three bond covenants are out of compliance. On top of that, the LAIF money is the last resource to pay for deferred maintenance, which the hospital has need of to the tune of $10 million or so in the next year or two. 

Though this three month “Assumed Budget” is more theoretical than practical, it was wise of Grinberg to raise cautionary questions.

In another piece in the same issue of the coastal publication, the paper's editor implies the MCDH Board's June 27 day long retreat “addressed procedural issues, after having to admit a Brown Act violation in how it issued a request for proposals for affiliation.”

Clearly that editor didn't bother to read the agenda for the June 29 retreat, which on its top line laid out the main thrust of the eight hour get-together: “Team building: Relationship-building and effective intra-team information.” As a witness to the entire event, I can attest that the aforementioned Brown Act violation played little to no role in the day. Both the publisher and editor of the coast publication were on hand for the board meeting on June 27. The coast paper couldn't be bothered to send a single representative to witness the June 29 retreat.

(More about MCDH matters in the AVA online archive and at malcolmmacdonaldoutlawford.com.)