Another Month Older And…

The case of Hardin v. Mendocino Coast District Hospital (MCDH) et al never seems to end. The lawsuit filed in federal court almost two and a half years ago by the Coast Hospital's former chief human resources officer against defendants MCDH, its then Chief Executive Officer (CEO), its then Chief Financial Officer (CFO), and then President of the Board of Directors appeared to be settled by a mediation session on September 22. The following day the mediator issued a proposal, which stated in part, “Defendant shall pay to Plaintiff the sum of $2,750,000.”

The payment was made for “personal injury damages.” The mediator's proposal also stated, “Plaintiff or plaintiff’s attorney reserves the option to structure all or a portion of the settlement proceeds and defendant [MCDH et al] shall coordinate with [a] structured annuity planner with respect to ensuring proper IRS language is included in the release and assignment not to void using a structured settlement.”

Now comes the reason why some lawyers are better than others. On September 27, MCDH, the other defendants, and their counsel signed and offered up a revised memorandum of understanding (MOU). Its key parts included, “MCDH and/or its insurer, BETA Healthcare Group, a California joint powers agreement (hereinafter “BETA”) shall pay to Plaintiff the sum of $2,750,000.00 (“Settlement Sum”).”

The MOU goes on, “The Settlement Sum will be paid by check made payable to 'Ellen Hardin and the Trust Account of the Law Office of Twila S. White.' Appropriate IRS Forms 1099 shall be issued[.] Plaintiff reserves the option to structure all or a portion of the settlement proceeds into an annuity.”

Ms. Hardin and her attorney, Ms. White, signed the MOU on October 11. Presumably Ms. White, as legal counsel, had already noted that the revised MOU did not include any written obligation by the defendants to take a role in the structuring of the settlement, omitting the “defendant shall coordinate with [a] structured annuity planner.”

The MOU Hardin and her attorney signed referenced a more complete settlement agreement, but also included this clause, “[U]ntil such time that a long-form settlement agreement is executed by the parties, this executed and accepted short-form settlement agreement shall be treated as an enforceable, binding settlement agreement pursuant to California Code of Civil Procedure Section 664.6 and shall be admissible as evidence for the purpose of enforcing this binding agreement.”

Hardin and her attorney eventually caught on, filing a motion to revert to the original language of the mediator, which would force the defendants to pay out in a structured settlement. Three letters come to mind: IRS. A structured settlement, with MCDH participating in multiple payments over multiple years, could reduce the plaintiff's tax liabilities. MCDH, presumably, wants to be done with the case once and for all. BETA, the hospital's insurer, is contracted to pay approximately four million dollars worth of legal costs and legal liability. A prudent guess would place the hospital's legal costs in the case at somewhere in the vicinity of $1.25 million, thus the $2.75 million settlement offer to Hardin.

On December 20, federal judge Jon Tigar ruled in the hospital's favor, upholding the MOU, setting a January 31, 2020 deadline for further filings in the case and a case management conference for February 11 if the matter is not settled completely prior to that date. How great the effect on MCDH's legal bills remains to be seen as time and the case stumble on.

In financial matters closer to home, the Coast Hospital District continues to bleed money. The institution lost nearly $700,000 in October. The November numbers, though not released yet, will not be good either. For the first four months of the fiscal year the Coast Hospital has a net income that is $1,161,000 in the hole. The budget that the district's leadership came up with a few months ago projected a net positive income of $26,000 for October. Whoops! Only missed that by about $668,000. Similarly, the year to date budgeted numbers were off by over a million dollars in arrears.

At the hospital district's monthly Board of Directors meeting on December 11, only board vice-president Jessica Grinberg had the the good sense to display some fiduciary responsibility and vote, “No,” on a motion to accept the financial numbers. She has been the only director to do so for several months on end while the other board members serenely pass the growing financial mess like it's a plate of stuffing around the holiday table, gobbling it up with scarcely a question asked. The end result is approaching a scenario in which an inability to pay creditors might close the doors before the Adventist Health team ever gets here to affiliate. The Board of Directors was forced to borrow a million dollars from their Local Agency Investment Fund (akin to a savings account) in part because MCDH's accounts payable days have shot up from forty-seven at the end of June to seventy, four months later. The facility had scarcely a week's worth of short term cash on hand to pay even local vendors before the million dollar borrow.

Tougher realities await in January. MCDH's interim CEO, Wayne Allen, will be forced to let go a goodly number of employees in order to keep the operation financially viable until the if/when point that voters approve affiliation with Adventist Health. Job cuts to the tune of about two dozen employees gone before the ides of January is a clear reality. Cutting twenty to twenty-five employees most likely will include some high priced registry (temporary) employees in OB (obstetrics/labor and delivery) as well as some managers and mid-management employees who are not protected by the union contract. This could mean a three to four million dollar savings in payroll annually when salaries and the costs of benefits are added together. Divided into months, that payroll savings can be figured in the vicinity of $300,000. Scan back a few paragraphs and you will notice that dollar figure covers less than half the Coast Hospital's net losses for October.

As alluded to the cuts include several positions in the labor and delivery department. Those registry cuts are the precursor to another decision that must be made. Allen and the board of directors are going to have to make the unenviable political choice to close the labor and delivery department, where million dollar per year losses from earlier in the decade have now doubled. Adventist Health will not want that political stain to be the first thing the public thinks of when they take over in the spring.

Ms. Hardin may have to deal with the consequences of a lump sum settlement payment. If she were still in her position of human resources officer at Mendocino Coast District Hospital, she would be dealing with a bevy of exit interviews in the new year. One employee texted recently with holiday wishes and this summation about the Coast Hospital, “Things are very tough right now.”