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Coast Hospital Crossroads

Recently we delved into the crossroads Mendocino Coast residents are in about the future of healthcare here in this relatively remote portion of Northern California. The coast hospital in Fort Bragg has been called Adventist Health Mendocino Coast (AHMC) since the affiliation agreement between Adventist Health (AH) and the Mendocino Coast Healthcare District (MCHCD) took effect on July 1, 2020. That affiliation occurred after more than 93% of MCHCD voters approved it at the ballot box.

The thirty year lease at the heart of the affiliation agreement provides several opt out scenarios for Adventist Health. AH can opt out of the deal after three, five, ten, fifteen, twenty, and twenty-five years. The three year opt out would occur on July 1, 2023. Section 19.10 of the affiliation agreement pinpoints how such an opt out could occur under the heading Termination for Economic Reasons. “Effective as of any of the third anniversary, fifth anniversary, tenth anniversary, fifteenth anniversary, twentieth anniversary or twenty-fifth anniversary of the Commencement Date, Tenant [Adventist Health] may terminate this Lease if Tenant determines that the EBITDA [Earnings Before Interest, Taxes, Depreciation, and Amortization] from the Medical Business is less than five percent (5%) of the net revenue for the immediately preceding twelve (12) month period prior to the date of determination, which termination shall be effected by Tenant giving Landlord written Notice of Tenant’s election to terminate pursuant to this Section, not less than two hundred seventy (270) days prior to such anniversary.”

In essence AH needs to give notice on or before October 1, 2022 if they intend to terminate on the three year anniversary commencement date of July 1, 2023. Alternatively, the MCHCD can terminate the affiliation under the following restrictions. “Either party may terminate this Lease at any time in the event an unforeseeable circumstance beyond the party’s control materially affects the party’s ability to perform its obligations under this Lease. The event must have been reasonably unforeseeable at the time the parties entered this Lease and unavoidable from the perspective of the terminating party. In order to terminate under this provision, the terminating party must give at least twelve (12) months’ prior written notice setting forth in sufficient detail, to the non-terminating party’s satisfaction, the facts and circumstances justifying termination under this Section.”

The closest geographic and chronological example of something like the healthcare district terminating an agreement of this sort took place in Sonoma County in 2020. That August, the Palm Drive Health Care District dissolved itself after a twenty year existence littered with bankruptcy and financial woes. Sonoma County's Local Agency Formation Commission (LAFCO) confirmed the dissolution in a unanimous vote. The taxpayers of Sonoma County thus inherited all the district's assets,, debts, liabilities, records and taxing authority. The voters and taxpayers of the healthcare district are still on the hook for a parcel tax that will cost most folks in western Sonoma County between $100 to $155 each per year for more than fifteen years to come.

The difference in the Palm Drive story is that rather than affiliate by leasing the operations of the local hospital as is the case with Adventist Health, at Palm Drive their hospital was sold to a private company, AAMG, to be used as a long term care facility, without an emergency room or outpatient services. If AAMG rings a bell, that company gave a presentation at a spring 2019 MCHCD Planning Committee meeting, but ultimately did not show the interest in the coast hospital that Adventist Health exhibited.

The current parcel tax impacting MCHCD taxpayers ends in 2030. Coincidentally, January 1, 2030 is when all hospitals in California must comply with seismic retrofit laws or face closure. In the previous article we estimated the cost of retrofitting the seven distinct parts of the coast hospital at approximately $25 million.

In December the MCHCD Board of Directors (Amy McColley, Norman deVall, Sara Spring, John Redding, and Jessica Grinberg) heard a proposal from the Devenney Group on the subject of constructing a new ten bed hospital. The current hospital contains two and a half times that number of beds. The Devenney plan estimated a total cost of $32 million. This was based on an estimate of construction costing $910 per sq. ft. Others familiar with the contracting and construction process in Norther California have estimated a final tab for such a ten bed hospital at more like $50-60 million or more.

Another concept involves the potential conversion of the coast healthcare facility from critical access hospital (CAH) to Rural Emergency Hospital (REH) status. Rural Emergency Hospital is a new Medicare provider type established under the Consolidated Appropriations Act of 2021. A hospital may make the conversion starting on January 1, 2023. This legislation is aimed at preserving access to emergency and outpatient care in rural areas. The requirements to convert a hospital to REH status are: providing 24/7 emergency services and observation care; being staffed 24/7, having a physician, nurse practitioner, clinical nurse specialist, or physician assistant who will be available to provide emergency services; meet basic state licensing rules; and have a transfer agreement with a Level I or Level II trauma center. For the Mendocino Coast that nearest Level II trauma center is Santa Rosa Memorial.

An REH is not allowed to provide inpatient services. It may provide extended post-acute care services through distinct part unit (DPU) skilled nursing facilities (SNF) and other outpatient services.
Rural Emergency Hospitals will be reimbursed at 105% of the outpatient prospective payment system (OPPS) for all emergency and outpatient care services in addition to a fixed monthly payment. Other services provided will be reimbursed at traditional fee-for-service rates. An REH may also serve as an originating site for tele-health services.

What that might look like on the Mendocino Coast is an urgent care center providing emergency services. If you think of the emergency services as the center of a wheel, you can picture the outpatient services as one of its original spokes, a lab as another spoke. This sort of construction would allow for additional spokes, such as a radiology unit, to be built on. If our Mendocino Coast Health Care District takes this route, the initial costs of construction and financial risk to the taxpayers could be greatly decreased.

As it stands now, Adventist Health has shown no interest in paying for even a planning process, be it for a $32- 60 million hospital or something like a new REH. The plans MCHCD's Board of Directors heard in December did not include possible conversion to a Rural Emergency Hospital. It may be up to its constituents to insist that the healthcare board broaden the spectrum of possible solutions for a new facility.

The earlier article served as a reminder that money and people to staff medical provider positions is already a strain on healthcare facilities. Find a link to almost any hospital's job openings and you will find a large number of positions available. This is painfully true at Adventist Health Mendocino Coast, but it is an across the board reality throughout the United States. There exists an acute need for skilled nurses, doctors, and the rest of the important workers needed to run a hospital.

That same piece emphasized the near term future likelihood of consolidation among healthcare facilities, consolidation down to urban centers being the only homes for the traditional full scale hospitals. Your massage therapists and yoga teachers are not going away from the Mendocino Coast. However, many people on the coast have already been practicing the consolidation method with trips to Santa Rosa or San Francisco for specialist care.

Coast residents may need a second dose of these questions: How much of something resembling a hospital are you willing to pay to build? How much are you willing to pay each year to subsidize any potential financial losses from operations of that investment?

3 Comments

  1. Jane January 18, 2022

    This is One of the most important, unfolding stories to affect coastal residents’ health care (and property values). I hope coasties are paying attention here!

  2. Craig Alan Aronchick January 18, 2022

    Dear Sir, This is Dr. Aronchick and I have been delivering care to the Coast for 2yrs. I recently left, so if you want to discuss call me at 610 246 9411

    • mr. wendal January 18, 2022

      Mr. Macdonald, I hope you interview him. We lost a good gastroenterologist when he left. He may have a good insight when it comes to a direction for the hospital or whatever we end up with here on the coast.

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