Coast Hospital’s Failing Finances

Mendocino Coast District Hospital's Planning Committee was scheduled to meet at 5 p.m. on Monday, March 18^th. The committee consists of nine members. MCDH Board member Jessica Grinberg was present to chair the meeting. Fellow board member Amy McColley was skyped in well ahead of time. Community members John Allison and Carole White were seated as five o'clock rolled around, but no other members showed, even after a delay of several minutes. Lacking a quorum Grinberg excused the MCDH Board's secretary. She did allow off the record public comments which included one impassioned citizen's plea that hospital officials should contact our state legislators, Jim Wood and Mike McGuire, to get some sort of waiver from Sacramento, allowing the hospital to have an exemption to extend the current law that calls for it to rebuild by 2030 to meet earthquake retrofit standards. This person expressed the thought that no legislator would allow a hospital to shut down on their watch.

There's a Shakespeare quote that applies here. “You speak like a green girl, unsifted in such perilous circumstances.”A hospital employee spoke up almost immediately to say that she had just had a conversation with one these legislators in the prior week. The legislator made clear the need for MCDH complying with the 2030 retrofit or, indeed, the state would have to close the hospital's doors. Unfortunately for some Mendo Coasters, just holding a march from town hall to the hospital is not going to save MCDH from the law.

The 2030 retro fit regulation may be a moot point if MCDH does not show a relatively dramatic upturn in cash accumulation. As a reminder, at the end of February here's where the hospital stood in relation to the three bond covenants it must meet to be in compliance with Cal Mortgage, the state government entity that essentially owns the vast majority of MCDH due to the hospital's financial woes that date back to its bankruptcy period several years ago: 1) MCDH stands at a .33 level for its debt service coverage, far below the required minimum level of 1.25; 2) its “current ratio” is at .97 compared to the required 1.0; MCDH possesses 40.7 days cash on hand compared to the 30 day requirement. That last positive comparison of days cash on hand is diluted somewhat when one considers that the hospital only has its hands on 11.9 days of cash in the short run. The other thirty days worth of cash is tucked away in a LAIF (Local Agency Investment Fund) account, similar to a savings or rainy day account. MCDH has had to dip significantly into the LAIF money a few times in recent years in order to make required payments.

One potential remedy for the hospital is the projected implementation of a new electronic health record (EHR) system on July 1^st. At the informal planning session on March 18^th, the clinical data base analyst for MCDH provided an update on just where the training for the EHR stands. Along with a calendar of training sessions for April and May those present heard about challenges that have to be mitigated. For example, the hospital's surgery manager is leaving in mid implementation of the EHR system.

The new EHR is expected to help the hospital vastly improve its tracking and capturing of charges that have been repeatedly slipping through its current jury-rigged electronic system. That improvement alone could account for a million dollars (or potentially much more) per year in money that has been sifting through the keyboards for years, essentially because previous administrations could not or would not invest in updated EHR systems. The “could not” or “refused to” administrators and board members had their hands a bit tied because an entirely new EHR system costs multiple millions of dollars, amounts that MCDH didn't have when it had to spend hefty chunks of cash on repairing the central sterile system, the nurse call system, the heating, ventilation and air conditioning (HVAC), and on and on.

Will added revenue capture from the new EHR system come in time? Planning Committee member John Allison offered up a brief synopsis of a financial analysis he's done (Allison was a long time member of the hospital's Finance Committee before shifting to the Planning Committee). Including funds from the recently passed parcel tax, Allison's analysis shows that MCDH will completely run out of cash by the fall of 2020 if current trends are not drastically altered. Allison cited another community member, a long time observer of hospital matters, who has performed a similar financial study. That analysis purportedly has MCDH running out of money in the summer of 2020.

After the presentation regarding the ongoing EHR training, board member McColley offered words of caution regarding its potential as a monetary saving grace. It looks as if McColley's words were derived from a study published in Health Affairs (a peer reviewed healthcare journal of nearly fortyyears standing). In that study researchers looked at the return on investment (ROI) for implementation of an EHR system. Their findings showed that a facility would have to wait two and a half years to make up for the cost of the EHR implementation.

Setting aside the tens of millions of dollars required to meet the 2030 earthquake standards, MCDH does not have two and a half years of financial survival left unless something changes in major way. About the only other quick fix would be culling some of the hospital's two hundred or so full time employees (FTE). Yes, this twenty-five bed facility and clinic has about two hundred FTEs. The first place to cut would be at the mid-level management level, which appears to be top heavy. Of course, employee cuts would be fraught with all kinds of push back on the new Board of Directors.

In order to keep a hospital up and running on the Mendocino Coast, the only change that seems viable at this point is affiliation with another hospital system. The only affiliation that appears to be on the table is with Adventist Health.