By Mike Hornick, Salinas Californian

October 29, 2010 — SALINAS, CALIF. — Four years ago, Natividad Medical Center in Salinas was the poor stepchild among area hospitals — even a recipient of their charity.

Times have changed.

Since posting a $25 million loss in 2006, Natividad has enjoyed a reliably positive cash flow. The county hospital netted $10 million, $7.5 million and $12.9 million in the past three years, respectively.

That success has come while the state’s 14 other safety-net hospitals — county resources for low-income, Medi-Cal and uninsured patients — collectively continue to lose about $107 million annually.

Other hospitals, both public and private, are in better shape, but over the same period have seen profit margins narrow nearly to a vanishing point. The American Hospital Association reports that nine out of 10 hospitals nationwide have made recession-related cutbacks.

Salinas Valley Memorial Hospital, for one, posted net operations income of just $13,682 in its June report for the past fiscal year, down from a budgeted $12.3 million. In several important categories — patient volume, hiring and bottom line — SVMH and Natividad have been going in opposite directions since SVMH gave $6 million in 2006 to help assure Natividad’s survival.

The rare partnership among hospitals also involved $4 million given by Community Hospital of the Monterey Peninsula. Both SVMH and CHOMP temporarily took seats on Natividad’s board.

“If Natividad were to close, the burden of the uninsured and poorer-payer mixes that we treat would create a material financial challenge for any provider within a 20- to 50-mile radius,” Natividad Chief Executive Officer Harry Weis said. “I’m not aware of anywhere else in the country that other providers came forward. It helped in a big way.”
The joint effort, Weis said, proved private-sector solutions for safety-net dilemmas are a preferable alternative to state or federal bailouts.

What happened to SVMH, Natividad

But now SVMH, which faces a different set of challenges than Natividad did four years ago, is scrambling for solutions of its own. Here’s some of what’s happened:

• In-patient volume at SVMH drop-ped from 165 or 170 daily to 130 or 135 — roughly 20 percent — over the past 2 1/2 years.

• Charity care and bad-debt expenses shot up $13 million last year, from $2 million to $15 million. The uninsured in the SVMH patient mix rose from about 32 to 39 percent.

That’s an effect of the struggling economy, according to SVMH Controller Frank Katsuda.

“Go to any hospital, and they’ll tell you the same story,” Katsuda said.
Twenty percent of Monterey County residents are uninsured, compared with 15.3 percent nationally and 13.2 percent statewide.

At its peak, SVMH had about 2,350 employees. Now there are about 1,995, with a round of buyouts announced this week having the goal of reducing the payroll by another 165 workers in union jobs. In July, 74 non-union employees accepted buyout offers.

Different story at Natividad

By contrast, since 2006, in-patient volume at Natividad Medical Center has risen 22 percent. Core cash receipts doubled — from $5.2 million to $10.7 million, Weis said.

The hospital added about 140 full-time positions. Natividad has done all that with 49 percent of its patients on Medi-Cal, a tough group not to lose money on.

Natividad has been getting more referrals from county Health Department clinics, while SVMH has seen those referrals drop. Natividad also managed to inch up the insured portion of its patient mix from 15 to 17 percent.

But like SVMH, Natividad has seen a rise in uninsured patients — a $15 million hit that must be made up from other sources — since the recession started.

“Other states have a higher percentage of uninsured, but California has by far the largest number of uninsured residents,” Weis said. “It’s the cost of health care. Premiums and costs have been growing at double-digit rates for years. More and more individuals and companies are opting out of being involved with health insurance programs.”

The state’s unemployed and/or undocumented residents are helping to drive the trend, Weis said.

“If you’re undocumented, you might be able to qualify for emergency Medi-Cal for a specific, short-duration issue, but it’s pretty hard to get coverage beyond that,” he said.

Nationwide vision

Weis credits Natividad’s ability to so far overcome recessionary pressures to the restructuring it underwent in consultation with Wellspring Partners, a division of Chicago-based Huron Consulting Group. Natividad, he said, streamlined operations by tying staffing levels to changes in patient levels; making registration, billing and revenue cycle practices more efficient; and negotiating better contracts with vendors and insurance providers.

“We were on reimbursement terms [with insurers] that were 8 to 10 years old,” he said. “We were significantly under-reimbursed, mainly by third-party payers.”

Both Salinas hospitals have said they’re looking for savings primarily in administration, including reducing the number of people needed to do billing.

It’s a principle that Weis — if he had the power — would extend nationally. He calls the federal health-care reform passed earlier this year “version one,” which should be followed by more basic reforms, such as a single, universal medical-record system.

“The number of back-office people that physicians and hospitals have to support for billing and collections is so large, it would blow your mind,” Weis said. “The American public, knowingly or unknowingly, has given up a 30 percent commission [for administration] when it ought to be trimmed down to 5 percent.”

A universal record system, he said, could save more than $600 billion.

If such a forecast proved accurate, there would be gain and loss. Savings would be netted, but a lot of Americans now working in medical billing and record-keeping would need new careers.
Meanwhile, local hospitals say they’re doing what they can to chip away at administrative costs here and there.

“It’s good and bad,” said Katsuda, the SVMH controller. “In the past, [administration] got paid for, and you had a little more flexibility. We [at SVMH] were the second- or third-largest employer here. We kept a lot of people working, and we helped the economy. But at a cost.”

That cost has now come due, and like Natividad before, SVMH began working with Wellspring Partners in June to figure out how best to pay it.

The July round of SVMH buyouts targeted middle managers and their support staff, Katsuda said.

“Did we need to have three layers of managers between staff and unit directors?” he said. “No, so we started flattening the organization out. It didn’t hurt quality or services, it just made us a little bit more efficient. Maybe the directors need to do a bit more hands-on work.”

As negotiations began over the summer for the latest round of buyouts, SVMH’s management hoped to make agreements with unions that job reductions would be based on skill sets, rather than seniority.

“If you have a person working in the catheterization lab that’s got unique skills, you don’t want to go from the bottom up and eliminate your skilled people,” Katsuda said.

Liz Jacobs, a spokeswoman for the California Nurses Association, said the union is “in a wait-and-see mode” on the outcome of the latest buyout effort.

“Right now, it’s voluntary [to give up a job],” Jacobs said. “If it does become compulsory, we will go into negotiations [on how layoffs will be handled].”

Competition

Though they have many services in common, hospitals often compete based on their specialties.

In that light, SVMH sees itself in competition more with CHOMP than with Natividad, according to Katsuda. Though patient numbers have declined, SVMH continues to offer itself, like CHOMP, as a magnet for open heart surgery, neurosurgery, catheterization procedures such as pacemaker implants, sleep studies, and mammography.

Natividad, by contrast, touts its neonatal intensive care unit, reduction of patient wait times in the emergency room to a maximum 35 minutes, colorectal and general surgery, and other specialties.

“Natividad services a different population than we do,” Katsuda said. “They’d like to get more into the insurance side, because it’s a better payer.”

But SVMH’s technologies will keep the hospital strong in the insured market, he said, and help drive its recovery.

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