Written by Katharine Ball, The Californian

February 2, 2012 — Harry Weis is hoping Salinas-area medical leaders and voters are ready to seize what he calls a "once in a lifetime" opportunity.

With its rare — perhaps unique — combination of a public safety-net hospital (Natividad Medical Center) and a public district hospital (Salinas Valley Memorial Healthcare System), Monterey County could create a system that will weather coming changes in health care and serve its community very well, said Weis, Natividad’s chief executive officer.

SVMH, struggling to emerge from a financial downturn, is seeking a suitable affiliation partner to help it survive in a health care market undergoing quick and sometimes tumultuous transformation. Because SVMH was built with public tax dollars, voters will have the final say on any affiliation.

Why affiliate?

The idea of affiliating Natividad and SVMH was first formally proposed in an Oct. 11 letter from Monterey County Supervisor Jane Parker to Jim Gattis, president of the SVMH board of directors. Monterey County owns and operates Natividad.

Weis took time earlier this week to explain why he thinks an affiliation between Natividad and SVMH could be the best outcome for both hospitals.

"We have the opportunity to have a very innovative public health care system here," he said. "It’s truly a once-in-a-lifetime circumstance in front of us now."

Weis summed up the cost efficiencies an affiliation could achieve.

Half of hospitals’ operating costs are in "overhead:" administration, food service, cleaning, finance, information technology, billing and admitting. The obvious place to cut costs is in these areas to preserve resources for medical care for patients, Weis said.

Natividad and SVMH could achieve significant economies if they had a shared administration, he said. And, Weis said, the two local hospitals could achieve greater savings together than SVMH could with an outside partner, where management would be distant.

The two hospitals could share a single chief executive officer, as well as medical department heads and finance, billing, IT and admitting departments, he said. Other economies could possibly be achieved in other areas.

"That efficiency would never be possible with any other entity, because of distance," Weis said.

As a bonus, both hospitals already use the same computer programs, meaning neither would have to shell out significant funds for new software to achieve a uniform system.

Plus, the two hospitals have "a long list of significant synergies that uniquely exist between (Natividad) and SVMH," he said. "That would not be replicated elsewhere."

For instance, SVMH has cardiology and neurology services that Natividad does not, while Natividad offers an acute rehabilitation program and the county’s only locked psychiatric ward.

"This could be a time of greatly heightened innovation and access to care in this area," Weis said. "That’s the only reason to do any of this, so we need to create a high probability of long-term success."

In his written response to Supervisor Parker, SVMH board president Gattis indicated receptivity to a proposal from Natividad. Citing a town hall meeting SVMH officials held, Gattis said, "The public was steadfast … in encouraging us to maintain as much local control as might be feasible while also ensuring the survival of [SVMH] as a care giving entity. … Local control is our preferred option if we can make it work economically."

History of local solutions

Natividad and SVMH have a history of fiscal collaboration.

In 2006, both SVMH and Community Hospital of the Monterey Peninsula agreed to give Natividad bailout funds totaling $8 million over two years. That year, Natividad posted a record $22 million deficit, which the county had to make up out of its general fund. There was talk of closing Natividad. Both SVMH and CHOMP also provided advisers for the county hospital, and since then Natividad’s fortunes have rallied to the point where it has generated net income for the past four years.

"We do really care deeply for SVMH," Weis said. "They and Community Hospital stepped forward at a critical time (for Natividad).

"These were local providers that came forward to help (a struggling hospital) and created a local solution," he said.

What SVMH and CHOMP did to preserve the county hospital appears to be unique in the annals of American medicine, Weis said: "They set an example for how to reinvigorate a public health care system."

What Natividad is proposing now is "a new, innovative level of collaboration going forward," he said.

"A collaborative environment fosters cost efficiencies," Weis said. "Competition promotes inflation."

Special revenue sources

Weis, with more than 30 years of experience as a health care administrator, speaks with authority. He arrived at Natividad as part of a team of consultants from Wellspring (a division of Chicago-based Huron Consulting) charged with turning around the ailing hospital. In 2009, he moved from interim chief financial officer to permanent CEO. Weis’ career has taken him around the state and the nation, working for or consulting with many health care companies, great and small.

"I know most of the systems really well and whether things would help or be a challenge" in an affiliation, he said.

As an officially designated "public safety net" hospital, Natividad has access to revenue sources that most other hospitals do not, Weis said. And, as a public district hospital, SVMH collects property tax revenue and has taxing authority that most hospitals do not. "There are ways that district can be allowed to remain and thrive indefinitely," he said.

Natividad is already planning to detach itself from Monterey County’s governance structure to become a "public authority" hospital. Weis explained that an "authority" is a not-for-profit public entity or corporation that is a subdivision of the state of California.

As a public authority, "Natividad would be able to retain all of its rare and very special ‘designated public safety net’ status it presently has while a department of Monterey County," Weis said. But changing to an "authority" would allow Natividad to streamline its governance to a single board of directors. Right now, it has its own board of directors, but the county Board of Supervisors must also sign off on all matters relating to Natividad, such as contracts, purchases and hiring.

Reducing administration to only a board of directors would allow Natividad "to be far more nimble and quicker to respond to rapidly changing healthcare market conditions in our local region, in our state and across the country," Weis said. It would also lower Natividad’s overhead expenses, he said.

Weis and other Natividad administrators were already pushing to have Natividad become a public authority before SVMH announced it would search for an affiliation partner.

Change here to stay

Like it or not, dramatic change is coming to U.S. health care, in the Salinas Valley as everywhere else, Weis said.

The health care reform law narrowly approved by Congress and signed by President Barack Obama will bring some changes. Those include allowing parents to keep their children on health insurance policies through age 26, barring insurance companies from refusing to insure people with pre-existing medical conditions, doing away with lifetime medical expense limits and allowing millions of low-income people to access insurance.

The law is now before the U.S. Supreme Court, having been challenged by several state attorneys general.

"Even if someone threw out Obamacare, we would still have to do something different," Weis said.

He sketched in the pressures on the U.S. health care system.

In 1998, health care costs ballooned to $1 trillion a year nationally, Weis said. By 2006, the total cost had doubled to $2 trillion a year.

"It took from 1776 to 1998 to get to $1 trillion," he said. "It took only eight years to get to $2 trillion. It’s estimated we’ll be in the mid $4 trillions by 2016.

"That trajectory has nothing to do with Obamacare. It’s an economic description of what’s been going on in health care costs. It has a devastating economic impact. No country in the world could bench-press $4 (trillion) to $5 trillion in health care costs."

Meanwhile, the poor will be the fastest-growing demographic group, locally and nationally, Weis said.

Right now, about 85,000 of Monterey County’s 415,000 residents have no health insurance, he said. The new health care reform law, if upheld, will improve access by allowing about 25,000 of those 85,000 to go on Medicaid, which serves the poorest people in the nation. Income qualifying rules have been adjusted to allow greater access to the working poor, Weis said.

An insurance exchange the government plans to establish would allow about another 30,000 Monterey County residents to purchase insurance, he said. That would still leave about 30,000 county residents completely uninsured, either because they are undocumented immigrants or because they lack the ability or desire to fill in forms that would qualify them for insurance.

Direct health care contracts proposed

Whether "Obamacare" is sustained by the Supreme Court or thrown out, Weis said, health care reform is something the U.S. needs to keep in its sights.

The new law "is an important gesture on a huge need," he said. "The ball game has finally started. This is the first iteration. It’s not a home run, but it could be a base hit or maybe a foul ball."

Meanwhile, locals are crying out under the burden of expensive health insurance premiums that often come with huge out-of-pocket costs for those who are insured, Weis said.

"We are looking at how can we really bend that cost curve to stop that type of inflation," Weis said. Natividad has talked with some local companies about creating direct health care contracts, he said, instead of having companies pay premiums to distant health insurers which then pay the hospital (after taking a bite out of the premiums to pay for their own overhead).

"We want to be a partner with the business community and contain health care costs to help businesses thrive," Weis said. "It’s important to have sustainable businesses in our community."