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North Bay Business Journal

Tuesday, April 1, 2014, 8:15 pm

District declares Palm Drive ‘fiscal emergency’

Acute care, emergency departments may close April 28

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    Palm Drive Hospital

    SEBASTOPOL — Palm Drive Healthcare District, which oversees the financially beleaguered Palm Drive Hospital, voted unanimously to declare a “fiscal emergency,” paving the  way to file for Chapter 9 bankruptcy protection, which if pursued would come about four years after the hospital emerged from bankruptcy.

    The district board met Tuesday night to consider two key resolutions that could all but spell the end of the hospital. One included a “substantial termination of services and closure of the emergency department,” which would effectively shutter the hospital. The other was declaring the fiscal emergency.

    “We’re out of money, and we can’t pay our vendors on a regular basis,” said hospital Chief Executive Officer Tom Harlan at the meeting. He said the realization of insolvency was “alarming and very depressing.”

    “The conclusion was there is no sustainable path for Palm Drive,” he said.

    With the another impending bankruptcy for Palm Drive Hospital in Sebastopol, what is the outlook for small rural hospitals?

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    Total voters: 73
    Polling period: April 2, 2014 @ 2:00 pm – April 9, 2014 @ 2:00 pm

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    The district could close the acute care and emergency departments as soon as April 28. But the board tabled a final decision on that until next Monday, following hours of impassioned pleas from residents and employees who said they wanted more time to process the news and come up with a possible solution.

    The hospital has been dealing with operating losses of $4 million to $5 million a year, and the institution owes vendors about $6 million, according to David Cox, interim chief financial officer and also CFO for Marin General Hospital. In January alone, the hospital reported a loss of $356,200, while through the fiscal year, ending July 1, it has lost more than $1.2 million.

    Inpatient volume has seen a sharp decline, dropping from roughly 12 patients per day to as low as seven a day. That may seem like a small change in patient headcounts, but it represents a more than 30 percent decline in volume, Mr. Harlan said.

    “We have more nurses on staff than patients,” he said.

    While the vote to eliminate services was delayed, board members said at the meeting that they were very likely forestalling the inevitable.

    “If this resolution is not passed tonight, it will be passed on Monday,” said board Secretary Sandra Bodley. “It’s not going to change the outcome. This is a wrenching decision, but it’s real.”

    “We won’t last another month,” board Vice President Marsha Sue Lustig said.

    The hospital is licensed for 37 beds but has been staffed for only 12 beds to help offset staffing costs.

    Yet the institution has long been beset by financial woes, exacerbated recently by a confluence of factors. Among them are plummeting patient volumes, reduced reimbursement rates from Medicare under health care reform and a disproportionate share of Medicare and Medi-Cal patients versus privately insured patients. Reimbursement rates under those programs are far lower than those in commercial insurance plans.

    Mr. Harlan and board members repeatedly told the audience at the meeting that, in addition to the issues facing all small hospitals, Sebastopol and Palm Drive are a mere eight miles from Santa Rosa, where three major health systems operate sophisticated hospitals. As such, much of the discussion – and the impetus behind the fiscal emergency declaration and drawing down services – centered on whether Sebastopol and west Sonoma County can continue to support the hospital as it suffers from ongoing losses and dwindling patient volumes.

    Hospital and district officials are scrambling to come up with viable alternatives should the dramatic reduction in services take effect. A closure of inpatient, acute care operations would result in a suspended hospital license, and it’s not yet clear what path the district will take. Outpatient services and urgent care are possible options, but Mr. Harlan said if the hospital operations are closed, the district would need to reapply with the state for both inpatient and outpatient licenses.

    “The answer is we’re still working with the state Department of Health Services, because we plan to continue be a relevant and sustainable operation for this county in providing health care services,” Mr. Harlan said.

    West County residents have expressed strong support for a local emergency department, but the district said that’s nearly impossible under the current fiscal challenges.

    In order to operate an emergency department, a hospital is required by the state to have an acute care operation, including a lab and radiology services. Mr. Harlan said that it’s increasingly difficult to sustain that portion, given the steep losses the hospital is facing. The hospital has already eliminated its intensive care unit in an effort to curb costs.

     ”Acute inpatient care inside is creating the biggest problem,” Mr. Harlan said. “Without an inpatient hospital, we can’t have an emergency department. That’s the primary issue and the most difficult for us because when we were looking at operating inside, we really modeled everything off of the emergency room, which is huge public benefit.”

     ”There are a number of unanswered questions, but we do have a plan that’s under development to take care of the wind down,” Mr. Harlan said.

    Chris Dawson, president of district board, said Palm Drive needs to plan quickly for whatever the outcome may be.

    “The board is really focused on making this transition — what’s the next chapter for a real viable health care service?” Mr. Dawson said. “That’s what we’re going to get to very fast.”

    News of the dire-sounding resolutions comes less than a week after the hospital said it notified all 242 employees of possible layoffs of 50 or positions.

    Earlier this year, layoffs and work reductions impacted 40 employees, 10 of whom were laid off permanently and the remaining being shifted to part-time. All told, that amounted to the equivalent of 20-full time positions being eliminated.

    It’s not the first time Palm Drive has faced dire financial straits. In 2010, the hospital emerged from Bankruptcy Court protection from creditors after selling $11 million in bonds. Those funds have since been depleted, the district said.

    The hospital sought Chapter 9 protection in 2007 after the hospital was contending with nearly $7 million in annual operating losses.

    After exiting bankruptcy most recently, officials made number efforts to make Palm Drive viable in the competitive North Bay health care sector. It is only getting more competitive with the $284 million new Sutter Health facility in northern Santa Rosa expected to open later this year. And Kaiser Permanente has said it will construct a medical office building in western Santa Rosa off of Stony Point Road, which could further cut into Palm Drive’s limited patient base.

    Palm Drive entered into an affiliation with Marin General and Sonoma Valley hospitals, both run by districts. The goal was to share centralized services in the hopes of reduced costs and increases services. While that proved beneficial in reducing costs, nothing could make up for the lack of patient volume, officials said.

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