SEBASTOPOL — The governing board of Palm Drive Hospital voted unanimously Wednesday to close the hospital April 28 as planned, while voting unanimously to continue further and immediate talks with the Palm Drive Health Care Foundation over its long-term proposal to keep Palm Drive viable in some capacity.
While a last-ditch plan for survival could in theory occur between now and Monday, the board agreed, despite continued opposition from scores of residents, that it needs to focus on a safe and orderly closure for existing patients.
The board met at noon Wednesday to discuss both the foundation proposal and one from another prominent physician, Sebastopol orthopedist Michael Bollinger, but the focus was primarily on the foundation proposal, crafted with telemedicine specialist James Gude and former district board president Dan Smith.
The vote to move forward with closure at the end of this week follows the second Chapter 9 bankruptcy filing in seven years for the 37-bed hospital, with the district board once again claiming insolvency, which led to an approval of a “substantial closure of services” about two weeks ago.
The board said the 71-page proposal by Dr. Gude, Mr. Smith and the foundation was largely unworkable because of cash restraints, though it noted that the proposal was comprehensive and useful given how quickly it was put together.
“Although the foundation proposal includes a well-intended, interesting and well-thought-out plan, given the short turnaround time-frame provided, it is not financially feasible as presented,” read a memo from district staff to the board.
The proposal also doesn’t address the hospital’s desperate need for cash and instead relied on projections from accounts receivable to be used for start-up costs on the foundation model. But the board and attorneys for the district repeatedly told a capacity crowd of about 200 people that any reserves and incoming cash needs to be directed toward covering Chapter 9 bankruptcy proceedings and paying off nearly $7 million owed to vendors.
“Neither the proposal nor the cash flow projections address the costs associated with the Chapter 9 case an any anticipated plan of debt adjustment that would need to be approved by the bankruptcy court,” the memo states.
The vote to close the facility on April 28 came as an amendment to a broader resolution, backed unanimously, to continue talks with the foundation to see if the shortcomings in its proposal could be overcome, or if a longer-term, post-closure plan could emerge. The vote also came amid continued protests and pleas from residents, hospital staff and physicians concerned about access to health care and emergency care for residents across wide swaths of western Sonoma County.
After the meeting, hospital CEO Tom Harlan, clearly appearing tired, said he thought it was the right decision.
“I think it’s the right outcome,” he said. “We will re-emerge. I can understand the emotions of the community. I live here too.”
The proposal from the foundation would have effectively shuttered the 35-bed inpatient ward of the hospital while preserving a two-bed intensive care unit, three inpatient beds and the emergency department. It would also create new lines of revenue in specialty care such as telemedicine, physical therapy, neurology and infusion and make a strong shift toward outpatient care.
But more issues were identified with the proposal by the board, including a potential conflict of interest with Dr. Gude, who had proposed to serve as CEO under the new foundation structure.
“A significant impediment to the foundation assumption of management authority is the proposal to place a CEO (Dr. Gude) who already has substantial contractual services under agreement with the district,” the memo states.
Dr. Gude, who runs a telemedicine practice, OffsiteCare, said he was happy to pass the CEO role onto someone without the conflict.
The proposal by Dr. Bollinger would have similarly closed the inpatient ward, offering intensive care, radiology, laboratory and outpatient specialty services, and would have allowed physicians to lease the hospital for $1 a year. A third party would have managed the facility.
The district and Mr. Harlan had also cited licensing concerns with the state in considering the two proposals. In order to operate an emergency room, all hospitals must have adequate inpatient services, along with labs, radiology, an ICU, and acute inpatient care and outpatient services.
By closing on April 28, Palm Drive would be letting its acute-care hospital license be suspended, not revoked. Numerous proposals have been floated to see what the district could do afterwards to fulfill the health care needs in the region, including 24-7 urgent care and other outpatient services.
Palm Drive last week was granted a $450,000 emergency loan from a U.S. bankruptcy court judge. It will help the cash-strapped hospital make payroll and meet operating expenses through bankruptcy proceedings. A final bankruptcy hearing is scheduled for May 1.
Over the past 12 months, finances at Palm Drive have deteriorated. Accounts payable for Palm Drive increased to nearly $6.5 million at the end of February from about $5.8 million in June 2013, according to Mr. Harlan. He cited an October audit of the hospital prepared by Moss Adams for the 2012–2013 fiscal years. Accounts payable increased by nearly 75 percent since 2012.
The hospital also owes vendors roughly $7 million, according to the Chapter 9 filing. Major creditors include Utah-based Innovasis, a developer of spine implant devices that is owed more than $1.6 million; San Francisco-based McKesson Technologies, which is owed just shy of $1 million; and PG&E, which is owed about $334,000. Total liabilities were $9.6 million, up 54.8 percent from fiscal year 2012 and even more in the first months of fiscal year 2014, hospital officials said.
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