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California North Coast rural hospitals shift tactics to survive national, local financial challenges

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This story originally appeared on SonomaNews.com, also part of the Sonoma Media Investments news network.

As small rural hospitals across the country struggle to survive, one North Bay hospital faced a second closure, and another — cash-strapped Sonoma Valley Hospital — is “defying gravity,” health care experts said.

More than 70 rural hospitals have closed across the United States since 2010, according to the University of North Carolina Cecil G. Sheps Center for Health Services Research. Hundreds more are at risk of closing, according to the National Rural Health Association. There were 1,825 rural community hospitals in the U.S. in 2016, according to the American Hospital Association.

Closer to home, in the North Bay, Sebastopol’s Sonoma West Medical Center filed for liquidation bankruptcy in September, according to court filings. The hospital had already closed once, in the spring of 2014, because of dramatic declines in overnight patient stays and insurance reimbursements.

It reopened as a 37-bed acute care facility called Sonoma Specialty Hospital.

Cash-strapped Sonoma Valley Hospital has made two recent cost-cutting moves and is contemplating a third. The obstetrics department closed at the end of October. The department was expected to sustain more than a half-million-dollar loss in the fiscal year 2019, which runs July 2018 through June 2019.

Also last October, Healing at Home, the hospital’s home care service, was transferred to Hospice by the Bay, a regional not-for-profit organization. The home care service was expected to lose $300,000 in the fiscal year 2019.

The third potential cost-saving decision — whether to keep the hospital’s skilled-nursing facility — is being studied by an ad-hoc task force.

In addition to the cuts, the hospital is hoping to create a new $20 million outpatient diagnostic center projected to increase net revenue to the tune of $1.5 million annually.

The hospital’s fundraising arm, the Sonoma Valley Hospital Foundation, launched a public fundraising campaign in mid-November. In an update to the Sonoma City Council on Jan. 14, Sonoma Valley Hospital CEO Kelly Mather said the foundation had already raised $15.5 million toward the goal.

The plan is to create a 20,000-square-foot diagnostic hub with updated technology including a 128-slice CT scanner and a new MRI in hopes of modernizing and increasing revenue. The hospital projects that the center would increase revenue, for one reason because doctors wouldn’t have to refer patients elsewhere for advanced diagnostic care.

The hospital’s revenue was $59 million in the fiscal year 2018, with a $3 million net income loss, according to unaudited numbers supplied to the Index-Tribune by the hospital.

A national hospital expert and a regional expert, the latter of whom is familiar with Sonoma Valley Hospital, elaborated on the situation.

“Costs in almost all industries are steadily rising, but rural hospitals are also faced with challenges on the reimbursement side because of their disproportionate share of Medi-Cal and Medicare funding,” said Peggy Wheeler, vice president of the Rural Healthcare Center of the California Hospital Association.

Wheeler, a national expert in rural health care, represents all the rural hospitals in California.

“Their patient population is disproportionately weighted toward government payers, Medicare and Medi-Cal, which don’t pay the full cost of that care,” Wheeler said.

“So, if costs continue to go up, but 70 percent of your population is government payers, you can see what the struggle is,” Wheeler said. “You are trying to stay up with the cost of care, which steadily rises, but you are weighted with patients who don’t pay the full cost of care.”

This story originally appeared on SonomaNews.com, also part of the Sonoma Media Investments news network.

About 75 percent of Sonoma Valley Hospital’s patient visits come from government reimbursements, said Joshua Rymer, chair of the hospital board. These reimbursements don’t cover the full costs of care, he said.

Sonoma Valley Hospital’s costs are increasing and were up in 2017 by 5 percentage points from 2013.

“The number of visits from patients who have commercial insurers who still reimburse the hospital at rates slightly above costs, have been flat at or below 20 percent and no longer fully subsidize the hospital’s operations,” Rymer said.

“Reimbursement is probably the biggest hurdle that most rural hospitals have,” said T Abraham, a regional vice president with the Hospital Council of Northern and Central California.

“The thing that’s really different in the rural areas, and it’s a double whammy — the costs in the rural areas are not significantly different than in the urban areas. They can’t tell a physician, ‘Come to this rural area and we’ll pay you half as much,’” Abraham said.

“(Rural hospitals) have to pay nurses at usually the same rate as urban hospitals and sometimes they have to pay a premium to get those services in the rural areas,” the regional vice-president said.

“Rural hospitals across the country are under threat,” Abraham said. “The story of Sonoma Valley Hospital is part of a larger story, and what is happening at Sonoma Valley Hospital is consistent with what is happening elsewhere.”

In another move to strengthen its brand and possibly find new revenue streams, the hospital last February signed off on an affiliation agreement with the University of California San Francisco — UCSF is the top-ranked medical center in the state and one of the top five in the nation, according to a survey conducted last year by the U.S. News & World Report.

Under the agreement, SVH officials said last year after joining the UCSF network, the hospital and UCSF Health will work together to provide high-quality health care in Sonoma Valley by creating a comprehensive, sustainable and integrated health care network to serve the needs of Sonoma Valley residents.

Still, it didn’t save SVH from facing tough decisions over the feasibility of struggling services.

Rymer described the “huge sorrow in (his) heart” in the hospital having had to cut obstetrics last year.

“I wish the financial realities of reimbursement and politics and running a hospital in the Bay Area, where costs are outrageously high, were different,” said board chair Joshua Rymer. “These are hard realities.”

The loss of the obstetrics department, a cost-cutting measure, is also in line with national trends. Nine percent of U.S. rural counties lost their obstetric services between 2004 and 2014, according to a University of Minnesota Rural Research Center study. Another 45 percent of rural U.S. counties had no hospital obstetric services at all during that time period.

Abraham described obstetrics at rural hospital as “especially challenging” due to the costs.

“You can keep OB open, but every day you do it you put the entire hospital closer to closing.”

“It takes great heart to stay on top of the performance lines within the hospital — OB is one, home health is one, skilled nursing is one, because if you don’t stay on top of it, the next thing is that the hospital closes altogether,” Wheeler said.

The Rural Health Care Center vice president said Sonoma Valley Hospital “is faced with what many rural hospitals are faced with, but managing to defy gravity — managing to stay open.”

And with the revenue generated from a top-notch outpatient diagnostic center, Sonoma Valley Hospital plans to do more than merely “managing to stay open.”

Mather expects to have the first phase of the project, a 128-slice CT scanner — key for outpatients, as well as emergency patients, she says — completed by the end of 2019.

The project “will also include an expanded waiting room and refurbishment of the 1972 imaging space,” said Mather.

If the fundraising hits its targeted $20 million, she added, the second phase of the project — a 3T MRI inside the hospital — should be up and running in 2020.

“This equipment is key to our becoming the ‘Diagnostic Center for the North Bay’ with UCSF,” Mather said.

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