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Evolve or shut down. That’s the harsh reality for community hospitals as they face an ever-changing health care environment, threatening their bottom lines. It’s a national crisis from which the North Bay is not immune.

“There’s a host of challenges that all hospitals face but particularly these small, independent hospitals,” said Jan Emerson-Shea, vice president, external affairs at the California Hospital Association. “Some of these hospitals file bankruptcy, some shut altogether, some are able to go to local voters, and some affiliate with larger health care systems that have the ability to keep them open and provide them access to capital.”

The financial picture for small hospitals is “precarious at best,” she said. “Our state MediCal program is one of the worst payers in the nation—hospitals only receive 60 cents on the dollar for care provided to the patient.” Medicare is a little better at roughly 80 to 85 cents on the dollar for those patients, she said.

Rethinking, reinventing: Sonoma Valley Hospital

So far this year, 75-bed Sonoma Valley Hospital, in Sonoma, has closed its obstetrics unit and transferred ownership of its home health care facility. It is currently in the process of evaluating the future of its skilled nursing facility, according to Kelly Mather, president and CEO at Sonoma Valley Hospital.

“It’s become clear that a community hospital can no longer try to be all things to all people, but must refocus on essential community needs,” Mather said. “We’re all facing the same issues.”

The challenge now is to find new ways to evolve, as well as strengthen the services traditionally most in demand from community hospitals—robust emergency room services and expanded outpatient care services, she said.

One of SVH’s moves this year was finalizing an affiliation agreement with the University of California San Francisco Health to create an integrated health network. The two entities have long had a working relationship. Under the new agreement, UCSF is providing its expertise, resources, and a new medical director for SVH, according to Mather.

“We plan to be the Diagnostic Center for UCSF patients in the North Bay with our new affiliation, and already attract patients from outside the district for pain management and other procedures,” Mather said.

In September, SVH transferred ownership of its home-health care service, Healing at Home, to Hospice by the Bay, a regional not-for-profit organization and UCSF affiliate. The transfer took effect Oct. 1, according to SVH.

The hospital is currently in the process of determining the future of its skilled nursing unit, which cares for patients who need less than acute care. The skilled nursing unit has a projected $880,000 operational loss for fiscal year 2019. The hospital’s board in August approved a task force to evaluate the facility’s future.

Options on the table include transferring the service to a nearby standalone skilled nursing facility, outsourcing clinical staff or closing it altogether, said Jane Hirsch, chair of the task force. There have been several public meetings and there will be another one in the near future before a decision is made next year, she said.

There are no further moves planned for the foreseeable future, Mather said. “These are the only service lines that are losing money.”

“Every hospital makes those types of determinations and they’re tough,” Emerson-Shea said. “It’s very hard when you’ve offered a service such as OB for a long time. It feels like a loss to the community when those business decisions have to be made.”

Starting anew: Sonoma West Medical Center

In some cases, small hospitals are forced to close. Sonoma West Medical Center in Sebastopol on Sept. 26 filed Chapter 7 bankruptcy after years of one struggle piled on to the next.

Sonoma West Medical Center had fought to make the hospital profitable since it reopened the facility in the fall of 2015, according to reporting by the Press Democrat. The hospital, which is owned by Palm Drive Health Care District, had closed in the spring of 2014 due to dramatic declines in both overnight patient stays and insurance reimbursements.

In June of this year, the medical center was sued by Anthem Blue Cross over what it claimed was a fraudulent business venture with a Florida-based drug-testing company.

At the end of the day, the small hospital didn’t have the resources to compete, exacerbated by its close proximity to Santa Rosa, where there are a plethora of available health care options, said Dennis Colthurst, president, board of directors, Palm Drive Health Care District.

“You’ve got to have volume. If you don’t, the expenses outweigh the income, so that’s the struggle that Sonoma West had,” he said. “On the other side of that coin, our little hospital was very important for serving the coastal areas.”

Patients from the coastal areas in need of emergency care were often transported to a Santa Rosa facility, he said, where the wait could be up to three hours, compared to a 90-minute turnaround had the patient been brought to Sonoma West Medical Center.

But now there appears to be a silver lining for the facility’s future.

Palm Drive Health Care District ended its relationship with the medical center in early September and signed a new management-services agreement with Advanced American Management Group, according to the Press Democrat.

Under the agreement, Sonoma West Medical Center has been transformed into Sonoma Specialty Hospital, a long-term acute care facility.

“We’re going to have an urgent care bundled with outpatient surgery, bundled with the long-term acute care,” Colthurst said. “Hopefully, with our urgent care we’ll be able to take some of those patients from the coast.”

Sonoma Specialty Hospital is licensed for 37 beds, but is keeping its admissions down to a little more than a dozen patients right now, he said.

“There’s a period of time where (long-term acute care hospitals) have to be evaluated, so during that time we may not be reimbursed for some of those people,” he said. “That’s not uncommon, so we’re using limited space to get through that process.”

Widening its reach: Healdsburg District Hospital

In July, St. Joseph Health Northern California and the North Sonoma County Healthcare District—which operates Healdsburg District Hospital—agreed to begin formal discussions about St. Joseph Health taking over managing and operating the 43-bed Healdsburg District Hospital.

“Small hospitals are impossible to keep afloat without a strategic partner to help with financial issues,” said Sue Campbell, board chair, Healdsburg District Hospital.

The hospital’s budgeted net revenue for 2018 is $44 million, but its total operating expenses are expected to be $52 million, according to reporting by the Press Democrat. That $8 million net-operating loss is offset by the district’s parcel tax funds and intergovernmental transfer funds that total about $6 million.

Being a district hospital “gives us the ability to level taxes, which voters passed … and which helps us,” she said. “If we were in need of more money, we could potentially go back to the voters, but we don’t want to do that.”

The district hospital in 2006 was classified as a critical access hospital, which allows it to be paid its cost of Medicare services, which Campbell said is helpful.

If the hospital ultimately signs a lease with St. Joseph Health, it would likely be for many years, said Joseph Harrington, CEO at Healdsburg District Hospital.

“My guess is that certainly no partner that we’re talking with wants to do a deal any shorter than 20 years,” he said. “If you’re serious, you’ll look at 20 or 30 years, or five years for a shorter deal like sharing physicians.”

Harrington said the hospital is waiting for St. Joseph’s to get approval from the state attorney general about its new joint venture with Adventist. “Hopefully a decision will be made in December and then we’ll get moving on the deal,” he said.

Along the way, the district will hold three public meetings and gain additional input from the community.

“There will be a public vote no matter what,” Campbell said. “We’re cautiously optimistic it will happen smoothly.”

Staff Writer Cheryl Sarfaty covers tourism, hospitality, health care and education. Reach her at cheryl.sarfaty@busjrnl.com