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Keeping Natividad moving forward Part 1: On the verge of closure

Fellowship Story Showcase

Keeping Natividad moving forward Part 1: On the verge of closure

Picture of Jim Johnson
Natividad's financial struggles threaten its existence
Montery County The Herald
Tuesday, August 31, 2010

Part 1: On the verge of closure: Natividad's financial struggles threten its existence

Most of all, registered nurse Pat Butcher remembers the fear in the woman’s voice. In early 2006, with Monterey County-owned Natividad Medical Center in Salinas awash in $25 million of red ink and dogged by whispers that the120-year-old public hospital might be sold or shut down, Butcher and hospital leaders traveled to Greenfield as part of an outreach effort.

Speaking to a few hundred people, including farmworkers with little or no health insurance, Butcher got a poignant reminder about the hospital’s importance to the area’s most vulnerable residents.

“If you take away our hospital,” a woman told Butcher, who is in charge of the hospital’s specialty clinics, “You might as well dig a hole and bury us.” County officials, in a last-ditch effort, brought in representatives from two local hospitals and a team of highly paid consultants to turn around Natividad’s fortunes.

It seems to have worked. Today, the hospital is coming off a record $10.5 million fiscal-year profit. But questions remain whether Natividad can continue its newfound financial viability or if it is doomed to slip back into critical condition.

“The question is, ‘Are they going to find themselves in the same situation five years from now,’ ” said Glenn Melnick, director of the Center for Health Policy and Management at the University of Southern California.

Monterey County “is doing the right thing by treating its low-income population, but the question is how they’re going to continue to pay for it.” Despite its problems, most agree the 172-bed hospital, withits busy emergency room and outpatient clinics, plays a key role in the county’s health care system.

‘Safety net’ role                         

If Natividad closes, its patients would likely crowd into emergency rooms at Salinas Valley Memorial Hospital and Community Hospital of the Monterey Peninsula, and into the area’s private health clinics and the county’s primary health clinics.

Most agree that would result in long lines at overwhelmed hospitals and clinics, and many patients would likely put off seeking care until their health deteriorated to the point that they were forced into a hospital.

That would drive the cost of providing health care even higher for the remaining hospitals and clinics. Natividad, one of only 19 public hospitals in the state, serves as a “safety net” for much of the county’s poor and underinsured, many of whom are Latinos working in relatively low-paying jobs — without health insurance — in the agriculture and hospitality industries.

An estimated 80 percent of its patients are Latino. Many don’t speak English and some haven’t had access to medical care in years. Safety net hospitals accept patients regardless of their ability to pay.

Many patients turn to Natividad because fewer doctors are willing to accept MediCal, the state program that has the lowest reimbursement rates for care provided and covers most Natividad patients. While the county’s other major hospitals — Salinas Valley and Community Hospital — treat county residents from the lowest income levels, a much smaller proportion of their patient base is poor. Natividad provides links to county services on its campus, including a financial aid office and primary health clinics, which the other hospitals don’t offer.

Natividad’s medical staff takes pride in its role of treating the most needy and vulnerable in the community, Butcher said. She said the hospital serves as a kind of one-stop health care provider for many patients — from expectant mothers to seniors with complex medical problems.

“We do care for people who can’t get care else- where, and we’re here because we want to do that,” Butcher said. “This is where they go to get health care. They don’t go to SVMH or CHOMP. There’s a level of comfort at Natividad for them. They can access the clinics here, and many get all their care here at the hospital. They know we won’t turn them away. We don’t look at what your bottom line is.”

But focusing on care for the economically disadvantaged results in a much less favorable “payer mix.” For Natividad, that means treating more patients with lower-paying government reimbursements, or no coverage at all, and fewer with higher paying private insurance.

In 2006, more than 70 percent of Natividad’s patients paid through some kind of government medical program. The bulk of those were covered by MediCal and Central Coast Alliance for Health’s managed care program, which administers claims for about 58,000 MediCal patients. Nearly 12 percent of Natividad’s patients that year had no health insurance, and about 4 percent were considered “medically indigent adults” — usually the working poor who couldn’t afford to buy health insurance, but made too much to qualify for public health programs.

Those patients paid nothing or very little for their care. Less than 17 percent of Natividad’s patients had private health insurance, the highest-paying source. By contrast, Salinas Valley and Community Hospital have always had much higher percentages of privately insured and Medicare patients.

Dr. Max Cuevas, executive director of Clinica de Salud del Valle de Salinas, a health clinic system in Monterey County, said Natividad provides labor and delivery care for 70 percent of Clinica’s patients. Without Natividad, Cuevas said, there’s no telling what would happen to most of them.

“Are you going to have women delivering in their cars or in the parking lot?” Cuevas said. “I think we got real close to that. And it’s still a possibility.”

Natividad employs more than 800 people, most of whom live in the county, in a variety of capacities, and maintains an annual payroll of more than $80 million. It contracts the services of 124 vendors, many of them local. Some estimates put Natividad’s contribution to the local economy at more than $100 million.

The money problems            

When Butcher and other hospital leaders traveled to Greenfield three years ago, the Board of Supervisors acknowledged the importance of Natividad’s role in the community. But the board made it clear the county couldn’t afford the status quo and something had to be done.

While closing the beleaguered public hospital was generally regarded as a last resort, county officials clearly reached the end of their patience with Natividad’s history of financial struggles. The final straw was a $25 million loss at the end of fiscal 2005-06. Because the county was charged with making up the shortfall, the hospital’s deficit threatened the county’s budget. An independent accounting firm predicted the hospital could cost the county about $235 million during the next five years if something didn’t change.

Exacerbating the situation was that Natividad had moved into a new $116 million hospital building in 1998, which added more debt than it brought in new patients. The county had just forgiven the hospital about $42.5 million in accumulated cash advances, essentially loans to help the hospital meet its cost overruns after the facility lost $15.8 million in 2004-05.

A sales tax measure to give the hospital an annual funding boost had failed a few years earlier after a $7.3 million loss.

Supervisor Dave Potter remembers the dire predictions from county administrators such as Treasurer Lou Solton and Auditor-Controller Mike Miller, who told Potter “this thing is doomed.”

“We got to the point where it was either close it down or try to use the area’s resources to keep it open,” Potter said.

Natividad, like so many public hospitals, was hampered by government bureaucracy, shoddy bookkeeping and a lack of oversight. Budget deficits over the years prompted cuts to staffing and services that sometimes ended up costing the hospital more than they saved. Hospital administrators were often forced to use more expensive independent contractors to provide mandated levels of care.

Critics have even suggested the cost of providing health care is unnaturally inflated at public hospitals because of stifling government oversight and rampant inefficiencies, often resulting in higher costs to paying patients.

As a result, by 2006, Natividad’s management was a revolving door that featured four top administrators in five years, and badly out-of-date business operations. Employee morale was low and turnover was prevalent as the hospital lost physicians, nurses and other medical staff faster than it could find replacements.

Core services, such as women’s health, were struggling. At the time, supervisors were saying the county didn’t belong in the health care business. They began looking for alternatives, including selling, leasing or transferring the hospital to a public or private medical organization; outsourcing the hospital’s operations to a health agency; or creating a joint powers authority to oversee the hospital.

The threat of closure loomed over the entire effort.

Ultimately, Salinas Valley and Community Hospital stepped in that summer, promising to help Natividad figure out a way to survive. In a recognition of the importance of the county-owned hospital, the hospitals agreed to offer up to $4 million each and their combined health care expertise to initiate a financial turnaround.

Salinas Valley has since contributed an additional $2 million and extended its assistance for a year. Both hospitals assigned a pair of health care professionals to a newly formed Natividad board of trustees, and their money helped defray the cost of hiring a hospital management consulting firm. By fall, Natividad had a new board in charge, and the county had hired Chicago-based Huron Consulting Inc., a high-powered health care consulting firm.

But what could Huron possibly accomplish where all previous efforts had failed?