Skip to main content.

Kepping Natividad moving forward Part 3: Still an uncertain future for Natividad

Fellowship Story Showcase

Kepping Natividad moving forward Part 3: Still an uncertain future for Natividad

Picture of Jim Johnson
Local politics, rise in costs endanger hospital's progress
Monterey County The Herald
Tuesday, January 27, 2009

Part 3: Still an uncertain future for Natividad: Local politics, rise in costs endanger hospital's progress

For decades, Monterey County’s Natividad Medical Center was caught in a cycle of financial downturn and rebound that some believed would never change. Encumbered by government regulation, politics and ever-fluctuating funding sources that often failed to meet costs, the public hospital seemed doomed to repeat the cycle until it was sold, transferred or shut down.

But a stunning and rapid fiscal recovery led by a team of hospital management consultants from Chicago-based Huron Consulting Inc., as well as a strategic plan for Natividad’s future, has buoyed many residents’ expectations for the hospital.

The consultants were given the freedom to make sweeping changes in the hospital’s operations that began showing immediate results, not the least of which was transforming a record $25 million annual loss to a record $10.5 million gain in less than two years.

The question now is, can Natividad sustain its hard-won gains into the future?

In the next few months, the consultants are set to leave and be replaced by permanent hospital leadership, including a new management team and board of trustees. A new chief executive officer could be announced as early as today, and$1.25 trillion. That figure is a snapshot in time and could improve or worsen, but it illustrates the administration’s dilemma.

New management will be charged with sustaining the improvements already made at Natividad and building on them through the hospital’s long-range strategic plan. At the same time, indications are the new hospital managers and trustees will be confronted with a number of long-range financial, operational and political challenges.

There already are signs the hospital’s finances will be threatened by shrinking revenue and rising costs. The transition to permanent hospital leadership already has been delayed by a controversial proposal to consolidate the county’s health care system. And there are suggestions that key long-range improvements at the hospital already have started
to lag.

Carrying the ball                   

Supervisor Dave Potter, chairman of the current Natividad board, said the central issue is whether the hospital’s new leadership will be able to sustain the momentum created by the consultants.

“Is this a ball that can be picked up and carried by the next managers?” Potter said. “I think everyone’s concerned about a change in management that leads to regression. But I don’t think that’s going to happen.”

Supervisor Lou Calcagno said putting strong leadership in place at Natividad is essential. Calcagno said the hospital could otherwise get swallowed up by county politics and government inefficiencies.

“The concern is government will go back to the way it was before, as it has in the past,” Calcagno said.

Critics have suggested Natividad’s turnaround may not be sustainable, and they’re concerned the consultants and their interim managers have so integrated themselves into the hospital’s operations that the gains made will lapse when they leave.

But current CEO Bill Foley said he is confident, and considers the hospital’s future success a part of the consultants’ legacy. He said they are recruiting top-level administrators and managers to keep their initiatives on target.

Rising health care costs       

Natividad’s new leadership will immediately be confronted by the rising tide of health care costs, which is expected to disproportionately affect public hospitals like Natividad.

The hospital’s interim chief financial officer, Harry Weis, a consultant from Huron, said the cost of health care in the U.S. is expected to double to $4 trillion per year by 2016. Weis’s projections show that the hospital’s revenue will slow in the 2008-09 fiscal year to about $5.2 million after a surge of $40 million during the two-year period from 2005-06 to 2007-08.

Weis said the consultants have tapped one-time revenue sources, such as Medicare appeals. And the spike in commercial insurance revenue over the past few years because of renegotiated contracts and a rise in the numbers of privately insured patients at the hospital, is showing signs of leveling off.

Weis said the hospital’s rising costs of treating the uninsured and underinsured is outpacing the rise in commercial insurance revenue.

In 2008-09, Weis said the hospital expects to provide about $18.9 million in charity care to the poor, which will not be reimbursed, an increase from $12 million from last fiscal year.

“That’s a pretty profound uptick,” he said. “It shows the poor are truly becoming poorer.”

Natividad treats 80 percent of the county’s uninsured, he said, and government reimbursements are expected to continue shrinking. Weis said it will cost the hospital $8 million more this fiscal year to provide care to patients covered by government programs, such as Medicare, although the percentage of those patients — called the underinsured — is dropping.

More than 63 percent of the hospital’s patients will pay through either Medicare or Medi-Cal in 2008-09, according to Weis’ projections, a decrease from about 68 percent in 2007-08 and more than 71 percent in 2005-06.

What’s the plan?                   

The hospital’s long-range strategic plan is expected to serve as a blueprint to allow Natividad to remain viable and competitive after the consultants are gone. It addresses a wide range of goals in patient care and quality and professional staff development.

Most of those improvement initiatives have been lauded by the staff, with the notable exception of the realignment proposal, which includes the controversial merger of the county’s health care system, starting with the hospital and county primary health clinics.

Regarded as a key element of the strategic plan, the merger has been touted by the consultants, the hospital board and most Natividad officials and medical staff as the best option for aligning the county’s health care system and preparing it to face tough economic times.

Under the original proposal, the merger would be implemented by the consultants and overseen by the hospital CEO. But the merger has drawn heavy opposition, mostly from the county Health Department and its allies, who argue that it’s an overly aggressive proposal designed primarily to benefit the hospital at the possible expense of the county health clinics and other Health Department services.

Supporters say the consultants have no personal or political stake in the merger and merely believe it is the best opportunity to provide the best possible access to care for the county’s patients through a fully integrated system.

Dr. Jeff Bass, director of Natividad’s emergency department, said the merger is the county’s “best opportunity to coalesce all the money under one umbrella,” which will provide the necessary flexibility to deal with future fiscal challenges.

But county Health Department director Len Foster, who opposes the merger, said the consultants have pushed the proposal without a comprehensive plan or full consideration of the consequences, and have largely left Health Department officials and their allies out of the process. Foster and others have argued that true collaboration between the hospital and county Health Department would make any reorganization unnecessary.

Opponents say the consultants have no public health care expertise and are on their way out anyway, leaving the county holding the bag if the merger doesn’t work.

Making the merger work     

Pat Butcher, director of the hospital’s specialty clinics, said she supports the merger but understands opponents’ concerns, saying it was just four years ago that the county’s primary health clinics were separated from Natividad when the hospital was struggling financially.

“It really doesn’t make sense for so many separate groups to be working on the same medical issues,” Butcher said. “But the clinic folks have valid concerns.

They want to see proof that (the merger) works. We’ve all been down this road before.”

After months of discussion, and little agreement, supervisors in December decided to figure out a way to integrate the hospital and the county health clinics. They assigned Foster, Bill Foley, County Administrative Officer Lew Bauman and Supervisor Simon Salinas to develop a plan to establish consistent guidelines for the merger. That plan is expected in the next few months.

Hiring postponed                   

A new Natividad CEO was supposed to be in place last summer, followed closely by a group of top managers. But county and hospital officials chose to postpone the hiring process until a decision on the merger was made, reasoning that the new hospital administrator might have to take charge of a much-larger, integrated system.

Salinas said he’s worried that forcing the hospital and health department clinics together could poison the waters for the hospital’s next administrator.

“I think we do a disservice to the new (Natividad) CEO if we create a situation with lots of political turmoil,” Salinas said.

Ultimately, the key question may be whether Natividad’s new administrators will be afforded the same leeway to deal with the hospital’s challenges that the consultants have had for the most part. Potter said the board will have to be committed to sticking with the strategic plan, even if some aspects of it, such as the merger, are unpopular. He said the board will need to be willing to continue investing in the hospital, including every- thing from salaries to infrastructure, if it is to succeed.

Dr. Gary Gray, Natividad’s chief of staff, said the hospital has made huge strides since the days not so long ago when it appeared the hospital was in serious trouble. But there’s still a long way to go, he added.

“That was an all-time low for many of us (in 2006),” Gray said. “We lost a lot of credibility. It’s been a slow road back. We have to be aware that things haven’t changed that much. There are no guarantees. Even under the best management things could still go wrong.”