Faced with continuing operational losses, the board of Mendocino Coast District Hospital has asked five hospital operators, including Sutter Health and Adventist Health, to take a look at buying or partnering with a facility that serves 23,500 residents along a 70-mile stretch of California’s North Coast.
“Small standalone rural hospitals across America, across California, are struggling and having difficult financial times, and that’s only going to get worse,” said Wayne Allen, the interim chief executive officer at Mendocino Coast District Hospital . “We have maybe the opportunity – maybe – to affiliate with a larger, multi-hospital system, and so the timing is right to test the market and see whether there are interested parties.”
Allen said Tuesday that he is going to seek board approval for revisions in the request for proposal that he sent out to potential suitors. He would like to extend the deadline for responses to May 17 from May 10, he said, and he wants to make it clear that any offers will become public information.
Sacramento-based Sutter said it had received the RFP but had no further comment. Neither Roseville-based Adventist nor Dignity’s parent, CommonSpirit Health, responded to queries about whether they had taken any action. Allen also sent the RFP to Providence St. Joseph Health and Modesto-based American Advanced Management Group. He said he chose these companies because they all have facilities nearby in Northern California.
Like many small, rural hospitals, Allen said, Mendocino Coast gets most of its revenue from Medicare and Medi-Cal, but those two government programs don’t pay enough to cover the total cost of providing care, and it does not receive enough revenue from commercial insurers to make up the gap. A large, integrated health care system often can realize economies of scale that reduce their costs, he said.
Mendocino Coast Hospital District, which runs at an average occupancy rate of about 50 percent, reported operational losses of about $1.1 million in the fiscal year ending June 30, 2017, and roughly $2.4 million in fiscal 2018. In the latter year, physicians’ fees rose by a little more than $1.3 million, a 20 percent increase.
Allen said he did not yet know the reason for the increase but that it can be costly to recruit and retain doctors, nurses and other clinicians in rural areas. He said the hospital district also is looking at the impact of seismic regulations that will require a major capital outlay and negotiating a new contract with the UFCW 8 union that represents all employees except management. That contract expired last June, Allen said, but he hopes to negotiate a new agreement soon.
As the Mendocino hospital’s board of directors sought to stanch the flow of red ink, they released chief executive Bob Edwards from his contract in January and then, earlier this month, brought Allen back to lead the independent medical facility. Allen, in a prior stint as CEO from 2011-14, had led the the hospital through a Chapter 9 bankruptcy reorganization. He also was CEO there from 2006-08.
In the seven-page request for proposal, Allen and the board stated they are “ committed to finding the right lease partner or buyer to ensure that exceptional local health care continues continue to be delivered on the Mendocino Coast and the surrounding area.”
Nationwide, seven rural hospitals have closed this year and 104 have been shuttered since 2010, according to a data tracker maintained by the North Carolina Rural Health Research Program. That list includes Adventist Health Feather River in Paradise, Coalinga Regional Medical Center, Corcoran District Hospital and Kingsburg Medical Center.
A February 2019 report from the Navigant consulting firm found that 21 percent of the nation’s 430 rural hospitals are at high risk of closing if their financial situations don’t improve. Health care industry veterans Daniel DeBenhnke and David Mosley, who authored the report, counted four hospitals in California that were vulnerable for closure, but they did not name them.
Allen said he presided over the closure in Coalinga but that the situation at Mendocino Coast is not so dire right now. In June 2018, the hospital district had a reserve of roughly $7.6 million, according to audited reports, but the hospital has regularly posted monthly operating losses since then.
These financial situations are fluid, Allen said, noting that he’s seen reserves quickly evaporate. In the case of Mendocino Coast, he said, “closure is not an option.”
“We should have a better plan, and that’s what we’re going to achieve,” Allen said. “If all of that fails, closure is a doom and gloom situation for the community. Access to care at the local level is essential, and when you give that up, your community suffers tremendously. We all need health care, and sometimes we need it on an emergency basis, but even if it’s an elective procedure, traveling long distance is not acceptable. When you give up that local access, it cripples a community.”
Allen said he hopes to have a partner or other plan of action ready within three to six months to keep the hospital district afloat. The nearest hospitals to Mendocino Coast are Adventist Health Howard Memorial 36 miles away in Willits and Adventist Health Ukiah Valley about 57 miles away.