Jim Horn is one of five elected members of the governing board of Palm Drive Health Care District

With the demise of its ill-fated drug testing scheme, Sonoma West Medical Center likely will fail by this fall because it can’t generate enough profit to pay its expenses and debts and sustain itself.

Jim Horn headshot

Jim Horn

SWMC needs to pay its loyal vendors and give its dedicated employees 60 days notice that they will be laid off, as required by state law and common decency. The Palm Drive District needs to sell the hospital as a health care facility if possible, but for another use if necessary, so we can reduce our debts and pay our former employees and creditors. Then we can use our remaining parcel tax income to improve our community’s health in more cost-effective and sustainable ways.

The hospital’s failure is no surprise. From 1998 to 2014, Palm Drive Hospital suffered operating losses every year, totaling about $70 million. The district itself is in the fourth year of its second bankruptcy, still without an approved exit plan. Since reopening two and a half years ago as SWMC, the hospital has lost another $23 million, excluding temporary drug testing profits. According to the SWMC controller, assets likely will be exhausted within three months at the current operating loss rate of $800,000 per month.

In addition to its monthly expenses, SWMC owes more than $9 million to employees and vendors and to the government for payroll taxes. And that doesn’t include potential liabilities from Anthem’s $13.5 million claim for allegedly improper drug tests. Moreover, given the physical condition of our 40-year-old hospital, SWMC needs another $12.5 million over the next five years for maintenance and equipment.

Here's the bottom line:  the hospital needs to generate nearly $400,000 profit per month, instead of an $800,000 monthly loss.

Does the $155 annual parcel tax help offset the hospital’s losses? Not anymore. The district owes $28 million for the bankruptcy and bonds it has sold to investors. Currently, nearly 70 percent of parcel tax collections go to repaying that old debt. Even the detached Russian River areas must continue to pay their share until the mid-2030s, at least. Another 20 percent of the parcel tax goes to running the district itself, leaving only about 10 percent to help pay for hospital maintenance. There’s nothing left to cover the hospital’s relentless losses.

As they have for the last 20 years, many hope that new services, more surgeries and better billing and collection will save the day. But no one has done the necessary market studies, business plans or cash flow projections to define and validate these services. And while billing and collection apparently have improved recently, they won’t be nearly enough to sustain the hospital over time.

In a belated effort to save the hospital by selling it, the district has issued an RFP seeking buyers for the hospital. I’ve asked for this since January 2017. Unfortunately, the current RFP limits prospective buyers to operating the building as either a hospital or an undefined “other health care facility.” However, both the district and SWMC admit they’ve been pursuing prospective hospital buyers and operators informally since 2016 without success. I proposed selling the property for other lawful uses as well, but the board majority declined.

Even if we find a buyer and successfully negotiate price and terms, a sale still requires district voter approval in an election that would take three additional months to schedule. A November 2018 vote is a dim possibility, but March 2019 is more likely.

Under any plausible scenario, and absent another Hail Mary, SWMC won’t last that long. If it follows past practice, it will try to stay open by cutting staff, deferring maintenance, delaying payments to frustrated vendors until they refuse to provide goods and services, then finally closing the hospital abruptly and laying off staff without the required 60-day WARN (federal Worker Adjustment and Retraining Notice). That happened in 2014 and nearly happened again in April 2017.

I hope it doesn’t end that way. Instead, SWMC could choose to close in an orderly fashion, using its remaining cash to pay its employees and vendors what it can. And the district can sell the hospital as a health care facility if possible, but for other uses if necessary, and move on to a more sustainable future. That could be the best ending possible for everyone.

(12) comments

EricM

Why is no one ever held accountable?

rottenappleranch

For several years now I've been regretting that I signed on as a member of 35 for Palm Drive and participated in two electoral campaigns to save our local hospital by making it a community-owned facility. The tremendous debt, which i will be helping to pay as a property owner, has grown significantly since the hospital reopened under a new name. All the promised new boutique services, and the highly questionable contract with a Florida drug testing company with a very brief history have only resulted in even more losses and a growing debt local landowners are bound to pay off, unless we choose to follow our President's example of just stiffing the employees, bondholders, and other creditors. if the rest of the hospital board directors won't follow Jim Horn's advice, the I think there's plenty of justification for a Recall Election for malfeasance. It's way way past time for starry-eyed dreaming. Saving our local hospital was always a risky bet. Keeping it open any longer is a failure to serve the public interest.

(Edited by staff.)

wiseman928

Agree! [thumbup][thumbup][thumbup][thumbup][thumbup]

dogandpony

The bankruptcy is really entering its' fifth year without resolution and just think of the employees and vendors who have yet to be paid. Some show up at Board meetings and plea their case to no avail. Yet the Board has just approved a $10,400 raise for the Executive Director along with her retirement package. They also just hired a public relations firm at a high cost. This Board is guilty of malfeasance and should be forced to resign.

wiseman928

Retirement increase [ohmy] !!!.... PR ???? for what!! Unpaid employees of Palm Drive disaster, unpaid bills, bankruptcy....over taxed property owners....how much longer can we homeowners in Sebastopol afford a dying hospital...how much longer can we afford The Board ? [thumbdown]

kaaustin

Thank you Director Horn. I agree with you that the Board should revise the RFP to include any use for the property and they should commence to close down and give the appropriate notice to all. It is a shame but the hospital situation is not unique to Sonoma County. Small local hospitals have closed by the droves all across the country. It is simply no longer a viable business model. Palm Drive helped save my mother from dying of heart failure and treated both my sons as children. I hate to see it go but it's what needs to be done. I wouldn't be surprised if the highest and best use of the property might be assisted living or multifamily. Housing is the most needed project type in Sonoma County and with an aging population, assisted living or a continuum of care is one of the most needed forms. I hope the rest of the board wakes up and does the right thing.

wiseman928

[thumbup][thumbup][thumbup]

Dazer

Thank you, Director Horn, now if your other Directors would wake up and smell the coffee, something might be done to stop this farce. Like it or not the current situation is due to the egos and lack of business acumen of the majority of the people involved in running the business of the District.
The Directors of the District (excluding Mr. Horn) have violated their fiduciary responsibility to the taxpayers and should be forced to resign and allow responsible management to be brought in to close the hospital, protect the employees and taxpayers. The termination of the agreement with SWMC must be done now, not in 90 days but right now or everyone will suffer from their failure to act. We can't wait for the current RFP to be inadequate and then go out for a new RFP that is realistic.

wiseman928

[thumbup][thumbup][thumbup]

dogandpony

Director Horn presents an honest evaluation of the history and current reality regarding the hospital operator and the Palm Drive Health Care District. Will sanity and logic prevail or will the other board members take this district to a tragic demise?

wiseman928

[thumbup][thumbup][thumbup]

Abbott

You should know better than that D&P. Residents of the district should have squashed this a long time ago. But maybe the force behind open our hospital was not going to stop for anything. To what end? Ego? Potential future payoffs? New meds?
I hope someone starts a recall for the three board members who have been at the head of this abomination. They'll probably walk away from it. (With tire marks from being thrown under the bus?)
The Executive Director of the district should be held accountable too.

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