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.
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.