Board meetings for the Mendocino Coast District Hospital are usually pretty dismal affairs. The facility in Fort Bragg, California, has been running at a deficit for a decade, and barely survived a recent bankruptcy. But finally, this September, the report from the finance committee wasn’t terrible.
“This is probably the first good news that I’ve experienced since I’ve been here,” said Bill Rohr, a doctor at the hospital for 11 years. “This is the first black ink that I’ve seen at the end of the month in quite some time.”
The committee erupted into applause, even a few cheers. But the joy was short-lived. By the next month, the hospital was back in the red.
Things first started going badly for the hospital in 2002, when the lumber mill in Fort Bragg closed down. People lost their jobs -- and their health insurance, which paid good rates to the hospital. Today, about 7,000 people are left in the blue-collar town, and the economy is propped up by tourists who come to the rugged Mendocino coastline to hike or fish. Visiting the hospital does not usually make it onto their itinerary.
By 2012, the hospital declared bankruptcy. Now it’s barely hanging on. And some locals are worried that the only hospital in the area might close for good.
“Nobody can live here without that hospital,” says Sue Gibson, 78, a Mendocino resident. “I mean the nearest hospital is an hour and a half away on treacherous mountain roads.”
It’s not only her family’s and the community’s health that Gibson is concerned about. She’s afraid the local economy would be wrecked. The hospital is the largest employer.
“It has probably the best-paying jobs, and if they close that, all of that income would go away,” she says.
That means less money spread around to the local bait shops and seafood restaurants.
Also, Gibson says, people's property values would plummet.
Across the country, rural communities share similar fears. Small rural hospitals everywhere have been struggling to survive. Many people who live in these areas are older or low income -- not a great customer base for a hospital to make good money.
The government used to pay these small critical access hospitals extra to account for that. Medicare reimbursed them 101 percent of their reasonable costs. But after the recession, the government trimmed payments down to 99 percent of costs. Medicaid pays much less, sometimes just half the cost of providing the care.
At the Mendocino Coast Hospital, more than 80 percent of patients are covered by Medicare or Medicaid.
“The general health care reimbursement environment is to do more with less,” says Bob Edwards, the hospital’s CEO. “And I would even go as far to say, it’s a starvation model.”
Plus, the government excludes a lot of expenses from its cost calculation, says Wade Sturgeon, CFO, like doctors’ fees or janitorial services. Medicare basically tells the hospital what it will pay.
“So it’d be like going in to Safeway and saying, ‘Hey, there’s a jug of milk. I really want that jug of milk, I’ll give you $2,’ ” Sturgeon explains. “But the price says $3.50. 'You’re only going to get $2.' Often times, that’s what happens to us.”
So, many hospitals that never had to worry about controlling costs -- now they do. They have to learn to compete in an open market, just like other hospitals, just like many other profit-driven businesses.
Some hospitals have planned ahead and adapted. Down the long winding road from Fort Bragg, the Frank R. Howard Memorial Hospital in Willits just finished a $64 million renovation, complete with modern technology and a full organic garden that supplies the hospital cafeteria.
But some hospitals haven’t adapted. In the last five years, 57 rural hospitals in the United States have closed, according to data from the Rural Health Research Program at the University of North Carolina. Others have declared bankruptcy, like the Mendocino Coast District Hospital.
Battles Over How to Keep Hospital Afloat
The financial failure led to a lot of finger-pointing in this small town. Administrators blame the policy changes and payment reforms. Some doctors blame the administrators.
“It was economic mismanagement, to put a single label over all these things,” says Dr. Peter Glusker, a neurologist based in Fort Bragg for 37 years. “Because of people who just didn’t know any better.”
The public hospital is governed by a five-member board of directors, elected from and by the community. Glusker says some past directors knew nothing about finance or nothing about health care. Some just stopped caring.
So he and another doctor ran their own campaign, promising to shake things up on the board and change things. They were elected last year.
“There’s a segment of the population that says, ‘Oh good, it’s about bloody time,’ ” Glusker says. “But there’s another segment of the population, in the institution, that says, ‘Hey, you’re rocking the boat and this is bad.’ ”
Glusker’s running mate and ally on the board is Dr. Bill Rohr, a steely orthopedist with long gray hair tied back in a tight ponytail. He spent many years in the corporate world and vowed to bring the kind of financial discipline he learned there to the tiny public hospital in Fort Bragg. A lot of people are afraid of him.
“Look, this is not about being ruthless,” he says. “It’s about keeping this business alive, and it’s only alive if it makes money, OK.”
A lot of his sentences are punctuated like this, with a sometimes impatient “OK,” which seems aimed at making sure you don’t miss his point. Like when he’s giving a presentation at a finance committee meeting, staring daggers down at the CEO.
“We keep saying $870,000 loss. Not acceptable, OK.”
The current CEO, Bob Edwards, has been on the job six months. He’s the hospital’s fourth chief executive in a year. His right-hand man is Wade Sturgeon, the brand-new CFO, who started in September.
On days the financial committee meets, Sturgeon wears a mint-green shirt and a tie with a $100 bill on it. He says things like, “Do the math.”
Right now, the hospital administrators and the doctors on the board are pitted against each other in a battle over how to keep the hospital doors open -– a battle that is echoed at small hospitals across the nation.
CFO Sturgeon and CEO Edwards say the hospital should focus on increasing revenues. It should find more patients to come to the hospital, maybe develop new services to attract then.
“If you’re not growing, you’re dying,” Sturgeon says.
He says the hospital should also charge more money for services provided to patients who have private insurance -- currently about 15 percent of the hospital’s patients.
“Anytime we don’t raise prices, we’re leaving money on the table,” he says.
But Rohr says that would put an unfair burden on the small business owners in town, the ones who typically buy their own private insurance.
He and Glusker say the hospital should be focused on controlling costs.
“It’s obviously an expense problem,” Rohr says. "And you can come to that conclusion very quickly, just by looking at the data."
He says the hospital is going to have to make some very difficult decisions to balance its budget. He offers this analogy:
“There’s 20 people in the water about to drown. And there’s a rowboat there, but the rowboat can only hold 10,” he says. “If 11 people get in that rowboat, it sinks and all die, OK.”
At the hospital, this means choosing between a cardiologist and an ophthalmologist, a cafeteria and a new X-ray machine.
“It’s horrible to make the decision that 10 are going to drown,” he says. “But I’ve got to pick the 10. OK.”
One area Rohr thinks could be ripe for trimming? Administrative positions.
“I walk into the hospital to do rounds in the morning, and there’s more people standing around with clipboards than with stethoscopes, and that doesn't feel like the right formula to me,” he says.
But CFO Sturgeon says there’s not enough management.
“Physicians always think there’s too much management,” he says. “You have some people with 50 direct reports. Does that make sense?”
There are some cuts both sides agree on. All say there needs to be some serious culling of the health benefits for hospital staff. Years ago, the nurses union negotiated to have the hospital pay full health benefits for any full-time or part-time nurse and their entire families. Nurses pay nothing toward their monthly premiums.
“Do the math. How many people are we paying for to have full family coverage?” Sturgeon says. “I’ve never worked in a hospital that provided the type of health insurance benefits that we have at this facility.”
Meanwhile, Need for New Hospital
To understand exactly how dire the financial situation is, one need only walk into the lobby of the hospital itself. It’s like stepping back into 1971. The main patient floor is lined with drab brown carpets. The smell of Salisbury steak spills out of patient rooms.
“I’ve been in Third World countries. This is pretty basic, OK,” Rohr says, walking by the operating suite.
Through the maternity ward and the emergency room, Rohr says the flooring is layered with asbestos. The concrete isn’t strong enough to hold the weight of modern-day CAT scanners and MRI machines. On top of all that, in 2030 new state requirements kick in for earthquake readiness. It all points to one conclusion.
“We’re going to have to build a new hospital,” Rohr says.
So, not only is the hospital struggling to maintain a balanced budget through normal hospital operations, it also has to come up with tens of millions of dollars to replace itself in 15 years.
It's an especially tall order for a hospital that just posted its first monthly profit in a decade, then slipped into the red again right away.
If you ask the Washington policymakers in charge of payment reform, some will say it’s just a harsh reality that some hospitals will have to close. Some previous local administrators have predicted that the Fort Bragg hospital will one day be replaced by a helicopter landing pad. People will be airlifted out for heart attacks and other emergencies. For other planned surgeries, like hip replacements, people will have to drive “over the hill” to another hospital.
But the people who live in Fort Bragg and Mendocino don’t like that scenario. Sue Gibson has been hosting community meetings in her living room, where people spread out on the pink Victorian sofas to talk about how to save the hospital.
She’s rallying support for a possible solution to the hospital’s financial woes, and it’s one the administrators and doctors are united around: a new tax on homeowners. Local residents will likely vote on it in November 2016.
“The only way we're going to be able to save this place, really, is with a parcel tax,” she says. “But they can't even think about that until they clean up their act.”
After the Wall Street meltdown, banks were too big to fail. The feeling here is that the local hospital is too important to fail. And the residents will be tapped to fund the bailout.