Hospital board holds off on budget
Alameda Hospital will start its fiscal year without a new budget on July 1 as its governing board seeks a clearer picture of the struggling hospital’s finances for what are expected to be six more difficult months – and for the better months hospital managers believe lay beyond.
“The bottom line is, as we kind of anticipated, the first six months of this new fiscal year are going to be challenging,” Chief Financial Officer Kerry Easthope said.
Board members said on June 6 that they want a better idea of how management will steer the hospital through additional losses projected in the months to come, particularly in light of the $800,000 or more in capital expenses hospital managers expect to face during those months, which weren’t figured into the budget. They are expected to consider approving a budget at their July meeting.
As the year progresses, some said they will also want a detailed accounting of the impacts of three new programs hospital managers are initiating in an effort to turn the financially troubled hospital around. Generally speaking, hospital managers believe the programs will increase the hospital’s net revenues by $17.2 million, or 23.7 percent.
The programs – a lease of the 120-bed Waters Edge nursing home, a new wound care center at Marina Village and an orthopedics program – are expected to help the hospital earn $682,000 in 2013 from total net revenues of about $76 million, budget documents presented to the board showed. Without them, the hospital would lose a projected $1.55 million, the documents showed.
“Without new programs, new revenue, this hospital is in a same state that does not make it, basically,” Chief Executive Officer Deborah E. Stebbins said.
The hospital is facing an anticipated $1.3 million loss this year, the latest loss in a string that have plagued the hospital even after voters approved a $298 a year parcel tax in 2002 to keep its doors open. The hospital had just a few days’ cash on hand to pay bills before a fresh parcel tax installment arrived in April, and its vendors still wait an average of 140 days to be paid, even after the hospital took $750,000 out of a line of credit the hospital has with the Bank of Alameda.
“We’re already on the precipice in terms of vendor relationships at that level,” Stebbins said.
Hospital managers are putting the new programs in place in an effort to draw more paying customers, which they anticipate will put the hospital in the black for the first time since a last-minute Medi-Cal contract put them over the edge in 2010 and the loss of the Kaiser surgical contract, which contributed $10 million a year. But the new programs are coming online much more slowly than planned.
As a result, the board okayed a plan to take a loan against a pair of properties the hospital owns in order to give them a short-term cash infusion to tide the hospital over until it receives its next parcel tax installment in December. More than half of the money from the anticipated $1.4 million Bank of Alameda loan would be used to pay off the hospital’s existing line of credit with the bank, leaving the hospital $650,000 to pay bills.
The 10-year loan will cost the hospital $8,200 a month. It earns $10,000 a month in rent from the properties, Easthope said.
But some board members questioned whether that would be enough to cover required seismic and sprinkler work that must be performed over the next several months.
“I don’t see how this works,” board member Elliott Gorelick said.
All told, Easthope laid out a $1.47 million capital budget for 2013. He said hospital managers could seek funding for some of the projects from the hospital’s foundation and auxiliary.
The wound care clinic is expected to open on June 25 and hospital managers are now hoping to take control of Water’s Edge by July 1. A pair of new orthopedic surgeons is expected to start work on October 1. Those programs will need a few months to ramp up to a point where they are profitable, hospital managers said.
In addition to allowing management to pursue the bank loan, the board was set to consider a resolution granting spending authority to hospital managers in the absence of the budget – a resolution that at least one board member said he hadn’t see before the meeting – but scrapped it after the hospital district’s legal counsel, Thomas Driscoll, said the hospital wasn’t legally required to have a new budget to start its fiscal year.
Board members also voted 3-1 to assess the health care district’s parcel tax this year, with Gorelick – who has advocated shuttering the hospital – voting against the assessment and Robert Deutsch abstaining from the vote.
Deutsch, who abstained, had been the subject of a complaint to the state’s Fair Political Practices Commission for his prior vote to approve the tax assessment because he has a contract with the hospital but was recently cleared. Still, he said he wanted to avoid even the appearance of impropriety.
“I find it difficult, since I have been pessimistic in some ways about the district and its finances, to assess the nature of the change that’s happened in the last year because it’s tracked my expectations. But it seems to me we need a new direction that’s not, at least at this time, offered by the new revenue opportunities presented in the last year and offered in tonight’s budget narrative,” Gorelick said. “And the imposition of the parcel tax on the property holders of Alameda without a better plan is not appropriate.”
But board members who supported continuing to assess the tax said they are hopeful that better times are ahead.
“We are in a pretty critical period of time. Without this parcel tax, the hospital will have to close. And I see a bright light at the end of the tunnel,” Board member Stewart Chen said. “We have several positives in terms of programs and revenue generating initiatives. I think it’s important to continue this parcel tax to see if the hospital can eventually turn around.”