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March 30, 2023

Hospital’s ailing prospects boosted by news from feds

Hazel Hawkins Memorial Hospital received news this week from the federal government that could save the local healthcare district from a dire financial situation, top officials informed San Benito Live.

Hospital officials received a letter early this week announcing the local healthcare district passed its most daunting hurdle toward a long-sought designation as a “critical access” facility — which would save the financially strapped healthcare district millions of dollars annually.

Gaining the critical access designation from the Centers for Medicare and Medicaid Services would mean the Hollister hospital would receive full reimbursement from the federal government for those publicly funded services. Hospital leaders said if the change is ultimately approved, it would amount to $3 million to $4 million annually in additional revenue, which would all but wipe out the current structural deficit on the books.

Hospital CEO Ken Underwood said the federal agency accepted the first and most daunting part of Hazel Hawkins’ proposal to become a critical access facility. The designation given to rural facilities requires they are at least 15 miles from the nearest hospital and maintain a license for 25 or fewer beds.

“This is monumental as far as the district, as far as healthcare in the community,” Underwood told San Benito Live. “Having cost-based reimbursement for Medicare allows us to continue to increase services.”

“This is monumental as far as the district, as far as healthcare in the community,” Underwood told San Benito Live. “Having cost-based reimbursement for Medicare allows us to continue to increase services.”

That’s quite a change in outlook from days ago for Hazel Hawkins Memorial Hospital. Just last Friday, the healthcare district announced Salinas Valley Memorial Hospital had declined a proposal to formally partner as a means to improve the San Benito Health Care District’s dire, structural budget deficits. With the news about a potential critical access designation, the pursuit of a collaborative partner is indefinitely on hold, officials said.

“All indications are, we will be approved,” Underwood said about critical access. “That is significant because it allows us the financial resources to sustain the district for many years.”

Continued money problems prompted the local hospital to seek out a collaborative partner this year and spurred speculation in the community on everything from bankruptcy to a closure or sale for Hazel Hawkins.

Some of the most significant problems causing the imbalanced budget were the drop in patients staying at the hospital, continually decreasing reimbursements from the feds, and rising healthcare costs.

Going forward, in order to receive the critical access designation and get the budget back on track, the hospital would need to alter its license for inpatient services from 49 beds to 25 or fewer beds and show its standing as a rural facility, Chief Financial Officer Mark Robinson said in an interview.

Neither of those remaining tasks should be a problem since the San Benito County hospital has been averaging between 16 and 17 patients on a daily basis in recent years due to staggering increases in outpatient services. A consultant has advised hospital officials the rural aspect is not an issue.

With fewer and fewer patients actually staying at the hospital, the distance qualification had been the biggest challenge. Hazel Hawkins, it turns out, barely qualified for the distance requirement because it’s 15.2 miles from Saint Louise Regional Hospital in Gilroy, or just over the 15-mile minimum, hospital officials said.

Looking ahead, hospital officials expect the change to a critical access facility will take about six months and they said it must happen before the new fiscal year next July. Underwood didn’t see any potential holdups, political or otherwise, standing in the way. He said the board just needs to approve the decrease in beds and send it to the state.

“All we’re doing is changing a designation,” he said. “It doesn’t change the services we provide.”

Underwood did underscore that alterations to state and federal laws are always unpredictable in a sense, but that’s always an issue in healthcare. He noted how a few months back, for instance, the hospital received word of a decrease to its skilled-nursing rates.

“We’re subject to legislative changes that would reduce our reimbursement,” he said.

For now, though, the future looks brighter than it did last week. Theoretically, with the current inpatient numbers, the hospital could grow by 50 percent and still meet the critical access designation. He also expects the outpatient numbers — 150,000 annual visits to those centers — to continually grow.

As for the specific finances this year, the hospital was looking at about a $2.5 million deficit, Robinson said. Compare that with net patient revenues cited by hospital officials earlier this year of around $110 million.

The change in reimbursement rates from the Centers for Medicare and Medicaid Services would play a significant role because Medicare historically provides the lowest reimbursement rate of any payers, and about 75 percent of local patients use Medicare or Medi-Cal, officials said. Medicare, in particular, is a continually growing proportion of the hospital’s patient base. Nationwide, local officials said, hospitals are reimbursed between 10 percent to 15 percent less than costs for such services.

With the financial storm brewing for years, the healthcare district has sought avenues to fix the structural deficit such as the idea for a formal collaboration with another hospital and the critical access designation.

While proving the distance requirement has been a major holdup, the hospital’s inpatient numbers have especially dropped in the past five years. Before that, Hazel Hawkins did not meet the 25-bed threshold to qualify, Robinson said.

Getting word of approval on the distance requirement was a major relief, especially in light of Salinas Valley Memorial Hospital’s letter dated Sept. 20 informing Hazel Hawkins officials it would decline the proposed partnership after months of examination. Local district leaders announced in the spring they were seeking a formal partner and that they entered exclusive talks with Salinas Valley Memorial in late April.

“We regret that there is not a more favorable environment in which to explore collaborative options between the two local health care districts,” wrote Salinas Valley Memorial CEO Pete Delgado in the letter.

Underwood chalked the decision up to bad timing for the neighboring district.

“So in our opinion, it’s just a matter of really, the timing wasn’t really good,” he said.

He also responded to speculation about the Hollister hospital’s prospects.

“The board has never indicated any interest from the beginning in selling or leasing the hospital,” he said. “Having a partner that would improve local access and improve services in the community has always been the No. 1 priority in this search.”

-Kollin Kosmicki

Below is an interview from May with Hazel Hawkins CEO Ken Underwood and CFO Mark Robinson: