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May 31, 2023

Q&A: Hospital executives explain financial problems

In light of Hazel Hawkins Memorial Hospital considering an affiliation with a larger district, due to financial problems, the district’s CEO Ken Underwood and Chief Financial Officer Mark Robinson sat down with San Benito Live to explain the situation. Hazel Hawkins recently announced its board agreed to enter into exclusive negotiations with Salinas Valley Memorial Hospital for a potential affiliation. Below the Q&A, you can also see a special video report from a town hall on the subject held by the hospital last week.

San Benito Live: What are we looking at per year on the losses?

Chief Financial Officer Mark Robinson: This year we’re looking at losing $3.5-$4 million because we just don’t have the volume. Those three patient days is $2 million to $3 million that just doesn’t exist, so cutting expenses, even in the hundreds of thousands of dollars, for a million-dollar problem, just doesn’t add up. That’s why we’re looking at partnering. How can we do bigger things, because the trend in healthcare is that we’re going to have less and less patients.

Chief Executive Officer Ken Underwood: We have approximately $110 million of net patient revenue annually. So as we see, the decline in inpatient volume netting about $2 million to $3 million less revenue for us annually, and our expenses go up 2-3 percent annually, as expenses are going up $2-3 million a year, we’re not getting any increases from any of our payers. And our inpatient volume is resulting in a $2.3 million loss in revenue compared to prior years. We’ve not had those type of indicates since we’ve been here. That inpatient volume loss is consistent with elsewhere in the country. We’ve been tracking that volume loss from a little over a year now.

San Benito Live: You’re technically a public institution. Normally you would go and make cuts. What you’re saying is you can’t just do that to the level of the dollars we’re talking about?

Robinson: That’s correct. We’re working on cutting expenses where we can but we can’t do it to the level of millions of dollars. As I mentioned earlier in the evening, last year’s average daily census of 16.8 is now down to 16.3 and will probably end up under 16 because May and June, the summer months, we see even less patients. So I’m expecting that number to go down.

San Benito Live: What’s the main impact on the patients from an affiliation?

Underwood: We would focus on sustainability and improvements in quality and improvements in access. Really what that translates to, smaller organizations, rural organizations, are looking to larger organizations, to give them access to better contracts, better leverage with the commercial payers. There are no guarantees that anything can happen. But any sort of collaborative effort with a larger organization would benefit the district financially through either better contracts or better purchasing as Mark had indicated. For routine follow-ups and for routine processes, the larger organizations are providing a better model that we can provide in some of those cases. The average patient will benefit when we have better resources and better sustainability from being part of a larger organization.

San Benito Live: What’s the core cause of this outpatient trend?

Underwood: We’ve noticed that trend for four to five years nationwide. Pharmaceuticals are keeping patients out of the hospital. Laparoscopic surgeries, many surgeries you were admitted two or three years ago, are now outpatient. There are many places in L.A. that are doing hip replacements on an outpatient basis. As the procedures are improved and care is improved, the whole purpose with the improvements in care is to provide better outcomes, better experience and more efficient care. The reimbursements for outpatient is a lot less than for inpatient. So as our numbers show, we have a 30 percent increase in E.R. visits and a 10 percent decline to E.R. admissions. Surgery procedures, we’re up in surgeries but we’re down in admissions from surgery. Those trends are going to continue. It’s an indication we’re doing our job, which is provide better outcomes. By doing a better job, small rural hospitals, we don’t have that growth in tertiary services. You’re going to continue to have heart disease, continue to have neurosurgical complications. We don’t provide those services here. We’re more of a general medical facility.

San Benito Live: The baby boomer factor — just essentially, the big number of patients you are getting, you’re getting less revenue from them essentially?

Robinson: Yes, per capita. Normally when you have someone with pneumonia, the elderly, the over 65, as that population is getting sicker and becoming a larger percentage of the admissions, they’re being paid less and less. The government wants to cap their spending on the Medicare population. You can see frustration. I paid through my paycheck through Medicare my entire life. Once I reach 65, I expect to be taken care of. The government realized they don’t have the money for that. You hear a lot: Medicare is running out of money at a certain point in time, so they’re starting to pay less for the cost of care. Because they’ve already taken in, over someone’s lifetime, a set amount of money, but the cost of care has grown faster. But the sheer number of baby boomers, I think there are 60 or 70 million of them, they’re going to be sick for 30 years. Years ago, the government expects that when you’re the Medicare or Medical population, that the commercial insurance will make up the difference. But the insurance companies, they became wise to that and decided, you know, instead of making up that difference, we’re actually going to try to negotiate a rate closer to the government. So if you’re going to take that rate from Medicare or Medical, you might as well take it from us. And we do have pressures on our expenses. They’re just growing each year. I mentioned earlier, as any school district or county, we have a huge pension to fund. It didn’t start out that way, but in 2015 there was an accounting change that basically doubled the cost of our pension.

San Benito Live: Is there a possibility that if there’s no affiliation that we could look at a closure at some point? How far are we off from that financially?

Robinson: That’s a hard question. Last month we had almost 18 patients and we did well. We did a little better than breaking even, but if I was going to have six months of 13 patients, well that window gets closer on how long we’re going to stay independent. So, it’s just too hard to answer at this point because there are so many variables, so many factors that go into it.

Underwood: It’s hard to define, even for me, the movement to value-based care. There is a shifting in major metropolitan areas for certain programs where you’re reimbursed a fee, a consolidated fee, or a case fee, for procedures. So you’re provided additional funding from the health plans if you’re outcomes are better than organizations where you provide certain procedures and the patient comes back to the E.R.

To watch a news report on the second of two town halls on this subject, see below: