Sonoma Valley Hospital eyes budget cuts

As Sebastopol’s Palm Drive Hospital goes belly-up this week, hospital leaders in Sonoma are sifting through their own budget priorities amid a turbulent health care environment.

“The same dynamics that put a hole in Palm Drive are being felt by hospitals all over. And we’re no different,” said Peter Hohorst, a member of the Sonoma Valley Health Care District board of directors.

“We’re seeing the same loss of revenue that they are,” said Hohorst, who is treasurer of the five-member board. “So what we’re working on is a plan to make sure we’re financially sustainable through next year.”

That plan comes in many phases, and in a sense begins with the strategic plan – which sets out the hospital’s strategic priorities for the coming year – to be discussed by Sonoma Valley Hospital leadership during the regular board meeting this Thursday.

Later in the month, on May 20, hospital leaders plan to hold a study session to preview the coming year’s budget. The district board typically ratifies the budget in June.

Hospital CEO Kelly Mather said that while there are no certainties yet in the coming budget, “The budget assumption is that because of the changes in the revenues on the inpatient side, we’ll need to reduce our expenses by about 10 percent.”

That sounds like a dramatic decrease – but Mather noted that hospital revenues are never static, forcing it to make constant adjustments throughout the year. Therefore, rather than a decreased yearly budget requiring major upheaval and layoffs, “It’s not a huge change because the (hospital’s) departments all are expected to manage to the money coming in every month,” Mather said. These small “flex budget” adjustments mean SVH has already acclimated somewhat to the current conditions.

But what are those current conditions, that appear to have doomed Palm Drive and are taking a big bite out of SVH and other small hospitals?

“Over the last two years, Medicare has made a concerted effort to … reduce inpatient expenses,” Hohorst explained. “And part of what they have done is, they have instituted a three-day rule that basically says, if you’re not in the hospital for more than three days, the hospital won’t be reimbursed for acute care.”

The bottom line, for hospitals like SVH: “If you release them after two days, you don’t get paid for it.”

As a result, Hohorst said, “Over the last six months, hospitals are seeing not a 10 percent decline in revenue from patient care, but a 30 percent decline.”

This turned out to be the last straw for long-troubled Palm Drive, Sonoma County’s smallest hospital. Last week, its district board, facing a debt of nearly $7 million, voted to close all operations and file for bankruptcy.

Nothing so dire is in Sonoma Valley’s future, Mather said. But measures must be taken to assure it doesn’t amass its own insurmountable debt.

Mather said that besides the decline in inpatient numbers, “technology has been a factor” in reduced hospital revenues. Also, she said, “The insurance companies are more apt to focus on keeping patients out of the hospital” – another factor hurting the bottom line of small hospitals such as Palm Drive and Sonoma Valley.

Hohorst elaborated on that, pointing out that larger hospitals have more clout, and can push back against huge health insurance companies like Blue Shield. “The little guys can’t do that. And there’s no requirement that says the insurance companies have to pay everybody equally,” he said.

Changes in the health care rules have been slowly implemented over the past few years, “But it really impacted this area, it seems like, the last six months or so,” Hohorst said.

Mather said it was too early to know all the adjustments in SVH’s future. But she felt certain of one thing: “Our physician expenses are going to be reduced. That’s probably the focus right now. They’re good partners, they understand. And then they have less responsibility because the inpatients are coming down.”

As for the hospital’s obstetrics unit, the fate of which seemed uncertain a few months ago, “I’m budgeting to keep OB at this time,” Mather said. The board is continuing to watch its progress and will revisit that discussion in the fall, she said.

There are reasons for optimism, too. For example, Hohorst said, SVH’s brand-new operating suite is exceeding expectations, with 159 procedures in March, its first full month of operation.

“The number of surgeries we performed is the highest it’s been in – as far back as I can remember,” Hohorst said. The hospital’s Finance Committee discussed these numbers during a monthly financial summary delivered Monday night.

Mather also expressed optimism, saying that despite the challenges small hospitals continue to face, at SVH, “We’ll always be financially viable.”

The upcoming regular meeting of the Sonoma Valley Health Care District board of directors will be held at 6 p.m. Thursday, May 1, in the Community Meeting Room, 177 First St. W.