Sonoma Valley Hospital turns around finances

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Through a series of cost-cutting measures – including the controversial closure of its obstetrics department – Sonoma Valley Health Care District officials announced this week that Sonoma Valley Hospital is near the break-even point.

“I’m pleased to report that the hospital is likely to have its best year financially in a long time,” said Joshua Rymer, chair of the Health Care District board of the directors in a statement. “The board received a financial update at the June meeting and the indications are that we will end the current fiscal year on June 30 at, or close to, break-even for net income.”

Rymer described the result as “a dramatic shift” from last year when the hospital ended the year with a net loss of more than $3.3 million.

Last year Sonoma Valley Hospital took a close look at its operations and finances and determined that hard decisions needed to be made, said Kelly Mather, CEO of the hospital.

The first move was announced in July of 2018: to close the obstetrics department. Prospects of losing the birthing center angered some community members, but Mather and the board maintained that the department was losing money due to lack of volume. The hospital’s birthing center closed for good in October.

“A year ago we knew it was imperative to reinvent the hospital in order to ensure our viability for the future. We faced the challenge head on throughout this fiscal year and we are very pleased with the final results in fiscal year 2019,” Mather said. “Due to making the necessary changes in our services and structure, the hospital is now in a strong position and we are very optimistic about our future.”

It’s a trend that Jan Emerson-Shea, vice president of external affairs for the California Hospital Association, said is happening across the state and the country.

“The delivery of care is definitely changing, and with that are some of the services that hospitals provide and how they provide it may change,” Emerson-Shea said.

As part of that reinvention Sonoma Valley Hospital transferred its skilled home health care service – called Healing at Home – to Hospice By the Bay last October, and its Skilled Nursing Facility, another department that was losing money, will be outsourced for management by Ensign Group, a national operator of skilled nursing facilities, starting July 1.

“SVH will receive revenue from Ensign both through a revenue-sharing agreement and by providing medical and operations services to Ensign,” Rymer said in a statement.

Trends for small hospitals are moving in the direction in which SVH tends to operate now, said Jeff Burnich, chief physician enterprise executive with Canopy Health, a medical alliance health care group that partners with the hospital.

Some of those trends, Burnich said, are fewer inpatient services, shorter hospital stays and more outpatient services. More surgeries such as knee and hip replacements are being conducted in ambulatory surgery centers instead of hospitals such as Sonoma Valley Hospital. The payer mix is another area affecting hospitals, he said.

“Payer mix means that there’s more federally insured – MediCal, Medicaid, Medicare – patients that are in hospitals. Those aren’t the best reimbursements compared to commercially insured patients,” Burnich said.

Government reimbursements are lower than commercial insurers, Emerson-Shea said. Typically Medicare pays 83 cents on the dollar and MediCal pays 78 cents on the dollar, she said.

For every MediCal or Medicare patient a hospital treats “they’re losing money,” Emerson-Shea said.

Hospitals are more expensive to operate than a clinic because hospitals are open “24/7” whereas a clinic might be open from 8 a.m. to 8 p.m., she said.

Reimbursements have been going down and the number of insured patients is dropping as well, Burnich said. For hospitals that are providing care for patients who don’t have intensive needs, such as someone who is on dialysis, Burnich said it’s possible for a hospital to “do OK” with a largely federally-insured payer mix. Sonoma Valley Hospital receives 76 percent of its payments from Medicare and MediCal combined, 19 percent from commercial insurers, 2 percent from Worker’s Compensation, and 3 percent from other sources, according to hospital officials.

“We’re about 10 years ahead of where other hospitals are going to be and that’s the reality,” said Mather. “So, we can all want commercial payer mix to be there, it’s not reality. We’re showing you how hospitals can make it by having a very efficient cost structure, which we manage under the Medicare payment.”

Mather released in May a rolling three-year strategy called “Vision 2020 and Beyond” that includes four core initiatives that support the hospital’s reinvention plan. They include exceeding the community’s expectations in emergency services; creating a UCSF health outpatient diagnostic center; improving from the current Medicare 4 Star rating to become a 5 Star hospital; and expanding the pool of physicians to provide a broader access of specialists to patients.

The hospital is working closely with its partner UCSF on bringing even more UCSF physicians and specialists to Sonoma Valley, Mather said. They continue to work together in the telemedicine field and strive to be seen as an extension of UCSF Health, she said.

And late last year, the hospital embarked on a $20 million capital campaign to fund a new outpatient diagnostic center.

Emerson-Shea said hospitals are redefining what services they provide as demographics shift and as technology advances.

“They have to adjust to what the community’s needs are,” she said.

Contact Anne at anne.ernst@sonomanews.com.

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