County health system hailed as model after decades of trouble

County health system hailed as model after decades of trouble

Michele Ellson
Alameda Hospital

The county medical system that Alameda Hospital is effectively seeking to join has conquered – or held at bay – a host of seemingly intractable problems, though it faces fresh challenges with the implementation of health care reform and the pending expiration of a countywide sales tax that supports the services it provides.

Alameda Hospital and Alameda Health System – the new name for the county medical system that encompasses Highland Hospital, Fairmont Hospital, John George Psychiatric Hospital and four clinics – signed a letter of intent in June to negotiate an affiliation deal that would see the county system assuming management of Alameda Hospital, which one district board member said has enough cash to survive on its own for another 15 to 20 months. A similar deal with San Leandro Hospital is also in the works.

The deal is being touted as a boon for Alameda Hospital, which is getting a temporary cash infusion to pay down its own bills from the deal and also, access to the capital needed to fund state-mandated seismic upgrades that the hospital hasn’t been able to secure on its own.

Founded in 1864, the county health system struggled financially for decades, until Alameda County’s voters approved a sales tax hike for health care, pushing $70 million into its coffers. Stable leadership arrived the following year in the form of Chief Executive Officer Wright L. Lassiter III and Chief Operating Officer Bill Manns, who have presented mostly balanced budgets since their arrival in 2005 and have turned a badly mismanaged health system which once was in jeopardy of losing much of its funding due to performance issues into a top performer that has expanded services.

But health care reform due to take effect over the next several months poses fresh challenges to the county health system, which will lose a substantial chunk of income in October when federal funding it gets for serving indigent patients goes away and the public system will be forced to compete with Kaiser Permanente and Sutter Health for those newly insured patients.

The 475-bed health system served nearly 75,000 patients who lacked insurance in 2012, its annual report for that year showed, with a quarter of its patients’ bills covered by the county’s health care program for the uninsured. Another 45 percent paid using Medi-Cal, the state’s insurance program for the poor; just 4 percent had commercial insurance.

Alameda Health System’s strategy for replacing the revenue it’s expected to lose as health care reform takes effect and competing with the big health care companies is to look more like them, expanding both their geographic reach and the menu of services they can provide. (Establishing a higher profile in communities that aren’t now directly served by the system could also help the county convince voters to keep its sales tax hike, due to sunset in 2019, in place.)

Estimates presented to the health care district board on June 27 showed that the proposed affiliation deal could double Alameda Hospital’s acute inpatient census and increase the number of surgeries performed there each year from 2,000 to 5,500 – surgeries the county system often doesn’t have the space to perform and ones that could provide more income for both entities. San Leandro Hospital, meanwhile, would house the inpatient rehabilitation program that now lives at Fairmont, which in 2009 was estimated to need $100 million in seismic fixes to the building that houses them.

“This is really about having an expanded strategy that says we’re going to try to consolidate the (system’s) departments into a network. Then we’re going to expand and consolidate independent hospitals, lower cost community hospitals in parts of the community we don’t serve. Alameda makes perfect sense for us,” Lassiter told The Alamedan after the June 27 meeting.

In 2004, what was then known as Alameda County Medical Center was at a crossroads. The county had just secured from voters a half-cent sales tax to help fund health care, which was expected to drop $70 million into the struggling county medical system’s coffers. But the medical center was without leadership, operated instead by an unpopular consulting firm that had been hired to stanch the financial bleeding had ended up running the show.

The medical system’s runaway financial and administrative problems prompted a civil grand jury to recommend the county spin it off on its own, which Alameda County did in 1998 after winning special dispensation from the state. And while care reportedly improved, the health system was in debt to Alameda County to the tune of $192 million while its administration – which saw nine leaders in 11 years – was “in shambles,” according to the grand jury.

Like Alameda Hospital, many of Alameda County Medical Center’s troubles accelerated at the turn of the century, grand jury and news reports show, as government funding for health care was slashed. But as a provider of last resort, Alameda County Medical Center had no choice but to provide care, regardless of whether the money available covered the cost of services.

Still, the grand jury determined that the medical center also bore responsibility for its fiscal woes, failing to craft contracts with private insurers and to collect much of the money it was due for services rendered, while spending indiscriminately with the expectation that the county would always cover the tab.

“For example, should a mechanical pencil run out of lead, a new mechanical pencil would be acquired instead of simply adding a replacement lead. Similarly, should a computer break down, it was never repaired, but replaced with the most up-to-date models while running outdated software,” the grand jury wrote in its 2003-2004 report.

The grand jury determined that the newly approved half-cent sales tax for health care should help stabilize the health system’s finances, provided that reforms initiated by the medical center’s board of trustees moved forward. Enter Lassiter, who has been widely credited with effecting a dramatic turnaround.

He and Manns bridged a $23 million budget gap in 2006 in large part by implementing efficiencies and cost-saving recommendations; the plan included dozens of layoffs, but far fewer than the consultant that preceded them, Cambio Health Solutions, had recommended. The “poster child” for the reforms as presented by Manns involved the switch from a $96.50 device for drawing blood from the umbilical cords of newborns to its 29-cent twin, which saved the medical center a reported $322,000.

They also made peace with the hospital’s labor unions, with whom the medical center’s leaders had long had a testy relationship. In a glowing Fast Company magazine profile from 2011 detailing Lassiter and Manns’ turnaround efforts, one labor leader praised Lassiter’s efforts and his vision for the future of public hospitals. An acclaimed documentary and social media project released in 2012, “The Waiting Room,” further solidified the medical center’s place on the national stage. And the critical grand jury reports stopped coming.

The system still reportedly owes $130 million to Alameda County – a bill that comes due in 2018. Health system spokeswoman Jerri Applegate Randrup said a $10 million payment was made last year and another $15 million is budgeted this year.

Last month the health system opened the new Highland Care Pavilion, which is part of a $668 million bond-funded modernization project at Highland Hospital. The pavilion holds 10 specialty clinics, an infusion center and a same day clinic intended to provide speedy care to people with serious but not life-threatening conditions who would previously have made more costly visits to the emergency room.

Now they are in the midst of a massive rebranding effort, with a new name and slogan designed to make the health system more enticing to potential customers as reform nears.

“The world is changing and national health care reform presents a challenging and exciting time for public hospitals and health systems,” an announcement about the name change on the health system’s website says. “We embrace that challenge.”