In an effort to boost its bottom line, Alameda Hospital shifts its care mix

In an effort to boost its bottom line, Alameda Hospital shifts its care mix

Michele Ellson
Alameda Hospital

Alameda Hospital’s managers are making some dramatic service changes that they hope will help them stanch the flow of red ink on their balance sheet and keep the doors of the hospital’s emergency room open, though some are questioning whether the changes will do enough to right the hospital’s shaky finances.

Hospital managers are preparing to take over The Waters Edge nursing home, adding 120 skilled nursing beds to the hospital’s existing stock of 161 beds. The hospital’s current mix is dominated by beds for patients with emergency and other urgent care needs, but after the anticipated April 1 takeover of Waters Edge is complete, more than half of the hospital’s beds will be dedicated to nursing home care.

The hospital is also in the process of building a new wound care center at Marina Village that would serve diabetics and other patients with non-healing wounds, which the hospital’s chief executive officer, Deborah E. Stebbins, said she hopes to have open by July. Stebbins has also asked the state to allow the hospital to move 12 to 14 of its 100 urgent care beds – about 30 percent of which are typically in use – into its subacute wing, which serves patients on ventilators and others in a semi-vegetative state.

“Our key challenge is all about bringing in new volume and new revenue. And all these programs fit that kind of model,” Stebbins said.

Stebbins said the changes are designed to help the hospital continue what she said is the hospital’s core mission – to maintain urgent care services and a “high quality” emergency room – and to position the hospital so that it can borrow money for seismic upgrades. And she’s hopeful the new services will draw patients from both on and off the Island.

“You need to be of a certain size to make that acute care, ER and surgery work. In order to make that as a small hospital, you need additional services,” said Stebbins, who is also working on plans to better manage the hospital’s rehabilitation services and to establish an orthopedic program that includes spine surgery and sports medicine.

The services are being put in place as the hospital’s finances have reached a particularly critical point. After a decade of nearly annual losses – capped by the loss of a surgical contract with Kaiser Permanente in 2010 that saw the hospital’s net revenues drop by $10 million between 2010 and 2011 – the hospital has struggled to pay vendors, and it lacks the assets it needs to secure financing for $12 million in required seismic upgrades.

Even maintaining the $900,000 in financing the hospital needed to build the wound care center has been a challenge. The board that oversees the hospital voted in February to use more than a half million dollars generated by rental properties it holds for expenses in order to boost a key liquidity indicator to the level required by the loan agreement.

“This is our last, last resort. I don’t think we have any more reserve in our bank to have any more mishaps,” Health Care District Board member Stuart Chen said at the February meeting. “If none of that (new service line effort) should come to fruition, we are facing a pretty doomed scenario.”

Stebbins said the service lines the hospital is pursuing are ones the community needs, and ones that Alameda Hospital is uniquely positioned to provide – and profit from. Skilled nursing in particular is an area where the hospital has seen some success, and one that both she and outside experts say will be in high demand.

Some 11.4 percent of Californians and 13.5 percent of Alameda’s residents are 65 or older, according to the 2010 U.S. Census, and the number of seniors in California is expected to double by 2030, according to a fact sheet generated by The SCAN Foundation, which focuses on the health care needs of the state’s seniors.

At the same time, the number of skilled nursing facilities has remained static due to low reimbursement payments for care, said Wanda Jones, a San Francisco-based health care futurist who examines long-term industry trends. Still, Jones said the service could offer the hospital an opportunity to care for patients in a setting that’s more cost-effective than the care provided in its acute wing – if the hospital can manage costs, labor chief among them.

On average, 22 of the 26 beds in Alameda Hospital’s South Shore skilled nursing unit were full in 2011; similarly, the occupancy rate at The Waters Edge is 85 percent, according to CalQualityCare.org, a website that offers costs, statistics and rating information for long-term care facilities.

Subacute care is another high-demand area, Stebbins said, and one she said Alameda Hospital can expand into for less than neighboring hospitals, few of which provide the service now. Data supplied by California’s Office of Statewide Health Planning and Development listed just four other Bay Area medical facilities that provide subacute care, only one of which is in Alameda County.

And hospital administrators have said they think the planned wound care center could both serve the hospital’s additional skilled nursing patients and draw others from off the Island.

Hospital managers believe The Waters Edge will contribute $1.5 million to the hospital’s bottom line in its first year of operation and $2.4 million the following year, according to figures submitted to the health care district board in November. They said the hospital can earn more money from the facility than its current, private owners because the hospital can collect supplemental Medi-Cal payments not available to other skilled nursing providers.

Two-thirds of The Waters Edge’s revenue comes from Medi-Cal, according to CalQualityCare.org, though Stebbins said the hospital is adding more patients on Medicare – which offers a higher rate, but for a fixed period of time – into the mix. She said the hospital earns $385 a day from skilled nursing patients who have Medi-Cal. And Waters Edge workers are in their own bargaining unit that’s separate from those representing workers in the hospital.

The hospital posted a net loss of $1.4 million in 2011 and is facing a loss of $771,000 so far this year. Stebbins said the hospital could earn an additional $50,000 from the wound care center in its first year of operation and between $300,000 and $350,000 a year after its operations stabilize; figures from the potential addition of subacute beds aren’t yet available.

On average, fewer than 30 of the hospital’s 100 acute beds were full in 2011, a report to the board last August showed; in contrast, the hospital filled 32.5 of its 35 subacute beds, and Stebbins said she thinks the hospital will be able to fill the additional subacute beds it wants the state to approve.

Providing the care costs the hospital about $400 a day and earns between $700 and $750 a day she said, numbers that pencil out for Alameda Hospital but may not for another hospital building a new facility at a cost of $2 million to $3 million per bed.

Building the wound care center has proved challenging for the hospital, which has faced delays in leasing the Marina Village space and a longer than expected process securing city approvals to create it since it is a new program, according to Stebbins and reports to the hospital’s board. Hospital management had first hoped to open the center, which is being managed by an outside firm, Accelecare, in 2011. But Stebbins, who said construction is underway, now estimates it will be open this summer.

One health care expert questioned whether the center will draw patients from off the Island, as hospital managers have hoped. She said several other hospitals already provide wound care.

“I don’t think anybody wants to come to Alameda unless they have to,” said Cathy Wada, an Alameda-based health care consultant.

Stebbins, who said she had success with a similar program when she ran Seton Hospital in Daly City, said Alameda’s will offer trained physicians and more services than other wound care programs. And she said Alameda County is home to 11,000 people seeking the care.

“We received patients from 100 miles away. People would drive to this because they were so desperate for some interventions that would treat wounds they had, in some cases, for years,” Stebbins said of Seton’s program.

Wada said skilled nursing and more subacute care are services the community can use and that they could be moneymakers for the hospital, though she questioned whether Medi-Cal’s rates for subacute care would cover the cost of providing it; more than two-thirds of patients using the hospital’s subacute services are on Medi-Cal, a report for Monday’s hospital board meeting shows. She also questioned whether the new services would provide enough money for the hospital to pay for $12 million in mandated earthquake fixes.

Still, she said she was heartened by the hospital’s strategy.

“If the objective of the district is providing services to meet the needs of Alameda – it looks to me like they’re moving into a direction that’s positive and away from a direction, in my mind, that doesn’t serve the people of Alameda,” Wada said.

Elliott Gorelick, a hospital board member who has advocated for shutting Alameda Hospital down, said he thinks Stebbins is pursuing the best possible strategy for maintaining the hospital’s acute care services. But he, too, questioned whether the moves would do enough to salvage the hospital’s finances.

“If your philosophical position is, ‘keep the acute care hospital open no matter what,’ then there are probably very few strategies you can pursue that would be better than the one hospital management is pursuing,” Gorelick said. “(But) when I say there’s probably no better strategy, it’s not a winning strategy. Maximizing profit can also mean minimizing loss. But it isn’t necessarily true that because this is the best strategy, it’s going to work.”

Gorelick said the hospital could make more money on skilled nursing than The Waters Edge’s current operators, though he questioned whether the state would continue paying the higher Medi-Cal rate. The state Legislature had lowered rates but lost a suit that blocked the reduction, which would have cut Alameda’s rate by 24 percent, Stebbins said. Gorelick has questioned whether the state may appeal; Stebbins said it’s not clear what the state’s next step will be.

“I think they are being overly optimistic,” he said.

Jones, who noted that President Barack Obama’s health care reform efforts will add more people onto the state’s Medi-Cal rolls, said she expects the state to continue looking for ways to reduce rates for Medi-Cal, California’s version of the federal Medicaid program.

“Medicaid reimbursements will continue to be tight. There will very likely pressure on those rates,” she said.

Stebbins said that hospital management is looking to add more programs to back up the additional ones they’re putting into place now, including the proposed orthopedics program, which she said will meet an increased demand for joint replacements and other surgeries anticipated over the next decade. She’s also working to build relationships with other care providers in the area, she said.

“The key is for us, more volume. Subacute, long-term care, diagnostic services, acute care, ER. More volume for us translates into a healthier bottom line,” Stebbins said.