REPOST: Review paints bleak picture of hospital's finances
REPOST: Review paints bleak picture of hospital's finances
The Alamedan has learned that a due diligence review conducted on behalf of Alameda Health System as part of its planned affiliation deal contained outdated information, and may contain a critical error. The review claims that the hospital's pensions are underfunded, a claim Alameda Hospital Chief Executive Officer Deborah E. Stebbins - who says she had not seen the review until The Alamedan posted this story Tuesday - says isn't true. An Alameda Health System spokesperson refused to provide further details regarding the accuracy of the claim, and the hospital would not provide data backing up managers' claim that it's inaccurate. The Alamedan is reposting the story with the new information and deeply regrets any errors that may have been published.
When Alameda Health System assumes management of the financially troubled Alameda Hospital, the list of potential costs they’ll face includes as much as $37.45 million in seismic and other potential repairs, $5 million in loans and a possible $4.3 million hit for shifting workers’ pensions when they become employees of the countywide public health care system.
The numbers were included in a due diligence review conducted as part of the two health care organizations’ planned affiliation deal, which offers the most detailed picture of the hospital’s financial woes to date. The deal is set to close on May 1.
Managers have been frank about Alameda Hospital’s financial woes, which have included long-frozen worker salaries, overdue payments to vendors and deferred seismic upgrades. But the review found additional bills that had gone unpaid.
The hospital has “several immediate” technology needs, including new servers, since the hospital’s are at the end of their useful life. And the hospital was given an eviction notice in August 2013 for late and missed payments at 501 South Shore Center West, which holds a clinic and doctors’ offices, though the nearly $20,000 in payments were later made and the notice rescinded.
The review claimed the hospital's pensions are underfunded - a claim Alameda Hospital's chief executive officer, Deborah E. Stebbins, insisted is inaccurate. Stebbins, who said she had not seen the review before The Alamedan published a story on it Tuesday, said she was following up with Alameda Health System about the pension claim.
An Alameda Health System spokesperson refused to deny the claim or to provide supporting information for it despite several requests for more information; she ultimately directed a reporter back to Alameda Hospital for comment.
A hospital spokeswoman said the hospital's pension plans are fully funded and that both Alameda Hospital and Alameda Health System agree that the plans are "in compliance and funded appropriately." But hospital managers would not provide additional information.
The hospital's audited financial statements for the 2012-13 fiscal year show that one pension plan, frozen in 2004, is about 73 percent funded, with about $1.6 million in assets and $2.2 million in liabilities as of July 1, 2012. For newer employees, the hospital contributes to four union-sponsored defined contribution plans and another for non-union employees, the financial statements show, though they do not offer further details.
In September, state lawmakers approved a bill eliminating the requirement that Alameda Hospital's employees become eligible for a county pension once they become Alameda Health System employees, something that was billed as a key hurdle to closing the deal.
The hospital and its long-term care facilities at South Shore and Water’s Edge could need as much as $20 million worth of repairs and upgrades – an amount that doesn’t include $13 million in seismic repairs that need to be performed on the hospital by 2017. The facilities also need $4.45 million worth of maintenance work that needed to be done but was put off, the review says. Stebbins, said its managers have asked for $27 million, an amount that includes the needed seismic work.
The outstanding loans listed in the review include a little over $2 million from the Bank of Alameda to pay off an existing line of credit and to fund construction of the Kate Creedon Wound Care Center. Additional loans include $2.1 million from the Bank of America used to purchase equipment, $1.5 million from Alameda Health System and $405,000 granted by the hospital’s foundation for seismic work. Stebbins said the amounts that remain due on the two bank loans are $1.6 million each.
The hospital could incur another $315,000 in liability from a lawsuit lodged by the owner of Waters Edge over the timing of the long-term lease the hospital signed to run the facility. The case is in mediation that is expected to conclude in September, the review says, though a trial could follow in October if that’s unsuccessful.
Consultants who helped draft the review suggested the local health care district give the countywide health system rent money from two properties donated by Alice Jaber in 2003 to support Alameda Hospital’s operations, though Stebbins said that's not being considered. The properties were put up as security for one of the health care district’s Bank of Alameda loans.
A separate cash flow forecast considered by the Alameda Health System board along with the review on March 25 showed the hospital's workers have earned $1.5 million in paid time off and that an additional $800,000 in severance may be owed; the review said the board is determining how it will address recent changes to severance and bonus provisions in Chief Executive Officer Deborah E. Stebbins’ contract.
The cash flow forecast shows the hospital losing $5.1 million in the first six months of 2014 and $2.3 million in 2015, generating $1.1 million in profits – and a $1.5 million cash flow – the following year. It assumes $1.5 million a year in savings as the result of fewer management positions and start-up costs of $4 million.
The hospital has lost money in all but one of the last 12 years despite a $298 per parcel tax that generates about $6 million a year. During the first eight months of the current fiscal year, the hospital has suffered an estimated $1.9 million in losses, an unaudited financial report set for board approval Tuesday shows.
Alameda Health System’s leaders are asking the hospital for a side agreement that would allow the countywide public system to terminate the affiliation deal if “known but contingent liabilities” top $1.5 million or undisclosed liabilities exceed $750,000 within four years of closing the deal. Alameda Hospital managers were mum Monday on the liabilities the proposed side deal, which Stebbins is asking the board’s permission to sign, would cover.
Hospital executives announced the proposed affiliation deal in June, pitching it as the best chance to save the financially ailing hospital. And Alameda Health System Chief Executive Officer Wright Lassiter III told the system’s trustees that he’s still recommending the deal in a written report for their March 25 meeting.
Doctor and hospital affiliations are part of the health’s system strategic plan to broaden its geographic reach, service mix – and payor mix. The system took over San Leandro Hospital, another struggling hospital that had been bought and was set to be closed by Sutter, in November.
Lassiter has said the health system can make use of Alameda Hospital’s empty operating rooms, and the cash flow forecast shows the number of surgeries climbing over three years. Meanwhile, both entities have been working to plan new service lines that include geriatric services and orthopedics, which could be their first joint venture, Stebbins’ monthly report to the local board says.
Alameda Hospital’s board is set tonight to discuss a host of details to finalize the affiliation deal, including the reduction of its oversight role much of which the system’s board of trustees would assume. A proposed list of responsibilities for the local board includes approval of assessment and collection of the parcel tax and also, of budgets for use of the tax money, along with oversight of district-owned property and leases.
Maintenance of the parcel tax to help pay for the hospital’s operations – and possibly, needed seismic upgrades – is a key deal point in the affiliation agreement. The local board would also be charged with monitoring the affiliation agreement and working to ensure locals’ health care needs continue to be met.
One of the members of the district board will also serve on Alameda Health System’s board of trustees; the appointment is subject of Alameda County Board of Supervisors approval. Other members will serve on different committees of the board of trustees; most of the existing local district committees, which are headed by local board members and include other community members, would be scrapped.