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Hospital owes tens of millions in debt

Hospital CEO Tom Jensen
Hospital CEO Tom Jensen

Grays Harbor Community Hospital has been losing about $2 million to $3 million a year and has outstanding bonds of $36 million with other kinds of liabilities higher than that.

Hospital CEO Tom Jensen says that the hospital is not in danger of closing, but the only two options on the table after three years of running in the red are to go to the taxpayers to get financial support or to eliminate major services, including the hospital’s obstetrician and gynecology divisions. If the hospital does nothing, then Jensen cautions that the bond holders will likely take the hospital over.

“Nobody wants to see what will happen if the creditors take this hospital over,” Jensen said. “Anything not making money will be closed.”

Community Hospital is currently a non-profit, private entity. Voters in August will be asked to turn the hospital into a public one with proposed boundaries that stretch from the Satsop and Brady areas through Montesano, Aberdeen and out to the beaches. If voters approved the proposed public hospital district, it would garner a higher Medicaid reimbursement rate from the state, thanks to recently approved state legislation contingent on it being a public hospital district; and by using the new property tax authority that would come with the designation.

At least in East County, reaction to the proposed hospital district has been a mixed bag, with members of the public questioning how much money the hospital stands to make — and what the county would ultimately lose if Grays Harbor Community Hospital were to go under.

Hospital staff are conducting forums around the county this week and next week to talk about the proposal. An hour-long forum at Montesano City Hall was conducted Monday night with hospital staff and administrators.

About the only ones who spoke positively about the hospital district were economic development leaders, doctors and hospital staff. Many others remained quiet, some still confused about everything when the forum was over. Others vehemently spoke against the proposal.

“Quit taxing us out of our homes,” a man shouted out at the forum.

“If you want your hospital to stay in the same condition it is today, this has to happen,” Jensen said.

“Who’s to say you won’t be back in another two years for more money?” yet another man asked.

Jensen said that may be entirely possible, adding that many of the people that use the hospital today are on state Medicaid because they can’t afford their own insurance plans and the state only pays a fraction of the real costs the hospital bears. It’s an unknown how the state will treat its reimbursement rates in the future.

The hospital has a $106.6 million budget, according to the state Department of Health, and lost $2 million in revenue last year. It has $16.1 million in reserves left.

The hospital currently pays $4.3 million in “charity care” for those who aren’t even on state assistance and can’t pay their bills and makes another $540,000 in “administrative adjustments” to bills.

If the hospital were allowed to turn away patients that couldn’t pay their bills, then the hospital would be financially sound. Federal law — and doctor ethics — prevent the hospital from doing that, mandating everyone who visits the emergency room be seen by a doctor regardless of their ability to pay. In an area where double-digit unemployment has been rampant since 2008, the hospital has continued to see more and more people who can’t pay, coupled with more people on state assistance, with the state refusing to pay for the actual cost of hospital services.

“The haves have been paying for the have-nots for a long time,” Jensen said.

Although a hospital district can be crafted without using a property tax, because the hospital has outstanding bonds, the taxpayers will be leaned on as the source of paying those bonds off. That would leave newly elected hospital commissioners no choice but to implement a property tax levy, Jensen said. It would be up to the commissioners how high the tax could go, but it would probably be about 50 cents per thousand of assessed value. It could be lower, depending on how other special property tax districts stack up. In the scheme of things, state law mandates a cap of $5.90 per thousand for the total amount property taxes from all taxing districts that can be levied on property owners. Assessor Rick Hole said last week that a few areas of the county were reaching that cap and the county was looking at the impacts and would release those findings soon.

Filings that Grays Harbor Community Hospital made with the state Department of Health last year show that the hospital has $50.7 million in total long-term debt, which includes $36 million in bonds, Jensen said.

IRS tax documents posted online by non-profit evaluation site Guidestar reveal more potential debt of the hospital. The documents, first reported by the Montesano Today blog, show $58.2 million in “total liabilities” from Dec. 31, 2010, and $74.5 million in “total liabilities” from Dec. 31, 2011. Those figures would paint a worse liability issue than hospital officials have stated.

Hospital Chief Financial Officer Tim Howden said that the IRS documents can be “misread” because the liabilities include millions of dollars in potential losses the hospital could have taken had it paid out an “interest rate swap,” as well as estimated malpractice settlement costs that were never realized.

The IRS documents also list $8.8 million in hospital obligations under a pension plan. Jensen claims those numbers are no longer relevant because the hospital’s unions agreed to no longer provide pensions as a cost-savings measure. Instead, the hospital uses a 403(b) investment plan, sort of like the popular 401(k) plan, but for non-profits.

Issues involving the hospital boundaries and the number of hospital commissioners voters will choose to run the district must be settled by the county commissioners before it goes to the ballot. It’s the county’s responsibility to put the issue on the ballot after Community Hospital successfully turned in enough signatures to qualify.

Former Montesano councilman Ron Malizia questioned why Montesano was included in the proposed boundaries. He said that his father had the same question — and it’s a question he has continually heard ever since the proposal was announced.

Referring to Summit Pacific, a smaller publicly owned hospital in Elma, Jensen said, “You are served by both, depending on what services are needed,” Jensen replied, adding that Community Hospital can help in higher levels of trauma and heart attacks, while Monte residents who break a leg or sprain a finger could visit either hospital’s emergency room.

“This is not us versus them,” he replied. “We offer different services.”

Brady residents Mick and Samdra Jones say they don’t understand why Grays Harbor Community Hospital wants a hospital district with boundaries stretching from their home in East County out to the beaches. It could add a couple hundred dollars to their tax bill — even though they don’t use the hospital and prefer to use neighboring Summit Pacific Medical Center in Elma or drive to Olympia.

“Let it go bankrupt,” said Mick. “Let it go bankrupt, re-organize and get the debt under control without raising my taxes.”

“Why drive 20 miles to Aberdeen when I could drive five miles to Elma?” Samdra asked.

There’s also a push in Ocean Shores to remove that area from the proposed hospital district boundaries.

Jensen said that he prefers the make-up of the hospital district as proposed, but would not lobby against changes the public asks the county commissioners to make to the boundaries. Ultimately, Jensen said it’s up to the commissioners.

Montesano makes up about 5.4 percent of the proposed district’s tax base, while Ocean Shores makes up about 21.6 percent.

Based on 2013 assessed values, a property tax of 50 cents per $1,000 of assessed value would garner about $2.5 million in annual revenue for the district, according to Grays Harbor County Chief Deputy Assessor Paula Bednarik. About $135,500 of that revenue would come from Montesano and about $540,000 would come from Ocean Shores.

If the district were to levy a property tax of 75 cents per $1,000 of assessed property value, the district would receive about $3.7 million in annual revenue. About $203,200 would come from Montesano and about $810,000 would come from Ocean Shores.

Removing additional North Beach communities or areas of Brady, Satsop and Central Park from the district boundaries would decrease revenue further.

“What we’re going to do is take a fine operating organization in Community Hospital and let the government run it and tell us how to do it?” Mick asked Jensen during the forum.

“That’s one way to look at it,” Jensen replied. “And I’ll go one step further — and the government told us to do this. so, if I want to save the hospital and be reimbursed appropriately, I have to follow their rules and the rules say it has to be a public hospital, according to the legislation.”

If the ballot measure to create Grays Harbor Public Hospital District 2 fails, Jensen said he could go back to legislators and try to get the laws changed in Grays Harbor’s favor. But, save a change in the current law, if the financial situation doesn’t improve, the hospital’s bondholders could eventually come calling and force the hospital to make cuts.

“You can’t keep losing money,” Jensen said. “(The bondholders) would come in and modify the services that you provide to accommodate a bottom line — which means anything that doesn’t make money, no matter how important it is to the community, wouldn’t be served.”

Jensen doesn’t like that prospect. Becoming a public hospital would patch the dike, but it’s is in the hands of politics now.

“Though I know it’s political, to me it’s not — it’s about health care,” he said.

Facing questions of specific cuts, Jensen said he knows exactly how to make Community Hospital survive with its current budget — and that would be down grade the current level-three trauma center into a level-five center, basically gutting the Emergency Department and making Community Hospital a place where patients would just be stabilized and then transferred to a larger hospital in Olympia or Seattle.

Jensen said that the hospital would also eliminate its obstetrician and gynecology divisions, which currently serve about 75 percent Medicaid patients and don’t cover the full costs of the service.

“If that’s the direction we would go, I would resign because I could not in good conscience operate a hospital that doesn’t deliver babies in this isolated of an area,” Jensen said.

Ultimately, though, Jensen is OK with the fact that it’s all up to the voters of Grays Harbor.

“We live in a democracy. I’m proud of that. I want people to vote the way they think they should,” he said. “And if it’s voted down, that’s fine. And if it doesn’t become a public hospital district, that’s OK, too. That’s a decision.”

Dr. Brent Rowe said that Community Hospital may not be a public hospital yet, but it’s practically run by the government already with federal guidelines and rules directing everything the hospital does. A benefit to being a hospital district is that the public would get to elect hospital commissioners so that the public has a voice in everything.

Dr. Robert McCauley said that members of the public may think allowing the hospital to go bankrupt is a good idea, but he thinks it would be devastating to the community, adding that it would mean more and more transfers of services and longer wait times in neighboring hospitals.

McCauley cited the work of Dr. Rowe, a surgeon, in the emergency room that saved the life of a young Montesano area girl recently, who may very well have died while being transferred to another hospital. The situation was so dire, McCauley said, that she needed surgery right then and there.

Lives are lost during transfers, Rowe added.

“We have a wealth of practitioners that are coming to the hospital,” Rowe said. “If you let it go bankrupt, the people that you are recruiting are not going to be of the quality we’re going to have right now. We have a lot of board-certified practitioners. We have a lot of depth in practice. We have a lot of value in what we have. If we let this go bankrupt, that is going to evaporate. … This organization has a lot of assets, personnel is one of them.”

If the hospital district is approved by voters, the transition will not take place overnight, and will be decided in negotiations between the new public district and the current non-profit hospital.

The assets — including buildings, equipment and property — in addition to the bonds and other debt will all be part of that negotiation, Jensen said. But he was hesitant to speculate too much on how it all might be transferred.

That transaction could range from a straight-up transfer and dissolution of the non-profit to a years-long process of transferring assets and paying off debts. The most important thing, Jensen stressed, is to have a plan in place by Jan. 1, 2015, so the hospital district can take advantage of the higher reimbursement rates the Legislature approved.

Jensen says he isn’t guaranteed a job at the end of the whole process — and depending on the elected commissioners and who they are, may not even take it if offered.

“If I were a public official, Tom Jensen would mean nothing to me, to be perfectly honest … even his contract and whether or not he gets to be the new CEO,” Jensen added. “The goal would be to negotiate between the two boards what makes the most sense.”

The Daily World contributed to this story.