Tuesday, January 31, 2012


It is clear that the Hospital (as opposed to the District) is going to fail at some point.  The reasons for that failure are manifest most prominently the lack of financial viability.  Relying on the kindness of strangers (or friends) is not a business plan.  At this point almost anything - the Bank of Alameda, DPHS, or a vendor - could trigger the event that shuts the Hospital down.  What is the appropriate course of action?

1.  Fire Debi Stebbins.  Of course, I have been saying this for quite some time, but whether it is a football team or a corporation, the head of the organization needs to be held accountable.  The advantage in terms of moving the District forward is that it publicly signals change AND it saves money (~25,000 per month).

2.  Hope the State does not approve the Waters Edge transfer.  There is one last hurdle before the District becomes contractually obligated to the Zimmerman family for millions of dollars.  The financial strength (weakness) of the Hospital being what it is could provide the basis for California to not approve the Waters Edge license transfer.  This would be a gift by the State to the District(and it has the advantage of being the correct decision  given the tenuous financial position of the District).
2a.  Enter into negotiation with the Zimmerman family immediately (would require a emergency or special Board meeting).  Maybe they would be willing to take 250,000 right now to void the contract given the risk that the State may deny the license transfer.

3.  Create a complete  accounting of liabilities.  As I have said in the past, the balance sheet debt of the District is only the tip of the iceberg.  Until the Board understands how bad the problem is then it will be difficult to put the necessary plan into place.  The liabilities that I am currently aware of that do not appear on the balance sheet:  Employment contracts, Marina Village lease, Bank of America lease, fine payable to DPHS,   Vendor contracts with guarantees and/or termination clauses, and the Waters Edge lease.  My best guess is that these total between 3 and 5 million dollars excluding the WE project.    I am not sure if there are certain unfunded pension/benefit liabilities that do not currently appear on the balance sheet.

4.  Have legal counsel prepare a complete accounting of regulatory obligations including any notice timelines for things like closing the ER or for potential layoffs of employees.  Also, any regulatory notice that must be provided to government payers.

5.  Approach the County.  Of course Alex Briscoe has his hands full already with the possible closure of San Leandro by Sutter plus the St. Rose financial debacle, but the County needs to be engaged.  The question should not be "how can you give us money to keep the Hospital open?", but, rather, how could the District be restructured to provide a bigger bang for the buck for Alameda taxpayers.

6.  Create a strategic plan.  I am reluctant to suggest this because this step usually involves low quality, highly paid BS artists (otherwise known as consultants - see the compensation presentations done earlier last year for example).  Maybe a non-profit (that was not compromised politically) would be willing to take on the task;  perhaps the Berkeley school of public policy could provide resources.  I would like to see this strategic plan include an urgent care center.  It is also possible that the wound care center might survive closure of the Hospital.  Obviously, the plan would be dependent on whether the District was burdened with the Waters Edge facility or not, but South Shore nursing would need to be addressed.

7.  Put the plan before the voters.  The District would need to make its case hopefully without misleading the public the way proponents did in the original vote.  Terminating the District might be problematic, but drastically reducing its taxing authority could easily be done even if the District lived on.

Thursday, January 26, 2012

Defcon 5 and ZBA Won't Save the District (quick takes)

1.  So the District lost 316k in December.  Stebbins described that as over a 50% improvement at the finance meeting which is true but only in the same sense that being unable to pay 1/2 your mortgage would be a 50% improvement over not being able to pay any of it.  The bank is still going to foreclose at some point.

2. Bank of Alameda "listened politely" in a meeting with Management.  Bob Anderson suggested a new 2 million dollar long-term loan would do the trick.  Perhaps this is revealing too much, but if you ever had a friend or a relative who is truly in need but has a history of bad decision-making ask you for a loan (after not repaying back other money you already loaned) I suspect you know how those bankers felt. 

3.  Needless to say financing is not yet in place for the wound care center construction.  Payments to the landlord of about 14k per month begin in April whether it is generating revenue or not.

4.  Due to personnel issues (someone's on vacation) the soonest California can approve the license transfer for Waters Edge is 2/13 according to Stebbins.  I worry that the representations that the District made with respect to working capital are no longer applicable.

5.  If you want to understand  the zero balance accounts (ZBA) method for adjustment to patient accounts then this presentation might be useful.  One of the reasons that November was so bad was that reimbursement rate (net/gross ratio) was down significantly.  At first Management thought that this might be an anomaly (and not altogether real) because of the way ZBA is used to calculate this number.  At this point, I think the November loss was very real (even if it might not repeat).

6.  January is running stronger than November or December, maybe even enough to have a positive number.  Every 1,000,000 of additional gross revenue is another  about 225,000 of net.  I can make a SWAG that the contribution margin for that additional revenue is probably around 80% so a back-of-the-envelope estimate of January's results suggest that if gross is 10% above December (about 1.5 million additional) then net increases by 1,500,000 x 22.4% x 0.8 =  268,800 which compared to the 316k loss for December is close enough to suggest that January could be break even.  If I had to take the over/under on $0 loss/gain, I'd take the under.

7.  Average pay period includes payroll so that is the discrepancy between that number (74.3)and "AP days" reported as 150.  I think payroll should be excluded from the calculation, but I will defer to Bob Anderson to decide whether to continue the present reporting method.

Friday, January 20, 2012

Hospital Cannot Survive if this Continues (even with Waters Edge)

Read the Financials yourself.  In December, the District lost another 316,000 dollars.  The total for the year is 1,312,000 dollars.  This is an annualized rate of over 2.5 million dollars and is greater than the contribution projected by Water's Edge.  This is with a favorable sub-acute ruling on AB97 which represented a "win" of over 1.5 million dollars vs. budget.  Other lowlights:

1.  (p. 14,  Balance sheet)  Current liabilities exceed current assets by over half a million dollars.  This is a violation of the Bank of Alameda loan covenants.  The Bank has a 750,000 emergency line of credit outstanding, is the prospective financing for the wound care center, and is the source of working capital for the Water's Edge transition.  It's quite possible the Bank will continue to loan money with no guarantee other than the taxing power of the District.  After all, that is pretty strong. 

The problem is that if the Bank won't impose some kind of fiscal discipline, Management won't own up to the disaster, and the Board refuses to do anything, then the taxpayers are on the hook for it.

2.  (p. 14, Balance sheet)  Net assets are 7,441,716 which is another violation of the Bank of Alameda loan covenants.  This understates the case.  If you look, you can see that construction in progress is 3,388,457 which is relatively worthless at this point.  The off-balance sheet liabilities are also not represented and my best guess is that they are about 5,000,000 mainly consisting of the Bank of America lease, the Marina Village lease, Stebbins (and others) severance pay,  fines payable to the state (50,000).  This does not include the multi-million dollar Water's Edge liability which does not kick in until the State approves the license transfer.  In other words, any reasonable financial analysis suggests that the effective equity of the District is negative unless you add in "future parcel tax revenue" as an asset.

3.(p 2, Highlights)  This may be a mistake, but it states that AP days are 150.  That suggests that some vendors can expect to wait six months to be paid?  I don't think that can be right.  The ratios page (p.18) states "average pay period" is 74.3 which seems more reasonable.  (I'm not sure because I may be confusing terms here.  I generally assume "days payable outstanding", "average pay period", and "AP days" are calculated the same, but I cannot be sure that I have that right in this context since "AP days" is less familiar as a term to me and I may be getting its definition wrong.)

4. (p 18, Ratios)  The whole page is ugly including the previously mentioned current ratio at 0.97, but the ones that jump out are all the negatives - EBITA = minus 2.70%,  EBIDAP = minus 12.83%,  operating margin = minus 4.15%, and  Return on Fund Balance = minus 17.62% .

To me, it is interesting that there is so little interest in an enterprise that costs the people of Alameda over 6 million dollars per year (this is the combination of taxes plus equity losses since the District was formed), and continues to lose money despite reassurances by management and the Board majority that a turnaround is always at hand.   I don't know what it will take for people to notice.  Call someone a liar and you get excoriated by their allies;  events prove that indeed they were lying (or grossly incompetent) and nobody notices.

Wednesday, January 18, 2012

Staying Healthy

This morning, I will not be attending the Board Quality meeting.  I don't think it will surprise anyone for me to confess that I did not find the structure and discussion of these meetings to be particularly engaging in terms of making meaningful changes.  The BQC does a decent enough job in reviewing metrics and oversight, but is simply not designed to make, in my opinion, meaningful changes at the Hospital.  Of course, it's hard to make meaningful changes when you don't see that there is a problem. 

Nonetheless, I actually am posting to give kudos to the District since much of what can be done to live a longer, healthier life has nothing to do with your medical care.  Of course, I am referring to lifestyle choices.  If you want to lower your cholesterol, control your blood sugar, lose weight, lower your blood pressure, reduce depression, etc., etc., etc. then lifestyle modification is the way to go.  In fact these are enshrined as the official first choice in the official protocols for all of the above except depression (where it is still considered a major adjunctive therapy).

The District sent this email out to everyone who subscribes and most, if  not all, of these are great ideas.   Promoting healthy lifestyles is one of those things that I definitely want to see the District doing and continue doing even if/when the inpatient acute care services are terminated.

2012 is just around the corner, and so are New Year's resolutions. With your well-being in mind, Alameda Hospital has come up with this list to help you kickstart some healthy habits. A new routine can take several weeks or even months to become a habit, so don't try to add them all at once! Start with the resolution you feel most confident you can keep, and go from there.  
  1. Watch Your Portions. Controlling portion size is a key ingredient to losing weight. When you fill your plate, go for 1/2 fruits and veggies, 1/4 protein and 1/4 grains (opt for whole grains over refined flour.)
  2. Move! Many of us sit for a good part of the day - whether it's at work or home. So get up and get going. You can hit the gym or hit the dance floor, but a brisk walk will do the trick as well.
  3. Floss. Brush your teeth morning and night, and don't forget the floss. Regular flossing not only helps prevent gum disease, it is also linked to a reduced incidence of heart disease.
  4. Quit Smoking. It's hard, we know, but the benefits are life-saving There are many resources which can help you quit smoking once and for all.
  5. Stay Social. It's tempting to turn on the TV or surf the web rather than pick up the phone to call friends and family. But maintaining social relationships is critically important to good mental health.
  6. Lower Your Cholesterol. Get your cholesterol checked. If it's high, talk to your doctor about how to lower it through lifestyle changes, including a healthy diet and regular exercise, and medications.
  7. Build Muscles. Remember resolution #2 - move? Now add a little extra time for strength training. Stronger muscles can lead to increased energy and stronger bones.
  8. Don't Stress Out. Everyone has stress, but it's vital for your mental and physical health to manage it. Yoga classes, massages, and even just a good venting with a friend are just a few ways to chill out.
  9. Apply Sunscreen. Even in the winter months, sunscreen is important to reduce your risk of sun damage and possible skin cancer. So don't go without.
  10. Don't Skimp on Sleep. Get a full 8 hours of sleep to prevent fatigue during the day. Avoid caffeine after dinner, have a good book (not your brain-stimulating laptop) handy at your bedside.
  11. Wash those Hands. Do you want to avoid getting sick and spreading germs? Washing your hands often or keeping hand sanitizer handy is a big help.
  12. Take a Technology Break. Make a regular date to unplug and unwind. Computers and smartphones are great in moderation, but heavy use can lead to back, eye, and wrist pain, among other problems.

Friday, January 13, 2012

1/9/2012 Board Meeting

1.  Nothing to really report regarding the enormous loss in November.  It may or may not be an accounting glitch.  At the next Finance meeting a presentation on revenue recognition and the calculation of reimbursement rates will be made.  What is clear is that something is going on that Management needs to investigate.  If you look at pages 35-37 of the Board packet, there are several inconsistencies that just jump right out.
a.  The combined acute care MCal reimbursement is listed as 2.8% of gross charges.  MCal may be a lousy payer, but that seems unlikely.
b.  This MCal number becomes even more confusing when the inpatient acute reimbursement is 10.5% and the outpatient is 4.1%.  Clearly, the combined being lower than the individual elements is a mistake or something that needs further explanation.
c.  On page 37, the 0.0% reimbursement rates listed for MCal/HMO are incorrect or need further explanation.
d.  If you add up the inpatient monthly mix of payers for inpatient SNF on page 37, the number is less than 100%.
e.  If you add up the mix for inpatient SNF for YTD payer mix then the number is over 100%. 

Clearly these graphs are not able to be used in this form to analyze what is going on.  Hopefully, next month will yield explanations for November AND better reporting.

2.  The month of December may or may not be good enough to bring the current asset ratio to greater than 1..0.  The 12/31/11 balance sheet is a test point for the Bank of Alameda loans.  Kerry Easthope had discussions with the Bank of Alameda regarding this and will be in contact with them as soon as December closes (which I believe is happening this week on an accelerated basis).  At that point, discussion as to what may happen will be easier with a clear understanding of what the financials are.  It seems unlikely that December results could yield a current ratio > 1.0 since that would require net income of over a quarter of a million dollars.  If the current ratio is indeed >1.0, then it is likely because the November unaudited results are grossly wrong.  I am pretty sure that is what management is hoping for.

(As an aside, it is a dangerous situation when your best hope of averting a crisis is that your financial reporting is so messed up that you have a hundreds of thousands of dollars variance between your actual results and reported results that you cannot identify immediately!)

3.  New guidelines were adopted for self pay and community care on the consent agenda.  Some may think that the discounts offered cash customers are overly generous.  My belief is that they are not generous enough.  When no commerical or government payer is ever charged anywhere close to 100% of gross, I think it is fundamentally unfair to bill 100% of gross to ANYONE regardless of their ability to pay.

4.  Rossi Builders was the low bidder for construction of the Wound Care Center.  Award of contract will depend on financing.

5.  Board officers are the same as last year.

6.  I was appointed to the Finance Committee replacing Director Deutsch.   Director Battani was appointed to Quality replacing me.  All other assignments remain unchanged from last year.

7.  ACHD Standing committees are part of a reorganization of the ACHD.  This is the trade organization for California Health Districts.  Originally we were going to stop being members, but it turns out that their workman's compensation fund is the best deal available and membership is required to participate.  I believe I will be applying and it sounds like other Board members may also be interested in volunteering.

8.  In the CEO report, there is now a preliminary written version in the packet which I compliment Ms Stebbins on providing.  I was surprised on the relatively low number for last year's IGT and this year's.  I requested that Management check that the monthly accruals are matching up with the actual, final number.

9.  Apparently the Hospital has been busy in the first week of 2012.  I don't believe, based on past experience, that any conclusion can be drawn from that.

10.  There was some analysis from Management of 2 Board referrals from December.  Also, I pointed out that a practice that the District has been following already is now law.  According to AB1344, if an agency maintains a website, then public notices must be posted simultaneously with any paper copies in order to meet Brown Act requirements.

11.  The wound care center is going along.  The next big step is award of contract (pending financing).  The Waters Edge transition is also moving forward.  Of course I was staunchly opposed to this initiative and the November results with the attendant uncertainty surrounding them hardly make me more comfortable with this project.  I still feel like the District is going to end up holding a mult-million dollar bag.

Thank you Irene Dieter for attending and commenting.  I wish more Alamedans took an interest. 

Sunday, January 8, 2012

Board Meeting Preview, 1/9/2012 (UPDATED)

The most important thing is the loss of 681,000 in November and what, if anything, is being done to address this issue.  The only item on the agenda directly related to this is the Acceptance of the November, 2011 unaudited financial statements.  Interestingly enough, I was the only Board member (UPDATE:  Apologies to Dr. Deutsch who chaired the meeting in the absence of Mike McCormick) who attended the Finance Committee meeting on 1/4 (although I arrived too late to hear any discussion regarding this disastrous result).

My questions will be if December promises to be positive.  If negative, in what range will it be - slightly, moderately, hugely.  Of course, Debi Stebbins never wishes to share bad news (any news actually) until she is ready so we may not learn much tomorrow night.  I also want to understand the formula used to recognize revenues so I can evaluate whether this enormous loss is a glitch in some accounting parameter or, what appeared to me initially to be, the beginning of the end for the Hospital.

Specific agenda items:

1.  From the closed session agenda  IV. F. "Public Employee Performance Evaluation Title:  Senior Executives".  Once again management and presumably legal counsel (and no doubt my fellow Board members) will disagree with my assessment that this is inappropriate for closed session.  It is my opinion that the Brown Act obligates the Board to address this item in open session as it is currently structured.

2.  VII. A. 2.  Policy No. 83:  Cash payment discounts.  I would actually like to see the discounts be greater than those being offered.  I also would like to know what the actual collection of cash payments is from uninsured patients.  My understanding is that it is less than 10 cents on the dollar.  Whether that is relative to the gross charges or the discounted charges is unknown to me, but  I will ask Management.  I see no reason not to approve this new policy.

3.  VII. B. 2.  Entering into a contract for wound care center construction.  I would like to postpone this until the Board understands the financing better.  If we are in violation (or close to being in violation) of the Bank of Alameda loan documents then signing a contract with the Rossi Builders is irresponsible in my opinion.

4.  VII. B. 4.  I may withdraw my preference to be President (because I doubt that there will be a nomination unless I nominate myself so a second seems unlikely).  Director Battani has been very inconsistent in her role this past year in my opinion and we have had significant differences.  I certainly do not relish another year of her leadership (but I don't relish another year, actually three years, of serving on the Board given the poor quality of analysis and decision-making that passes as Board oversight).

The rest of the agenda is somewhat routine except, perhaps, for the CEO report.  Stebbins has a written report which I think is an improvement.  I have a question regarding the IGT money since the report has a parenthetical which states, "including our original $369,000 deposit."  I am hoping that should read "plus our original $369,000 deposit.".  The $587,000 number for FY2012 seems low at a rate of less than 50,000 per month so I need to check that as well.  The census numbers for December will be important.  Management will have those pretty well determined given the detail in the daily dashboard that is now being distributed (see the Finance packet for an example).

I will update post-meeting when I have the chance.