Hazel Hawkins Memorial Hospital nurses hosted their first town hall July 6 regarding the hospital’s bankruptcy filing and the registered nurse’s vote of no-confidence in the health district on June 22. A demonstration in front of the hospital is scheduled for July 10 from noon to 3 p.m.
While emotions ran hot among the nurses and public, the central message was one of cold, dry numbers delivered by Mike Rabourn, research lead for the California Nurses Association. Rabourn was asked to look into the hospital district’s finances for the association to determine why it was struggling and to get a clear financial picture. He told BenitoLink during the town hall the district has not been transparent with the community or the nurses.
“Ultimately, what we found, in spite of all their tales of woe, when you look under the hood, the district is actually not doing so bad, especially in the last six months,” he said during the meeting. “As of May, it’s actually in quite a strong financial position according to their own financial reports. I think everybody is surprised that they are so aggressively pursuing this bankruptcy process when they’ve actually engineered quite a financial recovery since the fiscal emergency.”
Devon Pack, who was the only board member attending the town hall, told BenitoLink afterwards that he did not agree with Rabourn’s conclusion.
“It’s a question of how optimistic or how pessimistic you want to be with regards to the Medicare and the Medi-Cal forecast,” he said. “It could be that their [nurse’s union] predictions are wrong, and it could be that our predictions are wrong. We won’t know until the future, but I would say that they have a very optimistic interpretation of the financial figures.”
In his presentation, Rabourn said that according to the district’s bankruptcy filing, despite projections that by November or December 2024 it will run out of cash, presently it is not financially insolvent. He said the district currently has over 35 days cash on hand and its net income over the past 11 months is around $2 million.
“On paper the district is profitable,” he said, adding that even though the district is “a reasonably secure operation” it continues to “eviscerate the labor contracts.”
“They already made a move to cancel them all together,” he said. “I believe they filed with the bankruptcy court in order to cancel their labor contracts.”
When asked about the nurses’ claim that the district is practicing union-busting techniques, Pack told BenitoLink, “No comment.”
Rabourn said the crux of the problem is the district’s inaccurate projections. In May, he said in the bankruptcy filing, the district forecasted that it would only have $8 million cash-on-hand, but, in fact had $14.9 million, a discrepancy of nearly $7 million or almost 86% above the forecast.
“This leads us to believe that we can’t trust their forecasts of where they’re going with this money,” Rabourn said. “Again, we come back to this question of ‘why are you rushing bankruptcy when essentially you’ve engineered a pretty remarkable financial turnaround?’ The hospital’s looking like it’s in good shape potentially, so why is it going at a breakneck pace to go through this Chapter 9 process?”
In response to Rabourn’s presentation, Pack later said, “If you look at the remarks from the June meeting, you will note that our CFO did state that while we had a higher amount of cash-on-hand, that came from some temporary grants and it’s anticipated that the amount of cash-on-hand is going to diminish over the future. So, while we were able to achieve a high watermark for the year with 35 days cash-on-hand, that’s not necessarily where things are going to be in August or September.
Hazel Hawkins advisor Marcus Young with Jeffrey Scott Agency, a public relations company, told BenitoLink Rabourn did not present the whole picture in the meeting and that 35 days of cash-on-hand falls far short of the median 222 days cash on hand for all California critical access hospitals.
“[It] did not serve the community well in trying to help them understand what is truly happening from a financial perspective,” Young said.
He said though the profit and loss statement through May 31, 2023 appears to be profitable, non-recurring, or one-time only items need to be taken into account. He said those include $3.2 million from the American Rescue Plan, $3 million related to the quality improvement program received from previous years and $1 million from the 2022 Medicare Cost Report.
“The effect of these adjustments, many of which were disclosed by the District in its Finance Committee reports, is a net loss in the millions because they cannot be counted as ongoing cash flow,” Young said.
In a recent BenitoLink interview, Congresswoman Zoe Lofgren said the hospital is “on an even keel for now but not out of the woods.”
According to Rabourn, a delayed $13 million supplemental payment from the state is due this winter and there may be additional funding from the Distressed Hospital Loan Program up to $10 million. But Pack cautioned that “$10 million applied for is not $10 million in hand.”
“The issue that I would characterize is how you choose to extrapolate the data and extrapolate the trends,” Pack explained. “Do you want to be planning for the contingency of low census rates and low turnout, or do you want to be planning for a more rose-tinted imagination of how things are going to be? I would say that what was presented by the financial analyst tends to tip more in the direction of optimism than pessimism.”
Young also said one-time payments or loans are not a solution to Hazel Hawkins’ woes, which he said include inflation, lower-than-average Medical/Medicare reimbursements and staffing costs.
“Without a partner or buyer, we will continue to labor under these constraints,” Young said.
During his presentation to the nurses and members of the public, as well as city and county representatives, Rabourn said over the last three years the district’s net revenue exceeded expenses by $5 million, including $2 million year-to-date in 2023. It had $14.9 million or 35 days cash-on-hand, which was reported by CFO Mark Robinson at the June 15 finance committee meeting, he said. These figures translate to approximately daily operations costs of $425,714 per day.
“The district is pursuing bankruptcy on the basis of what they’re calling ‘budget consultants,’” Rabourn said. “They are saying the bankruptcy is justified because while they are fine for the moment, they’re projecting they’re going to lose money in the fiscal years 2024 and 2025, and run out of cash entirely by November 2024,” he said, which, if true, would seem to indicate by December the hospital would be forced to close. “We’ve just seen how good the district is at forecasting how much cash it will have just a few months into the future.”
Rabourn said the union requested the data to justify the bankruptcy, but, so far, the district has not provided it, which Young contends saying the hospital has shared updated financials with the union and the public. Rabourn also said the question that should be asked of interim CEO Mary Casillas and the board is, “What changed and why the bankruptcy?”
“By any objective analysis, the basis for the fiscal emergency that the hospital experienced back in November has passed,” Rabourn said. “In Mary Casillas’ February column [in BenitoLink], she stated that bankruptcy would weaken the hospital’s ability to deliver care. She was right. She says the hospital is already losing staff and will continue to lose staff as it goes through bankruptcy.”
Rabourn said as nurses leave they will have to be replaced with expensive temporary options.
“Hiring temporary registry nurses during COVID cost the hospital huge amounts of money,” he said. “Temp nurse spending exploded in 2021, reaching $8.9 million, compared to the 2020 costs of just $2.6 million. The cost of temporary nurses in 2022 was $4.5 million, and so far in 2023 it looks like it’s been $4 million.”
If temporary nurses were used at the same rate throughout the rest of 2023, the annual cost would be around $8 million.
Lastly, Rabourn said a review of the hospital’s financial picture would not be complete without a discussion of executive compensation, specifically compensation for CEOs.
“While we don’t yet have official figures for 2022, we do know that when former CEO Steve Hanna was let go he was given $360,563 on top of what he had already earned. Since 2018, the district has spent nearly $3 million in CEO compensation alone.”
Hannah’s four-year contract included an annual compensation of $350,000, including an incentive bonus of 10%. In 2021, he received a $10,000 increase in pay, according to Mark Robinson, CFO in a Oct. 26, 2022 BenitoLink article.
BenitoLink asked Pack about the nurses’ claim during the town hall that as they were voluntarily delaying an agreed-upon pay raise for three months, Casillas received a 15% pay raise. He said he could not address her pay raise. Frankie Gallagher, director of marketing and public relations, did confirm with BenitoLink that when Casillas was promoted from COO to interim CEO, her $270,000 salary was increased by 15% to approximately $310,500.
The Hazel Hawkins Hospital intensive care unit closed more than a month ago without notice to the public or the health care district board, according to staff physician Dr. Natalie Lacorte. Board member Pack admitted as much to BenitoLink, saying he was unaware of the ICU being closed when Lacorte announced it during public comments at the June 22 board meeting. He told BenitoLink the hospital hopes to reopen the ICU sometime in July but was unable to explain how or exactly when.
Pack did say multiple nondisclosure agreements had been signed concerning potential mergers or leasing agreements though he did not know how many.
Later, Gallagher confirmed that 15 NDAs had been signed but did not specify how many hospitals have declined to move forward.
“I understand that the public wants to hear about who these parties are,” Pack said. “There’s only one party that I understand has been somewhat public and that’s the County of San Benito to the degree that it possibly brokers with Salinas Valley Memorial Hospital, but we still don’t know where that lies. In regards to some of the other parties or groups, the concern of course is that disclosing or providing too much information may actually cause them to back out. At this time, we don’t want to do anything that would reduce the pool of potential partners.”
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