A Reader’s Guide to San Diego Hospital Districts

A Reader’s Guide to San Diego Hospital Districts

Photo courtesy of Palomar Medical Center

Since 2008, Escondido-based Palomar Medical Center has generated about $10.5 million in profits.

It’s difficult to imagine large parts of San Diego County that were once so sparsely populated that communities needed to tax themselves in order to build a hospital. But about 70 years ago, that’s exactly what went down.

In the mid-1940s, California drew boundaries for what later became health care districts. Today, four districts exist in San Diego County: Tri-City, Palomar, Grossmont and Fallbrook.

Think of them like school districts, but for health care. District hospitals are publicly subsidized and function like county hospitals — only the county is divided into subsections.

A portion of residents’ property taxes can go toward building and modernizing hospitals, and the district can sell bonds to shore up construction capital.

Generally, district hospitals are led by board members elected through a public vote. The idea is that districts will be represented by someone chosen from the community, with its best interests in mind.

Board members, who some districts pay about $100 a pop for participating in board meetings, choose a chief operating officer, whose annual salaries can range from $70,000 to around $1 million.

Hospital board members often have no background in hospital administration or experience in generating profits in a cutthroat health care market.

To better compete for patients, some districts have partnered with larger, private or not-for-profit health care systems. For example, Fallbrook Hospital and La Mesa’s Sharp Grossmont Hospital each have lease agreements with outside entities.

Only Tri-City and Palomar Health have yet to align with a larger system, which makes Nathan Kaufman, managing director of a San-Diego based health care consulting firm, question the hospitals’ viability.

“One interesting thing is that when a board does decide to partner, it gives up part of its authority. In essence, the board votes itself out of a job,” Kaufman told Voice of San Diego.

It begs the question, Kaufman said, of whether the system creates a conflict of interest and keeps boards from making the best possible health care decisions for the people in their districts.

Joy Grossman, who studies impacts of national health care policies as a senior researcher at Center for Studying Health System Change, agrees that small hospitals are under pressure to get bigger.

Those that can’t keep pace can be forced to close, she said. The degree to which that matters for the public is a matter of geography, and whether nearby providers could offer immediate care for those who can’t travel to another hospital.

“It comes down to what the community feels like it needs, and how to create a viable health care system to meet those needs,” she said.

Moving forward, we’ll be looking at how hospitals are serving communities across the county, and how that care varies based on geography. For now, meet your hospital districts.

Tri-City: The Scrapper

Tri-City is the bad boy of San Diego County hospital districts. The controversy that’s come out of this Oceanside hospital district has mostly focused on squabbling between board members.

Most recently, the hospital board fired CEO Larry Anderson. Board members accused Anderson of pressuring the hospital’s former finance officer to misstate financial reserves, and inappropriately investigating Carlsbad’s mayor. After bonuses and other compensation, Anderson earned about $700,000 in 2012.

For all the drama, there’s no evidence the skirmishes affected patient care.

Though that hasn’t been stellar, either. Ratings published by the California Health Care Foundation indicate that just 60 percent of patients would recommend the hospital to their friends — below the state average. Palomar Health and Tri-City share this in common.

As a standalone health care entity, its major concern is the bottom dollar. And over the years, Tri-City hasn’t been afraid to scrap in order to protect it.

In 2009, Tri-City filed a lawsuit against Scripps Health, alleging that its competitor was poaching patients. The suit was later dismissed, but it exposed Tri-City’s desperate need to maintain its patient volume.

Tri-City has for years been toying with the idea of partnering with a larger system, but hasn’t taken the leap.

Board Chairman Larry Schallock said that the reason the hospital hasn’t yet aligned with an outside entity isn’t because it’s opposed to the idea — it just hasn’t found the right fit.

“Every district is looking to (form an alliance). The issue is agreeing on the terms of those relationships,” said Schallock.

“You used to be able to make it as a standalone hospital, but it’s becoming harder and harder to make it as a freestanding entity,” he said. “In rural areas, a lot of hospitals are simply not surviving.”

If Tri-City is hoping to team up with a larger provider, it might do well to move quickly. Based on numbers from the American Hospital Directory, total operating expenses have outpaced net patient revenue at Tri-City, letting go of $7 million in profits since 2008.

Palomar: The Player

Palomar, the only other district going stag in San Diego County, appears more financially sound on paper than its North County counterpart Tri-City.

Since 2008, Escondido-based Palomar Medical Center has generated about $10.5 million in profits. This came after Palomar’s concerted marketing efforts — like when it hired former Chargers running back LaDainian Tomlinson to be its ambassador — and efforts to expand its network by hiring more doctors.

And Palomar wasn’t above engaging in hospital-turf warfare by crossing into enemy territory to build satellite clinics.

But if the two hospitals were squaring off in a contest, Palomar had one important tool on its side: more money.

When Tri-City pitched a bond measure that would secure money for hospital construction, voters didn’t bite. Palomar Health, however, sweet-talked voters in 2004 into approving Proposition BB, a measure which raised property taxes and OK’d borrowing $496 million for a new hospital.

In 2012, what its creators called “the most technologically advanced hospital in California,” opened in Escondido. The balance of the hospital’s $956 million price tag was made up by revenue bonds, fundraising dollars and reserves.

Yet, it’s too early for Palomar Health to take a victory lap. Earlier this year, the hospital suffered a $40.8 million net income loss — which it attributed to cuts to Medicare reimbursements — and it was forced to lay off staff. The shortage of cash flow also caused Palomar to violate its bond agreement.

Despite its swanky new digs, Palomar Health is also looking for a partner. Hospital CEO Michael Covert, whose 2012 taxable wages topped $1 million, told the U-T last spring that Palomar was in in the market for a long-term relationship.

Fallbrook: The Little Sister

If Tri-City is the bad boy of the district, Fallbrook is the little sister — the one playing off to the side, minding her own business.

As the smallest health care district in the county, Fallbrook Hospital serves its own community and those just east of Camp Pendleton in Rainbow, De Luz and Bonsall.

Fallbrook is in the middle of a 30-year lease agreement with Tennessee-based Community Health Systems (CHS). Unlike Palomar and Tri-City, which each give the hospital about $7 million a year in taxpayer funds, Fallbrook taxpayers don’t fund hospital operations.

Vi Dupre, Fallbrook health care district’s executive officer, said there’s no commingling of funds in her district. The hospital itself belongs to the public, but under the lease agreement, CHS maintains the facility and keeps it staffed. As such, none of the hospital’s earning go to the district.

Instead, said Dupre, “the dollars of the district go back into the community” through grant awards, educational outreach and free health screenings.

The arrangement, she said, had been beneficial for both the district and the hospital until relatively recently.

Financial information from the American Hospital Directory shows Fallbrook Hospital lost about $4.8 million in profits since 2008.

Last June, Fallbrook made a pact with Tri-City in which Fallbrook promised to send patients to Tri-City for specialized care, and Tri-City swore to return patients to Fallbrook after the treatment was provided.

Grossmont: The Hero

Based on financial stability, Grossmont’s the poster child for San Diego hospital districts.

La Mesa’s Sharp Grossmont Hospital began a 30-year lease agreement with Sharp Health Care in 1991. It seems to be working. Since 2008, the hospital has increased profits by $25.1 million.

The hospital’s quality of care isn’t too shabby, either. Along with Fallbrook, Sharp Grossmont was named a “top performer” this year by the nation’s largest accreditor of health care facilities.

Grossmont CEO Barry Jantz said that its agreement with Sharp means the district owns the buildings, and the Sharp operates the hospital. In Grossmont’s case, Sharp even upgrades facilities on its own dime, Jantz said.

Public money doesn’t support the hospital, except for when the district approves a bond measure like it did in 2004. In that case, the district put about $230 million of its approved $500 million toward hospital improvements.

Jantz said he sits on the board, and weighs in on operational decisions, but for the most part “keeps (his) hands out” of running the hospital. Jantz said he and Sharp administrators share a vision for the future of the hospital.

As to whether it would be wise for other districts to follow Grossmont’s model, Jantz said it’s important to “compare apples to apples.” All districts have different needs, he said, and just because a lease agreement works out better for one health care district doesn’t mean it’s the right choice for another.

“I can say that there’s a definite benefit to our relationship with Sharp. Can I say that it gives us an advantage? I can’t say that. We’re not in competition (with other districts),” he said.

The Future of the Districts

Experts and CEOs agree on this: In order for district hospitals to survive, they need to align themselves with other health care providers. Once they do that, however, they give up a certain degree of control over the decisions made for folks in their communities.

In a sense, they are no longer public hospitals — at least not in the traditional sense. It raises the question, then, of whether the hospitals serve their intended purpose, or if they’re necessary at all.

Grossman said that a district hospital’s future “depends on the district’s geography and whether communities suffer or lose access to health care if hospitals close.”

But determining whether certain hospitals are needed is not a mystery.

“It’s an empirical question,” Grossman said. We can measure things like travel time, and if it’s too far to get help from other providers in the case of emergencies, she said.

And if it’s determined the hospital isn’t necessary?

“Then it becomes a question of political and cultural trade-offs, and whether getting rid of that hospital creates the perception that it’s a less desirable place to live,” she said.

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Mario Koran

Mario Koran

Mario reports on hospitals, nonprofits and educational institutions, digging into their impact on the greater San Diego community. Reach him directly at 619.325.0531, or by email: mario@vosd.org.

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