For El Camino Hospital, privatization has meant polarization. To make matters worse, the hospital has fallen $18 million in the red
By Richard Sine
Richard Warren had a Ross Perot quality about him as he took the podium at a sardine-tight public meeting at El Camino Hospital in Mountain View. White-haired and folksy, Warren harked back to the days when Marcus Welby reigned and doctors and hospitals seemed infallible. But like Perot, Warren had a penchant for pessimistic predictions and populist answers. "There are barbarians at the gate," he warned the 400-plus assembled, "who don't have El Camino's best interests in mind."
The barbarians, in Warren's view, were the enormous profit-chasing hospital chains that are gobbling up troubled hospitals faster than Bill Clinton downs Big Macs. And Warren believed there was one good way to fend off the barbarians at El Camino's gate: by giving El Camino Hospital back to the people.
An elected district board once controlled El Camino, which was opened in 1961 with $29 million in tax-financed bonds. Increasingly stiff competition from other hospitals convinced the district board that it could only survive by handing most of its power to a private board that could make strategy and salary decisions free from prying eyes.
Recently, however, the district board learned that the private board has plunged the hospital $18 million into the red. Fearing for the economic future of the hospital, they have sued the private board over the lease agreement they themselves constructed. The battle will determine control of the hospital and could have ramifications for hospitals undergoing the privatization process throughout the state. The district board has hired Warren, the retired CEO of a successful district hospital in Fremont, to help them take control of the hospital if they win the suit.
The district board has not been the only critic of the private board's management. Some physicians and many nurses feel that the quality of care has declined at the prestigious hospital since the private board took over. And independent physicians charge that the private hospital board is funneling valuable patients and resources to a select minority of physicians who have joined a new group.
All the finger-pointing and legal maneuvering has led to management paralysis at a hospital struggling to survive in an era where tight-fisted private insurers make the rules. The barbarians may not have smashed the gate yet, but they have inspired plenty of dread and discord within the walls.
Read for yourself the correspondance between:
Letter from Paul Hoar to League of Women Voters, dated January 10, 1996.
Letter from Camino Healthcare Board of Directors to League of Women Voters, dated January 26, 1996.
As early as 1990, physicians and administrators at El Camino realized that soaring health-care costs and increasing competition among local hospitals would require changes. A primary concern was the shift from fee-for-service reimbursement to prepayment and managed-care approaches. By paying caretakers a lump sum per patient, these insurers rewarded physicians and hospitals who held down costs of tests and hospitalization.
El Camino's sterling reputation had its price: a bed there cost hundreds of dollars more per day than at other area hospitals. (Some hospitals had brought costs down to $1,100; El Camino costs $1,900 and up.) And under managed care, physicians were less likely to send their patients to an expensive hospital. "There's a surplus of hospitals in the area," says Lynn Briody, chair of the private Camino Healthcare board. "We're all fighting to not be the one that closes."
After a two-year study, a review panel seized upon the idea of an "integrated delivery system" along the Kaiser Permanente model. The hospital would save money by merging with a local group of physicians with experience in handling managed care. By mingling the assets, and the financial fate, of the doctors and the hospital, doctors would be less likely to drain hospital resources on extra tests and long hospital stays.
"The theory was that if you have physicians who are economically tied to a health-care system, the motivation to control costs would be greater than if you have an independent physician who goes to several hospitals," Briody says. "They wouldn't order a whole barrage of tests when one or two would do the job."
The district board also hoped that an integrated system would put El Camino Hospital on a better footing in negotiations with private insurers for patients. "In California, there's a huge push to integrate hospitals with physician networks," says Laurence Baker, a health economist at Stanford. "Hospitals have an incentive to be in big networks to provide one-stop shopping for HMOs that want to bargain with them."
Briody says an integrated system would make life easier for its subscribers by providing a single medical record and a single bill for all services. "At our annual meetings, the public is always asking us when we're going to get rid of all those bills," Briody says.
As discussions with local physician groups began, the district decided that discussions of physician salaries and business strategies had to be private. At the end of 1992, it leased the hospital and gave its assets to a new nonprofit controlled by a new board. In September 1994, the Sunnyvale Medical Clinic and the Shoreline Group of primary-care physicians merged to form the Camino Medical Group. That same month, El Camino Hospital bought out the Camino Medical Group to form Camino Healthcare.
The new system had been launched, but the squabbling had just begun.
The merger alone wasn't enough to control costs at El Camino Hospital. Facing a declining patient population, the hospital slashed its nursing staff in September 1993. Highly trained and well-paid registered nurses were replaced by lower-paid techs to do simple tasks like replacing bedpans and taking blood.
Hospital administrators argue that registered nurses are unnecessary for many routine tasks. Many hospitals throughout the state, both public and for-profit, have taken similar measures. But nursing leaders complain that the cuts have left them overworked and with a lower margin of error in emergencies. "I receive almost daily [forms from nurses saying] they were not given adequate staff for the severity of the patient, or they were given assignments that potentially threatened health and safety," says Patricia Briggs, an O.R. nurse who heads the nurses' union. "Rather than give bad care or put patients at risk, nurses don't take meal breaks or coffee breaks, or [put in] overtime."
In some hospitals facing nursing cuts, physicians are reluctant to back up nurses' complaints, either because they disagree or out of fear they will scare patients away from the hospital. But El Camino is an exception. Among the minority of physicians who spoke out in public is Susan Hansen, a neurologist whose husband joined the district board last year. "Each individual nurse is taking care of more patients," Hansen says. "The differences are in the little things. Camino is still an excellent hospital, but it's not as good as it used to be."
Hospital administrators disagree. Hospital spokeswoman Arian Dasmalchi points to surveys showing that patients are as likely to refer friends to El Camino today as they were before the nursing cuts. The hospital also performed well in its accreditation review last year.
Nurses are not the only group upset over developments at the hospital. Independent physicians who admit patients to the hospital are also feeling left out of the club. They contend that the hospital is using its clout to favor a small clique of physicians who will follow the Camino corporate line.
The Camino Medical Group physicians who merged with Camino Healthcare number slightly more than a quarter of the 450 physicians on the hospital's medical staff. But when the hospital advertises in newspapers or in brochures at the hospital, it advertises for the physicians of Camino Healthcare. Independent physicians claim that patients who enter Camino Healthcare largely stay within a closed referral group of Camino Medical Group physicians.
The closed loop, independent docs say, has resulted in fewer choices for patients and less business for independent doctors. "We initially thought that doctors who weren't part of Camino Medical Group would contract with the group and see the same number of patients," says Dr. Norman Sokoloff, an independent orthopedist. "What really happened is that they used all the power of this huge facility with its public relations and advertising power to, in effect, funnel patients. ... Patients who wanted to come to us as independent contractors would be subtly dissuaded. [Or] they would never learn what doctors they didn't see."
Briody says that in response to complaints by independent contracting physicians, the private board plans to bring on a representative from the group. But she says that the lawsuit by the district board has halted any planned changes in board membership.
The independent physicians insist that the struggle for control over the hospital isn't a turf war between two groups of physicians. "No one wants the Sunnyvale Medical Clinic to leave," Sokoloff says. But Sokoloff does believe that hospital funds have "subsidized outpatient services and physician salaries." In other words, too much money is being spent on the physicians in Camino Medical Group.
Hospital administrators deny that charge, but they also will not disclose physicians' salaries or other budgetary specifics. And the public district board would like to know.
The newer district board members have become increasingly hostile to the private organization that previous district members set up. In 1994 their general counsel resigned after a board member suggested he had a conflict of interest. And last year, the board started demanding biannual financial reports promised in the original lease but which members claim were never received.
In December, the private board released a report documenting an $18 million operating loss for the 1994-1995 fiscal year. The hospital had posted an $11 million profit for the prior year. (The operating loss does not include the $27 million Camino Healthcare spent in 1994 to buy out the Sunnyvale Medical Clinic as part of the merger. That was financed through bonds.)
The revelations only added steam to the district board's desire to retake the hospital. The board fears that El Camino may share the same fate as Good Samaritan Health Systems in San Jose. The three South Bay hospitals owned by Good Sam were bought by Columbia/HCA, the nation's largest chain, after posting a $43 million loss.
However, when Chief Financial Officer John Reiber looks at the books, they show not an operating loss but an "investment" to ensure the success of the new delivery system. Reiber attributes the losses to consultant fees, strategic planning and investments in a more streamlined information retrieval system. The hospital also faces declining payments from insurers, as do most hospitals in the state. Reiber says the $18 million loss was offset by $9 million in interest income from the hospital's investments.
"We look at this as a start-up business," says Reiber. "We expected losses the first couple of years. This year, we're doing significantly better than budget. We will budget to break even in 1997."
The district board, however, isn't willing to wait that long. Dissatisfied with the management of the hospital, it took another look at the 1992 lease and asset transfer. The board discovered what they call a "poison pill." In the event the hospital goes under, the public board will get all the debt, but receive none of the original cash it handed over. (The district board could hire a management company at the hospital's expense in an attempt to save it, however.)
In its suit, the board also says the lease is void because of a conflict of interest. The general counsel for the district, Jerry Peters, and its CEO, Richard Pettengill, both went on to work for the private corporation, El Camino Hospital System, shortly after encouraging the district board to form it.
The private board, with Pettengill and Peters on it, met two days before the district board voted on the asset transfer, says Dominick Curatola, a cardiologist who cast the lone dissenting vote. Curatola also believes Peters quashed a critical view of the lease worked up by an outside law firm. (Peters, who originally asked for the outside opinion, now says he thought the memo mostly just went over old ground. He declined to comment on the conflict of interest because of pending litigation.)
The two boards are considering mediation. In the meanwhile, the private board has stalled its plan to hire a new CEO to replace Pettengill, who left last year. The public board has hired its own temporary CEO, Richard Warren, to help the board through the transition if it ends up taking over the hospital again. Warren has successfully managed the Washington Hospital in Fremont, a public district hospital.
To insiders, the board battles may feel like the Boer Wars. But both sides say they want to avoid a takeover by a large for-profit chain. Around the state, physicians and administrators are being pitted against each other in the rush to cut costs and seduce large insurers.
"Physicians used to spend 90 percent of their time caring for patients," says Diane Higgins, El Camino medical chief of staff. "Now we have to spend 40 percent of our time dealing with budget issues. I feel the hospital is the best in the Bay Area. We're trying to be proactive to make sure that doesn't change."
The Camino Healthcare board meets publicly once a year. That meeting will be on Thursday, Feb. 22, from 6:30 to 8:30 p.m. at the El Camino Hospital cafeteria, 2500 Grant Road, Mountain View. Among the topics discussed will be the litigation, operations and finances, and quality of care. Public comments are welcomed.[ Metro | Metroactive Central ]
From the Feb. 22-28, 1996 issue of Metro
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