Palm Drive Hospital finances recovering

Just seven months after filing for bankruptcy protection, Palm Drive Hospital is projecting a fiscal year-end profit, but its officials are not ready to declare the Sebastopol facility has achieved a financial turnaround.

The latest financial review predicts the hospital will be $1 million in the black by next June. That would be a sharp reversal from the $3.6 million deficit that the hospital rang up last year.

"We realize that it will be difficult for many people to believe this turnaround is happening so quickly, but the numbers speak for themselves," said Jim Sato, Palm Drive's interim chief executive.

Hospital officials attribute the bright financial picture -- which comes after seven years of the hospital operations failing to turn a profit -- to dramatic switches in direction made over the past summer.

"The big change in revenue comes from reopening the intensive care unit. It has impacted the entire hospital and has done better than anticipated," said Dan Smith, a Sebastopol high-tech entrepreneur who has given the hospital $1 million in cash and another $2 million in stock guarantees so it could secure a line of credit.

Reopening the ICU at the 37-bed hospital in July has funneled more patients into the hospital's medical surgery beds and into its diagnostic and imaging services. The average daily patient census has increased from 4 to 5 last year to 18 to 22 in recent months.

Smith said Palm Drive has benefitted from Sutter Health's plans to eventually cease providing hospital services in the county. Palm Drive's intensive-care-unit director, Dr. James Gude, was Sutter Medical Center's ICU director for than two decades until July.

"The level of uncertainty with talk of Sutter leaving is causing surgeons, nurses, doctors and patients to look elsewhere," Smith said.

Palm Drive's bottom line will benefit from improved contracts with health insurers that will result in an extra $3 million in revenue, Sato said. He speculated that insurers boosted their reimbursement rates for Palm Drive medical services in order to help the hospital stay in business as a counterweight when insurers negotiate with competing institutions such as Memorial and Sutter hospitals.

Cash collections increased to $2 million by the end of October, a boost that officials attributed to more aggressive pursuit of unpaid bills. Two other community hospitals, Healdsburg District and Sonoma Valley, provided bill collection assistance that netted more money owed the hospital.

"The hospital was very lax in making collections," Smith said.

Although the hospital remains in bankruptcy and owes creditors $2.7 million, hospital officials said they are confident of receiving a positive rating from a bond insurance company that will allow issuance of revenue bonds next year.

Sato said he will seek board approval to issue between $23 million and $28 million in bonds, some of which will be used to pay debts and pay off previous bond issues.

Critics of the hospital have warned board members during public meetings that west county voters are likely to be skeptical of approving any more parcel tax increases for the facility. The parcel tax raises about $3.4 million annually, which reduced last year's deficit almost in half.

Sato and Smith are adamant that hospital supporters not return to voters to ask for more money.

"A parcel tax is not in the cards in my view," Smith said. "The hospital has to demonstrate that it has come to terms with market conditions that exist today and has learned to compete in a market dominated by Kaiser and other players that would be happy to kill us."

You can reach Staff Writer Bleys W. Rose at 521-5431 or bleys.rose@pressdemocrat.com.