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The Palm Drive Health Care District board voted unanimously Tuesday night to authorize a Chapter 9 bankruptcy, the first step in a plan urged by management to close the emergency room and cease acute inpatient services at the Sebastopol hospital.

"We're out of money. We can't pay our vendors on a regular basis," said hospital CEO Thomas Harlan. "Given these sets of what I would call alarming and very depressing facts, the chronic and extreme financial distress, we're faced with a position of insolvency."

Members of the public, including many employees, pleaded with the board to reject the proposal to close the emergency room. The board agreed to table the vote until its next meeting on Monday.

"We can put this vote off," said Nancy Dobbs, board member. "But we're just putting off the inevitable. By April 28, we will be out of money."

The board met in emergency session less than a week after Palm Drive warned employees that major layoffs were imminent. At Tuesday's meeting, attended by about 150 people, board members painted a gloomy picture of a hospital that is in imminent danger of having the lights turned off.

They blamed the problems on crippling operating shortfalls caused by a combination of factors, including falling Medicare/Medi-Cal reimbursements, competition from other acute care hospitals, significant loss of patients and the general costs of health care. The board said it had tried over the last few months to come up with a plan to save the emergency room in particular, including hiring the Huron Consulting Group, an outside consultant. But, they said, no plan proved fiscally viable.

"We will not last a month. The vendors will not bring supplies — we won't be here," said Dobbs. "That's how bad it is."

It is unclear what would happen to the hospital if it shut down the emergency room and critical care beds. Under state law, hospitals must have both to qualify for a license that permits it to operate. Hospital officials acknowledged they didn't know if the state would withdraw or suspend Palm Drive's license.

At least one group of local physicians said they were scrambling to find a plan to buy the hospital and reopen it as a critical care/surgical unit. But they warned they may not be able to keep the hospital open if its license is suspended or they are forced to apply for a new one.

"We could continue to do what we do well," said Michael Bollinger, a orthopedic surgeon who said the group was still exploring its options.

"Our plan is to have a hospital status license. Without that we don't have a plan," he said.

Marsha Sue Lustig, a board member, said any idea to rescue the hospital would take months to implement.

"Unfortunately we don't have that," she said. "The reality is that the likelihood of an arrangement coming together in time so that the hospital doesn't have to close on April 28 is almost impossible."

The board authorized Harlan to seek protection from creditors in U.S. Bankruptcy Court with a Chapter 9 filing. The hospital previously filed bankruptcy in 2007 and emerged in 2010 when it sold $11 million in bonds to pay off loans and creditors and underwrite future improvements.

While board members said they hoped the hospital would eventually serve the community again, it would likely look very different than it does today.

"I know it's sad, but I also think we need to look at this as an opportunity," said Sandra Bodley, a board member. "We have a chance to serve the community in a new and innovative way."

Harlan said the health district would begin a process soon to determine how the hospital would reorganize and what kind of services it would eventually provide. The hospital will seek feedback from the public, including hosting a series of town meetings.

"The community will play a role in how we proceed and what kind of services we will be providing for the community," said Chris Dawson, the board president. "We want to hear from as many people as possible."

A change in ownership of the hospital would likely require a public vote by residents in the Sebastopol area district and approval from state agencies, a process that could take months, said the board's lawyer, Colin Coffey.

About two dozen people stood up to speak during the meeting, including several nurses, doctors and other employees.

Members of the public spoke passionately in support of the hospital and cheers rang out when the proposal to close the ER was tabled. Many said they thought the public needed more time to respond to the drastic measure of closing important services.

"This would be a terrible loss," said Gloria Roberts, a Sebastopol resident. "We need time for people to speak up on this."

Since last July, the hospital has lost more than $1 million, said Harlan. In January alone, losses totaled $356,200, he said.

The losses are the result of a dramatic decline in overnight inpatient stays, which average just under nine patients a day. The hospital is licensed for 37beds but is currently budgeted for 12 beds because of the dwindling number of patients.

The intensive care unit treats an average of 1.5 patients each day, while the medical-surgical unit treats an average of 7.4 patients daily, Harlan said. Sometimes there are only two patients in the entire hospital, he said.

"Some days in the hospital we have more nurses than patients," he said.

The California Nurses Association blasted the proposal by hospital management. The union warned the closure of Palm Drive would leave tens of thousands of seniors and western Sonoma County residents without critical medical services.

Medicare patients account for nearly 60 percent of Palm Drive's patients, well above the county average of 40 percent at other local hospitals, the union said.

"Closing Palm Drive would put at risk many of these patients, who are typically not as mobile and in a county with inadequate public transportation. These patients will have a much harder time traveling the distance to get to hospitals farther east," Deborah Burger, a California Nurses Association co-president who lives in west Sonoma County, said in a statement.

"A closure would also put at risk other area residents, many of whom live in rural and in some cases remote areas of western Sonoma County. The added travel time could literally mean life or death for some area residents. This is a closure that should be stopped," Burger said.

The cuts at Palm Drive come as hospitals around the North Coast grapple with smaller Medicare payments, fewer overnight patients and competition that is expected to get tougher later this year when Sutter Medical Center takes the wraps off a new hospital in Santa Rosa.

On Friday, Palm Drive management met with hospital staff and notified them of the possible layoffs. The notification complied with the state Worker Adjustment and Retraining Notification Act (WARN), which requires companies to notify employees and the state 60 days before mass layoffs of at least 50 people at a particular work site.

Hospital management has started looking at the viability of such medical services as wound care, spine surgery and joint replacement in an effort to stem the monthly revenue losses.

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