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Just two months after significant layoffs, Palm Drive Hospital in Sebastopol is bracing for yet another round of staff reductions that could fundamentally alter operations and services at the financially strapped facility.

Hospital management has already begun 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, which officials said totaled $356,200 in January, and more than $1,020,368 thus far for the current fiscal year, which ends July 1.

"I don't think any small hospital with the level of volume as low as ours will be able to survive long term without significant additional funding sources," Thomas Harlan, Palm Drive's CEO, said Saturday. "If we were to eliminate any one of those programs, we would be eliminating staff."

"If we can't sustain it as it is right now, we have to re-imagine and re-emerge as something else," he 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, management held several meetings 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.

One Palm Drive employee, who asked that her name not be published, said she was upset that the hospital has not come forward sooner with the dire financial news.

"As a Sebastopol resident who supports this hospital, I find it appalling that they haven't brought it to the public's attention so they could get some feedback and ideas from the public as to what they could do to turn the place around," the employee said.

Officials said that the Palm Drive board is expected to hold a special meeting sometime this week. Such a meeting would require at least 24 hours public notification, so the earliest the meeting could be held is Tuesday after notification on Monday.

The written notification, which Harlan wrote and received himself, was sent to all 242 employees telling them that, "we anticipate that we will lay off at least 50 employees at Palm Drive, the layoff is expected to be permanent."

Harlan said the notification was a legal requirement and that the figure of 50 positions is by no means firm. The final number of layoffs could be fewer, or more, depending on what services are eliminated and what structural changes are made at the hospital.

"We have been looking at various scenarios for several weeks," said Harlan. "There has been no final decision as to what we're going to do. The board needs to make that final decision."

In January, the hospital implemented layoffs or reduced work schedules that affected 40 people. The move resulted in 10 layoffs, and the number of hours saved equaled about 20 full-time positions, Harlan said Saturday.

But continued financial hemorrhaging is forcing more drastic measures, officials said.

While the hospital has 37 licensed beds, it has long been staffed at far fewer because of a continued decline in its inpatient volume. Last fall, management reduced staffing from 18 beds to 14.

In the current fiscal year, hospital staffing has been budgeted for a daily census of 12.7 patients. But the actual daily census has been about nine patients per day every month since July, Harlan said.

"That's what's killing us every month," he said.

Meanwhile, payments from private insurance have declined 26 percent in the past five years because the economic recession has reduced the number of people with insurance, even as insurance companies pay less of a patient's medical costs, said Chris Dawson, president of the board of directors of the Palm Drive Health Care District.

Other North Coast hospitals have struggled against the same economic forces. In August, Ukiah Valley Medical Center eliminated or left unfilled 18 positions, though five employees were reassigned to other jobs. Another five employees had their hours reduced, according to an internal memo.

In November, Healdsburg District Hospital cut its workforce by 8 percent, or 30 employees.

Dawson and Harlan, interviewed Saturday in Harlan's office, said that in the past several years, hospital management has launched a number of initiatives aimed at bringing in more patients and increasing revenue.

This includes recruiting a third orthopedic surgeon, a second spine surgeon, another affiliated primary care doctor, investing in 3-D mammography and maintaining the hospital's stroke center certification.

The hospital also entered into a partnership with Marin General Hospital and Sonoma Valley Hospital for centralized management services. The partnership has enabled Palm Drive to share the cost of implementing electronic health records with Sonoma Valley Hospital.

Dawson said these recent investments were done with the hope that, "if you build it they will come ... unfortunately, they haven't come."

Plans for mass layoffs come at a time when the hospital has earned recognition as being the fifth-safest hospital in the nation, according to a recent analysis by Consumer Reports. The study is based on information from the federal Centers for Medicare & Medicaid Services and other publicly available data.

Harlan and Dawson both stressed that hospital management and the board would do whatever it takes to maintain their high marks for patient safety.

"Whatever we end up being we will maintain this continued commitment to patient quality," Dawson said Saturday, holding up the recent Consumer Reports article.

One of the main goals is to keep the hospital's emergency department open, a priority for those who pay the local parcel tax that helps fund the hospital, Harlan said.

The employee who requested anonymity said she hopes the hospital can survive, "even if its just urgent care, because the community needs it. We've saved a lot of lives at palm drive. We're number five in safety in the whole country."

(You can reach Staff Writer Martin Espinoza at 521-5213 or martin.espinoza@pressdemocrat.com.)