Palm Drive Hospital's budget deficit creating 'very big hole'

Administrators at Palm Drive Hospital are scrambling to put together a new financial plan in an attempt to reverse the hospital's budget deficit.

The hospital at the end of February had a deficit of $864,158 and 15 days of cash on hand.

"That's a very big hole," said Rick Reid, Palm Drive's interim chief executive officer and chief financial officer.

He is devising a 90-day financial plan to stem the losses. But even if it works, he still expects that the Sebastopol hospital on June 30 will have a deficit of $750,000 to carry into the next fiscal year.

In contrast, the current $30.4 million budget was projected to have a surplus of $914,287 at the end of February.

"Looking back, it was optimistic," Reid said. "There were certain things that had to happen and there were operational changes that were not made."

The shortfall is just the latest in gloomy financial reports for Palm Drive, which emerged from bankruptcy two years ago.

Reid was hired as Palm Drive's interim chief executive officer on March 13, the ninth CEO the hospital has had in the past five years.

He also is the chief financial officer for Palm Drive as part of a agreement that Palm Drive entered into on Jan. 1 with Marin General Hospital.

The partnership, which also includes Sonoma Valley Hospital, involves sharing business services and gives Palm Drive access to doctors in the Marin-Sonoma Independent Physicians Association and the Prima Medical Foundation.

Palm Drive board President Nancy Dobbs said she believes the Marin General partnership, the expertise it provides and the possible cost savings will be the key to easing Palm Drive's financial plight.

"I don't think we are in serious trouble at all," Dobbs said. "We are in a good position with the affiliation with Marin General and with the new revenue that we anticipate to generate, we are charting and working toward a plan for success."

Mark Knight, a Santa Rosa hospital management consultant for the past two decades, said he is surprised that small hospitals like Palm Drive are able to survive at all.

"What Palm Drive is doing by linking with Marin General makes sense," Knight said. "Those three district hospitals have a greater likelihood of maintaining viability."

"For a small hospital it is a challenge. When you look at the objective data, you wonder how they keep going, but it is the support of the community," Knight said. "In some ways it defies some rational logic, but there is a whole other part to it, the community's desire for hospital services."

Palm Drive has 270 employees and a $30.4 million budget that is supported by $4 million in parcel tax revenues.

Since the fiscal year began last July, Palm Drive had 789 patients who stayed 2,770 days, compared to budget expectations of 847 patients staying 3,127 days. It had 4,708 emergency room visits, compared to budget expectations of 4,985.

The hospital had 22,631 outpatient visits, compared to 24,339 outpatient visits that were budgeted.

"Volumes were down and a lot has to do with the economy," Reid said. "People are delaying non-emergency surgeries because they can't afford to miss work. And there has been great weather, so people are healthier than they would have been."

Reid said that Palm Drive also did not follow through on its plan to purchase a digital mammography machine, at a cost of between $300,000 and $400,000, that would have generated more revenue.

Reid is recommending in his 90-day plan that the machine be purchased immediately and that Palm Drive move forward with an electronic medical records system, which may be eligible for up to $200,000 in federal funds.

He is also recommending raising prices by 7 percent, refinancing long-term debt to get a better interest rate, beefing up coverage in Palm Drive's surgery room and getting more physicians from Marin to work at Palm Drive.

Reid said there are no plans to lay off employees or cut wages.

"We can turn this around financially," Reid said, "we can do a budget for next year that is break even."

You can reach Staff Writer Bob Norberg at 521-5206 or bob.norberg@pressdemocrat.com.