Who takes ownership of the hospital?

Grays Harbor voters are faced with a big decision: whether to take ownership of Aberdeen’s Grays Harbor Community Hospital.

With it comes debt and the prospect of property taxes, say some opponents. But it also comes with the knowledge that the community will have a financially viable hospital, and it gives voters the ability to pick commissioners who will set policy for the hospital in the future, supporters say.

The facility, organized in 1939 and currently operating as a private non-profit, is at a financial crossroads. It has operated in the red for three years, its revenue dipping along with the economy of the Harbor. As major employers have closed and private insurance patients were lost, the hospital’s sources of income have increasingly relied on patients who use Medicare and Medicaid.

Hospital officials lobbied hard for a bill that would increase rates for Medicaid patients and the Legislature passed it, but said the rates would only go up if the hospital converted to public control. Now voters will decide whether to form a hospital district. Hospital officials are pressing for a vote in August, but it’s a tight timetable. If they can’t make it, the vote would be in November.

Hospital CEO Tom Jensen sat down with The Daily World’s editorial board Monday to talk about the proposed hospital district and the current financial straits the hospital finds itself in.

Why the rush?

The timing is all about the money. Community Hospital must become a public entity to take advantage of higher Medicaid reimbursement rates. That higher rate can be collected beginning in January, and that’s why the hospital is in such a rush to bring the public hospital district measure before voters.

Hospital officials began the process of creating a public hospital district in February. The measure will likely appear on the August ballot, allowing the hospital to receive extra Medicaid reimbursement as quickly as possible, Jensen said.

Once the hospital district is created, existing hospital administrators and the new hospital commissioners — who will be elected by the public — will be given the task of transferring Grays Harbor Community Hospital’s assets and debts to the newly-formed public hospital district. The catch is that the higher reimbursement rates won’t be available until the transfer is consummated, and the transfer will be complicated.

That’s why having the measure on the August ballot is key, Jensen said. If the measure had to wait until November, hospital commissioners would only have about two months to complete the transfer.

“With the time it would take, I don’t think it could be done in a month. I don’t think it could be done in two months,” Jensen said.

Financial situation

The hospital has been running between 2 and 3 percent in the red for about three years, Jensen said, and budgets are usually balanced using reserve funds. In 2013, the hospital had about $16 million in dwindling reserves and $106 million in expenditures.

It has about $36 million in outstanding bonds and some other miscellaneous debt, Jensen said. The bonds have about 21 years left, and have covered expenditures such as the new tower, new emergency room and new imaging space, and includes some refinanced older debt, he said. But, he pointed out, there’s still more equity than debt at this point.

“It’s not a service issue. If I moved this facility to Bellevue, we wouldn’t be having this conversation,” Jensen said. “It’s not a service issue, it’s a payer mix issue.”

Nearly 75 percent of the hospital’s business is from one government program or another, Jensen said. When those reimbursement rates don’t completely cover the cost of providing the service, it impacts the bottom line more than a hospital in an area where the “payer mix” features more private insurances.

“When 75 percent of the people who deliver babies in your community are on Medicaid and that doesn’t pay for the service, does that mean the hospital shouldn’t provide services?” Jensen asked. “I would not be the administrator of a hospital that didn’t deliver babies in a community like this. I wouldn’t. I’d resign.”

Hospital officials realized that the only way to generate more revenue was to increase reimbursement from its biggest payer: the government. Legislators offered a solution, proposing a bill that would increase Medicaid reimbursement by 25 percent.

However, the Senate Ways &Means committee later amended the bill to exclude all non-public hospitals, giving the legislation a better chance of passage in the House and Senate — and putting the private Grays Harbor Community in a bind.

“They can become a public hospital, and basically that’s the only way I could get it out (of committee),” said bill co-sponsor Sen. Jim Hargrove in a February interview.

At that point, hospital administrators only had two choices: continue losing money by operating as a non-profit, or start the process of creating a public hospital district.

“This wasn’t a hospital board decision, this wasn’t even a Tom Jensen decision,” Jensen said. “This was Tom Jensen pushing a bill that Sen. Hargrove added the language to … I’m not saying he’s wrong, I understand exactly why he did what he did. I’m just saying it wasn’t me making that decision.”

The transition

If the hospital district is approved by voters, the transition will not take place overnight, and will be decided in negotiations between the new public district and the current non-profit hospital.

The assets — including buildings, equipment and property — in addition to the bonds and other debt will all be part of that negotiation, Jensen said. But he was hesitant to speculate too much on how it all might be transferred.

“If I were a public official, Tom Jensen would mean nothing to me, to be perfectly honest … even his contract and whether or not he gets to be the new CEO,” Jensen said. “The goal would be to negotiate between the two boards what makes the most sense.”

That transaction could range from a straight-up transfer and dissolution of the non-profit to a years-long process of transferring assets and paying off debts. The most important thing, Jensen stressed, is to have a plan in place by Jan. 1, 2015, so the hospital district can take advantage of the higher reimbursement rates the Legislature approved.

“The goal would be that the two organizations did what would be the best as a community asset — the least expensive, the least obtrusive, and to make the bondholders happy with the debt,” he said.

Property taxes likely won’t begin streaming into the new district until 2016, Jensen believes, and aren’t the immediate concern. Hospital officials are publicly advocating for a 50 cents per $1,000 of assessed value levy. How much the district would levy — 50 cents or 75 cents per $1,000 or nothing at all — will ultimately be decided by the new hospital district’s commissioners, and would not require voter approval.

The property tax is important as it would help allow the district to borrow money, Jensen explained.

“A public hospital district can’t leverage it’s assets,” Jensen said. “You can mortgage your home if you wish to purchase something — public hospital districts can’t do that. So they have to secure (their debts) to something, and what they normally secure them to is tax revenue.”

Employees at the hospital have questions about the new district, too — especially unions that have current contracts. Jensen said he’s tried to calm the hospital’s seven union bargaining units who are concerned about losing their contracts. As with much of the transition, the fate of union contracts will depend on the negotiation between the two entities.

“I’m hoping that the (public hospital board) would say, ‘We’ll accept all your contracts that you have today and upon term of those contracts we’ll renegotiate them as a public hospital district,’ ” Jensen said.

As the county commissioners consider the petition for the hospital district, they’ll also determine the composition and structure of the district’s board.

The county commissioners could agree with the hospital administrators’ recommendation for a five-member board, or they could choose three or seven members. They must also decide whether the district’s commissioners will be at-large representatives or come from specific geographic districts.

Jensen had some personal preferences on the board, but, he reiterated, it’s up to the county commissioners. He doesn’t think many of the hospital’s current volunteer board members will run to be on the district board.

“Everybody’s holding their cards pretty close … there could be two, I guess, or three, but it wouldn’t be all 12 of them that would run,” Jensen said.

Is Jensen himself interested in the director’s job at the newly formed hospital district? “I think that would depend on who the board members were, and how it was structured,” he said. “Some things can get structured so it’s so difficult to manage.”

Montesano &Ocean Shores

Since the push for a public hospital district began, resistance to the idea has cropped up in several areas of the county — including Montesano, Ocean Shores and other North Beach communities.

Dissent in Montesano largely stems from the city’s proximity to another public hospital: Summit Pacific Medical Center in Elma, governed by Grays Harbor Public Hospital District No. 1. The existing district includes Elma, McCleary and other East County communities.

The boundary for the proposed hospital district would abut the District No. 1 boundary, and there has been some talk of extending the existing hospital district to include Montesano.

In Ocean Shores and other North Beach communities, resistance to the new hospital district comes from a lack of Grays Harbor Community Hospital coverage in those areas. But Jensen said that’s a great reason to create the public hospital district, as commissioners elected from Ocean Shores and the North Beach communities would likely advocate for more services in those areas.

Removing Montesano and Ocean Shores from the district boundaries would drastically decrease tax revenue. Montesano makes up about 5.4 percent of the proposed district’s tax base, while Ocean Shores makes up about 21.6 percent.

Based on 2013 assessed values, a property tax of 50 cents per $1,000 of assessed value would garner about $2.5 million in annual revenue for the district, according to Grays Harbor County Chief Deputy Assessor Paula Bednarik. About $135,500 of that revenue would come from Montesano and about $540,000 would come from Ocean Shores.

If the district were to levy a property tax of 75 cents per $1,000 of assessed property value, the district would receive about $3.7 million in annual revenue. About $203,200 would come from Montesano and about $810,000 would come from Ocean Shores.

Removing additional North Beach communities from the district boundaries would decrease revenue further.

What if it fails?

If the ballot measure to create Grays Harbor Public Hospital District 2 fails, Jensen said he could go back to legislators and try to get the laws changed in Grays Harbor’s favor. But, save a change in the current law, if the financial situation doesn’t improve, the hospital’s bondholders could eventually come calling and force the hospital to make cuts.

“You can’t keep losing money,” Jensen said. “(The bondholders) would come in and modify the services that you provide to accommodate a bottom line — which means anything that doesn’t make money, no matter how important it is to the community, wouldn’t be served.”

Jensen doesn’t like that prospect. Becoming a public hospital would patch the dike, but it’s is in the hands of politics now.

“Though I know it’s political, to me it’s not, it’s about health care,” he said.

Ultimately, though, Jensen is OK with the fact that it’s all up to the voters of Grays Harbor.

“We live in a democracy, I’m proud of that. I want people to vote the way they think they should,” he said. “And if it’s voted down, that’s fine. And if it doesn’t become a public hospital district, that’s OK, too. That’s a decision.”