Hospital's ambitions soared while its fortunes faltered

Image

By 2006, Mee Memorial Hospital's net income had plummeted.

The financial pressures that forced Mee Memorial Hospital to close its cancer center and its two-year-old urgent care clinic in Paso Robles early this month began the year before, according to financial records.

Yet during that period, the hospital's chief executive was assuring residents and Paso Robles city officials that it would operate the oft-delayed center to provide comprehensive cancer care. At the same time, the hospital was also actively recruiting skilled employees for the cancer center.

According to financial records filed with the state, Mee lost $1.8 million in 2006. During that same year, records show, the King City-based hospital overdrew its bank account by $2.6 million and increased its overall debt by 42 percent.

The closures cost 25 employees in Paso Robles their jobs and forced residents who had used the urgent care clinic to seek medical help elsewhere.

But the hospital's money woes also left other employees and some local companies in their own financial binds.

• Pacific Gas and Electric Co. is owed more than $500,000, according to two people familiar with Mee's financial situation. And one San Luis Obispo graphic designer said she had to take out a home equity loan to cover the $49,500 the hospital owes her.

"It's a huge chunk of my business," said Catherine Kornreich of Kornreich Design Associates. Kornreich said $35,000 of what she is owed came out of her own pocket to buy the hospital's newspaper advertisements and a billboard on Highway 101 north near the Monterey County line.

• At least two hospital managers, including one who lives in San Luis Obispo County, say they have had to borrow supplies from other hospitals or pay for them with their own money because Mee Memorial stopped paying vendors.

• In addition, employees have said, the hospital's failure to pay their health insurance for several months caused some local workers to be denied access to their health care providers.

Walt Beck, Mee's president and chief executive officer, on Wednesday attributed the hospital's financial problems to poor performance by its billing and collections department, the result of a glitch in software programs. The hospital is still recovering, he told The Tribune.

Beck said cash flow has improved since the company outsourced its billing department in August. He did not provide financial figures.

"We hit a rough spot in the road, but we still have an excellent service," Beck said. "Our quality of care is excellent, and that's the most important thing."

Beck did not say when he expected the hospital to regain profitability.

Last spring, Rabobank sued Mee Memorial for failing to pay $11 million on a $20 million bank loan and a $2.6 million loan. (Rabobank acquired Community Bank of Central California, which made the initial loans.)

At the time, hospital administrators called the suit a revenge tactic after attempts to renegotiate the loan failed. The lawsuit has damaged the hospital's ability to obtain loans from other banks, Beck said.

Paso Robles Mayor Frank Mecham, who heralded Mee Memorial's arrival as a boon for the North County city, said he does not blame Beck for not telling officials about the hospital's financial difficulties.

"(The closure) was all very surprising and very disappointing and unfortunate."

Beck said the cancer center and urgent care clinic were part of a long-term strategy to increase the hospital's patient base and offset declining state and federal funds.

The hospital tried desperately, Beck said, to keep the cancer center and urgent care clinic open even as its Paso Robles landlord began eviction proceedings. Administrators decided to abandon the facilities just days before closing the doors, he added, so employees were laid off with less than one day's notice. The center opened in mid-October and closed in early December.

"The decision was always looming," Beck said. "But we were trying to find a way not to do this."

Previously, Beck and hospital leaders blamed Mee Memorial's financial problems on having a large number of low-income patients.

The hospital, the flagship of King City-based Mee Health Systems, does treat many Medi- Cal and uninsured patients. But it admitted and treated fewer such patients in 2006 than 2004, when it was profitable, according to data from the Office of Statewide Health Planning and Development.

Mee administrators have also blamed their cash-flow problems on the state's two-month budget impasse this summer, when Medi-Cal payments were frozen. A Medi-Cal spokeswoman said providers, who submitted claims during the impasse, were paid within a week after the governor signed the budget Aug. 24.

Complete financial figures were not available for 2007. A Tribune review of the hospital's earlier IRS 990 forms, which it must file to maintain its tax-exempt nonprofit status, show the following:

• In fiscal years 2004 and 2005, which began Oct. 1 and ended Sept. 30, hospital revenues exceeded expenses by about $1 million and the hospital was profitable. Then in fiscal year 2006, expenses of $52 million outpaced revenues of $44.8 million, creating a $7.2 million deficit.

• In October 2004, the hospital had $2.8 million in cash; two years later it had $2,500.

• During fiscal year 2006, the hospital's mortgages and short-term loans increased by $6.6 million. That included the purchase of a nearly $1 million house in Paso Robles from Beck's business partner, Chris Madson. The home was raffled off to raise money for the cancer center, but the venture cost the hospital at least $200,000.

Patient care affected

Some Mee Memorial managers told The Tribune they scramble on a daily basis to maintain adequate patient care, but their ability to do so is increasingly compromised by the hospital's failure to pay its vendors.

They cited shortages in laboratory and pharmacy supplies, along with a fear that traveling nurses might leave because of nonpayment.

Beck said patient care has not been affected by any supply issues. And employees have been told not to pay for supplies themselves, he said.

Dr. Steven Siegel, the hospital's only orthopedic surgeon, told the City Council in King City on Dec. 11 that Mee owed his group $250,000 and he would no longer work there.

When hospitals have cash-flow problems that could affect patient care, regulators at the California Department of Health Services become concerned, spokeswoman Lea Brooks said.

"Hospitals need to be financially sound so they can pay their vendors and make payroll," she said.

Brooks could not say whether her department planned to inspect Mee Memorial because hospitals are not notified of investigations ahead of time -- unlike visits from The Joint Commission, a national accrediting agency that visited the hospital last week. The commission is reviewing the results now, a process that could take up to four months, according to a spokesman.

The Joint Commission annually surveys hospitals to assess the quality of patient care. Losing The Joint Commission accreditation often means Medicare will cancel its contract with a hospital, forcing those patients to go elsewhere.

What's next?

Beck has said repeatedly the King City hospital will not close and he is "very confident" the hospital will secure additional funding.

He asked the King City council on Dec. 11 to approve a plan to issue $27 million in bonds and refinance its debt. The city, which carries no liability in the deal, agreed.

The hospital must still find an underwriter for the bonds, which have not yet been issued.

Hospital managers, who spoke at that council meeting, say they want the hospital to have sufficient funding to stay open, but not under the current administration.

They want more transparency and accountability regarding how hospital decisions are made by the board of trustees, which approves Beck's plans, or they fear southern Monterey County will lose its only hospital. The nearest medical centers are 50 miles away in Salinas and Templeton.

Skilled nursing manager Janeel Wellburn told the council she was concerned "if hospital money was not spent appropriately in the first place, who's to say it will be now," according to minutes from that meeting.

Beck agreed that having transparent hospital operations is important but said doing so requires a delicate balance. When asked if the hospital needs new leadership, as some employees have suggested, Beck said that he works for the board of trustees.

He does not have immediate plans to leave, he said.

Monterey County Supervisor Simon Salinas, whose district includes King City, said questions about Mee's future are a top issue in his district, as residents and local leaders worry about a possible gap in medical care for the rural area.

"Everyone is hoping and doing what they can to make sure it stays open," Salinas said.

The community worries about the fate of its hospital, said Suzanne Krause, owner of True Value Hardware in King City. Her store is among the many vendors Mee failed to pay on time. She was recently paid.

Krause's mother lives in the hospital's skilled nursing unit, and her husband used to be a board member. She said she wants to resume business with Mee, but not until the hospital convinces her that it can pay on time.

"It just saddens me so much that the hospital is having these problems," she said. "The community is still scratching its head."