The Success & Significance of
HEALTHSOURCE:
Inside the Dynamics & Politics Affecting One of
Saginaw County's Most Imortant Community
Resources
By Robert E. Martin
Apart from providing 213 licensed beds for restorative care and people
needing assistance with daily living activities, HealthSource is a hybrid
of services, a focal point for medical rehabilitation providing 38 beds,
as well as a provider for increasingly costly & rare services such as inpatient
& outpatient treatment for children, adolescents & adults who face chemical
dependency and mental health issues through the White Pine Mental Health
Center and Pathways Chemical Dependency Center, which provides 41
beds for mental health and 27 beds for chemical dependency.
At a time when many hospitals throughout the region are moving away from costly
long term care services and risky, cost-intensive mental health &
chemical substance services, HealthSource Saginaw is actually expanding
its involvement into these arenas, contracting with Bay Medical to
provide specialized services, to cite one example.
Through the stewardship of CEO Lester Heyboer, Jr, (pictured below) the
facility has taken a $400,000 annual loss and turned it into a
$500,000 annual gain; but because HealthSource is a municipal health
facility heavily dependent upon Medicare & Medicaid dollars and the fact
President Bush has threatened to slash $182 billion from Medicare and
$17 billion from Medicaid over the next five years, this would translate
into a $372 million reduction to Michigan in 2009 and $4.4 billion
over the next five years.
With a newly constructed facility replacing the dated & worn buildings at
HealthSource now poised to enable it to provide state-of-the-art care well
into the 21st Century, Saginaw County voters are being asked on Tuesday,
August 5th to approve a .20 reduced millage renewal, which will cost
the average homeowner only $10.00 per year and bring in about $1
million, or 4 percent of Healthsource's budget the first year.
Moreover, apart from the fact this renewal is only for a four-year period
instead of the current 10-year duration, it is entirely conceivable that given
Heyboer's track record, HealthSource could become completely
self-sufficient and independent from property tax support by the time this
requested 4-year renewal expires.
A large part of this is due to innovative management.
With their new Biomass technology that allows stimulation of muscle
groups, Multiple Sclerosis patients are able to stimulate their muscles and
improve walking ability. By sending a 'message' to the nerve endings to
contract and straighten, one young girl with cerebral palsey, for example, is
able to run across a room. In the long run, this technology prevents serious
operations.
Unfortunately, due in large part to the operational success of its
organizational structure, HealthSource has also become a political
football of sorts, with certain members of the Saginaw County Board of
Commissioners questioning whether the facility could be sold or spun-off to
private entities, thereby defraying the current Saginaw County deficit and
mitigating their own inability to operate in the black.
Indeed, back in April and during the midst of a prolonged labor contract
negotiation with HealthSource nurses, Saginaw County Commissioner
Chairman & HealthSource Board member Cheryl Hadsall actually attempted to
block the reduced millage request from being placed on the August ballot, in
part due to HealthSource officials turning away mental patients sent to the
facility by law enforcement & judicial officers, mainly due to insufficient
staffing levels to handle the overload.
And to add more muck to this mix, a volley of negative press ranging from State
health care violations to Heyboer's request for a $10,000 raise have largely
served to tilt public perception away from what a remarkable resource
HealthSource Saginaw represents to our community.
Hopefully, this piece will shed some much needed light & perspective upon those
concerns.
Historical Perspective * Who's in Control?
"The first thing to understand about HealthSource is that it is a
separate legal entity from Saginaw County and serves as a hospital that
can be financed by the county. We have an operating millage and that's the
only money we get from the County."
"When the Articles of Incorporation were originally put together, it was
designed as a 9-member board with one county commissioner; but the Board of
Commissioners rejected this and put 3 commissioners on."
"What I find amusing is that historically County Commissioners have always
complained that they never know what's going on out at HealthSource,"
notes Jensen.
"That was a quote back when it was a five member board and that was a quote when
the first audit came out, because funds are maintained by the County Treasurer."
"The fact is simply that it's a large business and an unusual structure.
If you look at Sparrow Hospital in Lansing and other former 'community
hospitals', most of them have almost no municipal control anymore. This is
because a hospital operates very differently than the business of the county."
"One of the things I recommend is that the Board under the IRS standards for
non-profit corporations limit the number of politicians on the HealthSource
board. It requires more community input and I think that would better serve the
public."
In terms of origin, the County established Saginaw Community Hospital
back in 1925. Originally it served as a sanatorium for TB patients established
pursuant to Public Act 177 of 1925. Over the years through statutory
modifications, the hospital was allowed to change the type of healthcare it
provided, but the general corporate structure was never changed.
Under this old structure it was one of 37 hospitals in Michigan
identified as a municipal hospital, and while it had a separate board, the
County in fact remained the employer of all hospital employees and the hospital
had no independent authority to borrow money or gain financial independence from
the County.
One important restriction was that the hospital could not lease out space to 3rd
Parties or other direct providers or enter into joint ventures without Board
approval. If this remained true today, HealthSource would not have
evolved into the successful hybrid that it has morphed into.
The legislative response to this problem was Public Act 230 of 1986,
which was designed to allow those counties that had community hospitals to
create healthcare corporations that mirrored those corporate structures of the
private medical community.
With the passage of this act, former county hospitals now became separate legal
entities whose operations were distinct & independent of the county.
"Under Act 230, something we have not explored, is that the county has the
ability to give property for the maintenance of hospital services," continues
Jensen. "Current real properties are held in trust for the county of Saginaw,
but under Act 230, the county could amend that deed and quitclaim the property
to HealthSource by statute and not require HealthSource to pay any
monies."
"The problem with amending the articles, or adopting any of these measures, is
that the Board of Commissioners would have to approve it, continues Jensen.
"But even if the County decided to sell HealthSource, there are huge
restrictions on such a sale under the statute that I think would preclude any
other hospital in this day and age putting money into it."
"HealthSource
is finally turning into what I envisioned it becoming when the Articles of
Incorporation were fashioned and now we have a relationship with Covenant
and St. Mary's,' concludes Jensen.
"We all rely upon it for key services provided to the community, so frankly, I
don't understand the question of selling it. First you'd have to pay $38
million for it up-front, but what good would that do us? You have to keep it
running at the same pace for 25 years, offering the same services to the
community, and if you spun-off the profitable divisions, the long term care
would suffer."
"Personally, I think the hospital should run like the statute says and that will
be sufficient. The bottom line is there are people that know how to run
hospitals and in my opinion, Les Heyboer does a fine job. I don't want
the hospital to run like any other public entity; I want to see the hospital run
like a hospital that provides long-term care and unique community services."
"When Malcolm Fields says we need this hospital, I think his opinion
should carry more weight than the opinion of non-health care individuals."
Issues, Concerns & the Future of HealthSource
While not the most colorful apple in the barrel when it comes to 'people skills'
(one Board member noted to me that his biggest weakness is talking like an
"audit report") as I sat down with Heyboer to discuss critics, problems, fate,
and the future of this crowning community resource known as HealthSource, I
found him to be both cordial, thorough, and forthright.
Heyboer: The protocols in the business world usually follow the notion
that contract negotiations are held close to the vest and you keep relatively
quiet until you know there's an agreement. When General Motors
negotiates, for example, little information is known until a settlement is
reached. When other people become involved it takes confidentiality out of the
picture and makes it more difficult to arrive at an agreement. Frankly, all the
publicity had a bearing on our ability to reach an agreement on a timely basis.
Actually, we don't have much turnover with nurses.
We had 12 RN's that went in 2007, which isn't unusual. Educators can now provide
slots to get through an RN program in less than 4 years, but there's a credible
side to this because not enough providers are training them. It takes a Master's
level RN to be an instructor and of all the small little hospitals in the thumb
area, for example, there is only one Master's level RN. I didn't know this until
we surveyed them that there isn't the level of education out there in nursing
that's required, which was a surprise to me.
Review: Many people do not understand the importance of
HealthSource in terms of the services and affordability it offers and
politics tends to distract from the overall picture. Do you feel that chemical
dependency and psychiatric services are equally important to provide to the
public as long term care?
Heyboer: Yes, because not a lot of entities are able to offer psychiatric
services both in and outpatient at the level we do. When I came on-board in 1993
and for a five-year period this facility was going through a metamorphosis. The
reimbursement mechanism to pay and sustain those services is changing. The
average stay was 30 days and now that is ratcheted down to six days, which
causes a reduction in occupancy levels and revenue. As a result of that
happening many providers got out of the business.
When I first came here it didn't take long to recognize that you have to achieve
economics of scale and merge operations. It took awhile to turn a $400,000
loss into a $500,000 gain, but that's what happened.
Essentially, we offer most of the mental health services north of Detroit
because it's a hard and expensive program to run. Right now, for example,
adolescent beds are down to 4 from an 11-bed unit because it's summer. But when
school starts that number will go up again.
Review: Let's talk about the importance and significance of this
millage request.
Heyboer: Right now the State of Michigan funding of the Medicaid program
is over 50 percent supplied by matching federal programs and provider taxes,
which is a little scary to us.
Long-term care is about 85 percent at the basic side, but in the skilled side
it's almost all Medicare. They're entitled to 100 days of coverage in a skilled
nursing facility, but the average length of stay is 30 days. The reason we are
here is access. If we weren't here one really has to question who would be
providing these services? You'd have to go to Flint or other markets to get this
level of care.
Our most significant loss comes from long-term care, as the chemical dependency
and psychiatric units are profitable. That's the reason for the millage. We'll
take on a resident that has renal dialysis needs, which means a whole lot of
medications & transportation costs, and virtually no profit margin. But we see
that as our responsibility as a community member and for asking this millage in
the first place.
This is a last resort for those folks, as no other nursing home will take them.
They may come here with a very high stage pressure sore and need a special type
of mattress that can cost $200.00 per day and we watch them very closely.
Review: What about the negative press that came about from the
number of State of Michigan violations finding 19 deficiencies with long term
care services? It's my understanding that you didn't have any difficult 'tags'
over the last 7 years but that the State is taking a more demanding look at
psychotropic drugs. Plus I'm told that hospitals like Covenant and
St. Mary's routinely get cited but never make headlines.
Heyboer:
There's not a major hospital in the world that would pass the long-term care
survey, and with chemical dependency & psychiatric we were in 100 percent
compliance with the Bay/Arenac folks when they looked at psychiatric services.
But the bar is being raised and the nursing home industry is in the sights of
every government oversight committee, which causes the perception of not
providing very good care.
We need to move it up to a different level and if anything good comes out of
these surveys it makes you achieve levels faster than you would otherwise.
The downside is that it costs more money to do it that way and would work better
in a collaborative approach that was more proactive than reactive.
But we've filed our plan correction, did what we said we would do, and the State
extended that on to another requirement of having a family member sign off for
prescription usage, which we don't believe is probable of being done without
substantial error, because many people staying here do not have a responsible
family member that can sign off.
I think the nursing industry in the future will be challenged and the long-term
survey is the hardest because of the way they are conducted. The average
facility might have 18 citations, but a lot of the citations are duplicated in
other areas. A few years ago the average number of citations might be 7 or 8,
but because of government changes and the stringency of Michigan being held up
as an example by the Federal government, that's no longer the case.
Review: What about the notion of moving HealthSource into
a 501.c3 corporation, which would free the facility from the limitations
imposed upon public entities and allow you to diversify into non-traditional
hospital ventures? The disadvantage, of course, is that you would not have
the financial backing of Saginaw County should the hospital run into financial
difficulty, although it would make you responsible solely to the Board of
Trustees to direct policy and purpose to the community and free you from flavor
of the month political agendas stemming from the Board of Commissioners.
Heyboer: Well, this next step you suggest would be a political step and
turn into a political debate. Certain members of our Board and the Commissioners
do not believe that should happen. I believe that HealthSource is
here for the benefit of Saginaw County. There are examples where such changes
have been adopted and governance responsibility does not permit the politics,
and the IRS is strict with non-profit status in terms of following a duty to the
corporation and not the County of Saginaw, even though you must continue to
guarantee levels of service to the County.
Review: What are your thoughts about those from the County whom
advocate selling the profitable arms of the hospital to another entity?
Heyboer: As constituted right now you could spin off the psychiatric to
private investors and increase assets into the County coffers and put the
proceeds into the bond payoff, but if you do that you run into double taxation
necessary to run the long-term care facility.
It's a divide & conquer rationale. But if you sell to a private investor you no
longer have any type of control over what you have access to and the whole
mission of HealthSource would become subverted. If you have a long
term care facility that is losing money, what investor in his right mind would
buy a business with a negative cash flow? In my opinion it would be
setting the hospital up for failure.
Section 230 hospitals have strict obligations and without the way the entity is
constituted as it is now, it doesn't have the cash flow. As a whole it took me 5
years to turn HealthSource around. At one time I was down to $50,000
in cash and was looking at a $350,000 payroll to meet on Friday, but knew
where the money was in a receivable bond, knew the books at the State level, and
told them I needed the money and needed it fast.
There are behaviors in play not conducive to making HealthSource work,
but my thinking in business is that those that are successful are very customer
based.
This millage is a reduced request and I believe we can do more with less from
the taxpayer. I'd like to get the facility to the point in 20 years where it
could be supported entirely without any government funding.
Final Thoughts
A similar debate was waged back in the mid '90s about whether to sell the
facility, but determined then - as it is today - that to do so would carry very
little value, leaving a huge mortgage and a major service line with 213 beds
that would generate a $2 million loss annually. Moreover, the buyer would
have to agree to cover those 213 beds with 90% Medicare & Medicaid funds.
Unfortunately, there is a poisonous atmosphere on the current HealthSource
board, with personal agendas outshining community purpose.
Recently Trustee member and County Commissioner Chairman Cheryl Hadsall
removed long term Trustee member Walter Frahm and also persuaded trustees
Robert Cramer and Cathy Trudell to decline a pay increase for Heyboer
that would bump his base salary of $162,240.
The CEOs at similar sized institutions receive an average of $207,805.
Ironically, McLaren Regional hospital pays their CEO $5 million
per year.
Regardless of the merits of this offshoot debate, it should not color one's
verdict on the success of HealthSource Saginaw, nor the significance of
the pivotal role it provides in the community.
As one Trustee that requested anonymity put it: "I believe selling HealthSource
would be a major mistake, but I'm fed up with this constant media harassment
that detracts from the positive direction and course the hospital has taken."
"Unlike the County, HealthSource is making money and has no layoffs.
Plus they had the guts to ask for continuation of a reduced operation millage,
whereas the County Board of Commissioners did not."
"I'm tired of the silliness of it all. If trustees are arguing over the fact
that it was built in the first place, a majority of voters said 'Let's build
it'."
"Now that it is on sound financial footing, we need to support it, stop all this
bickering and in-fighting, and move forward."