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December 14, 2006

From the Publisher

Options A, B, C


Should we go pick up our box from St. Joe's?" asked Carmen, our office manager, on Monday a full day before we went to press with this edition.

She was referring to the last cover story we published on St. Joseph Hospital's financial situation, "Suits and Scrubs," April 6 ( Readers may recall the Journal's tall black box and all newspapers that week at the hospital were confiscated by order of CEO Joseph Mark because, well, he didn't like the story. (That was in the spring. A few months ago, Mr. Mark and I finally met over a glass of wine at Plaza Grill. He told me he had "over-reacted" in ordering the newspapers confiscated. Although I never did hear the word "sorry," I accepted his offer to have the box returned, and he paid for my drink.)

"I hope it's not necessary," I told Carmen.

The story this week, eight months later, is a follow-up about the dramatic financial turnaround the hospital has made. I even suggested the title, "Turnaround man," but I was overruled in favor of "Saved." Mark came here a year ago as a consultant for Navigant Corp., hospital turnaround specialists, before taking over as CEO from Mike Purvis, who was asked to leave. Navigant definitely deserves a star for discovering a top-heavy, second-tier administration at the hospital (prescription: immediate layoffs), overstaffing in many service areas when compared to similar hospitals (more layoffs) and waste (cut), as you will read in Helen Sanderson's report.

As any businessperson knows, however, this was not really a true financial crisis. It was a management crisis. With new management, the hospital is now operating in the black. Helen dissects how this turnaround came about and then takes the story one step further and asks, what's next?

For one thing, next Monday the hospital will announce the kickoff of an effort to raise $12.5 million that the hospital's parent corporation, the Sisters of Orange, promises to match. The money is to come from donations and fund-raising efforts, and from the state to help cover its mandate that all hospitals to meet stricter earthquake standards. (St. Joe's will likely end up on a short list of hospitals in earthquake country granted state funds eventually and the deadline for retrofit will probably be delayed again, some say until 2020.)

I went back to that April 6 story to read Mark's words again. Readers may recall there was a private offer to buy the hospital under consideration. But at the time the hospital, which some estimate to be worth $20 million to $30 million, was carrying a debt of $68 million making it unattractive to potential buyers.

As reported in the Journal: There's still the question of how to best put the hospital back on its feet for the long-term. In an e-mail sent to the press last week, Mark said that the hospital is exploring several options, including a change in ownership. He said that the Sisters of Orange recently received an unsolicited offer for St. Joe's-Eureka. "While no decision to sell the hospital has been made nor will there be until we have thoroughly considered all available options - we are taking a `listening posture' and striving to consider all solutions with an open mind."

Another possibility, he wrote, would be transfer of the hospital to a "community-based model," in which a public hospital district would form and take ownership of St. Joe's. Or the hospital's ownership could stay as it is, with the hope that donations and fundraising would be more successful in the future.

Privately, many inside and outside of the medical community were cautiously ecstatic about option A (a sale) or option B (a public hospital district). An outright sale would finally allow the entire community an opportunity to support a non faith-based primary hospital for the region, one that did not carry all the baggage of St. Joseph's poor management decisions of the last decade and a half. It would be an unknown new owner, true, but at least it would be a fresh start. The excitement was there as well for option B, a countywide public hospital district. I even know a few conservative business people who would otherwise be against a public solution to a private problem that were behind this concept. Not to just patch up our three hospitals for earthquake retrofit and forge on into the future duplicating services and wasting money as we are doing now. Just think, we could build a new central medical center from the ground up to house all the county's high-tech needs while possibly maintaining emergency rooms (or at least urgent care centers), rehabilitation and outpatient services in those burgs known as Fortuna and Arcata so very far away from Harrison Street, Eureka, when you cut yourself with a chainsaw.

When we published our story on April 6, Mark was still telling the community what an open mind the Sisters had. But I wonder exactly when and where the decision was made to go for option C: continued ownership by the Sisters? I suspect there was a definite trend toward option C very, very early on as soon as Mark began to evaluate services and uncover potential savings. If the hospital could operate in the black, and the old debt was gone, absorbed by the other profitable hospitals in the chain, then St. Joe's could reach and maintain a 4 percent operating margin. So, why sell? Why not expand? Why not build that new patient tower, consolidate services from Fortuna and either buy Mad River Hospital or watch it shrivel and die? (Ironically, Redwood Memorial has been in the black for the last five years and continues to provide St. Joe's with a net gain, according to financials up through last quarter.)

By summer the handwriting was on the wall and I wasn't the only one asking, what happened to option A, a non faith-based hospital, or B, a public entity? What happened to all the physicians' input and the work by the Community Health Alliance and the business people and the rest of the community leaders who were all asked to be part of the solution?

Apparently they were no longer needed to help define what the hospital model should be for the coming decades because the turnaround had already begun. In the end, the Sisters decided for us.


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