Hospital could lose taxing power

For the second time in less than a year, a governmental watchdog agency has delivered a severe critique of El Camino Hospital — but this time, the future of the tax-collecting special hospital district hangs in the balance.

The Local Agency Formation Commission of Santa Clara County (LAFCo) found the hospital and hospital district lacking in transparency, unaccountable to its constituents and in need of serious reform in its audit. The lengthy report was released May 23, about one year after the Santa Clara County Civil Grand Jury’s report identified similar deficiencies at El Camino.

A great deal is at stake. Unlike the Civil Grand Jury, which can draw public attention and make recommendations, LAFCo has the authority to initiate the dissolution of the hospital district. And, if the district is unable to make its operations more transparent, that is exactly what the agency will move to do, a LAFCo official said.

In a hospital press release, El Camino district officials said that they “strongly disagree” with some of the report’s recommendations, as they “would limit how the district provides its health care services.”

Audit’s origin

Officials at LAFCo had not initially intended to conduct such an intense investigation of the hospital corporation and hospital district — they had only planned on performing a standard five-year service review. However, in light of the El Camino’s 2009 purchase of the former Los Gatos Community Hospital — which is located outside of the El Camino Hospital District’s boundaries, and beyond what is referred to as the hospital district’s “sphere of influence” — the officials at LAFCo wanted to take a more in-depth view of the district.

LAFCo officials hired a public sector management consulting firm to audit the hospital and special district, according to Neelima Palacherla, the commission’s executive director. Once Harvey M. Rose Associates started digging, they discovered that the health care organization had changed extensively since its founding in 1956 and was not necessarily operating the way that its founders intended.

Stephen Foti, who led the Rose Associates audit, said his investigation found that there is a serious “incompatibility between the interest of the district and the interest of the corporation.”

According to Foti, by tying itself so closely to the corporate interests of El Camino Hospital, the district has lost sight of its original mission — taking care of its constituents. “They were created by the district, they received their (original) assets from the district, they are supported annually for the debt services through the district,” Foti said. “For all intents and purposes they are a public entity, so they should be reporting everything that a public entity should report.”

Yet, the hospital acts more like a private corporation than a public entity, Foti continued. And so, Rose Associates, in coordination with LAFCo, have made a series of recommendations it believes would make the hospital more like the public entity it is. Those recommendations can be found in the full LAFCo report.

Transparency needed

Over the past several years, while El Camino has shone as a beacon of technological achievement in the healthcare industry, the organization has struggled through a series of public relations battles related to financial woes and disagreements between the hospital’s workers and its administrators. As local surgeons have championed adopting the latest procedures, nurses have shouted in board meetings over fears of losing their jobs. And as on-site researchers have worked toward the next generation of life-saving medical devices, a CEO was dismissed — suddenly and without explanation — in spite of managing to pilot the hospital from red to black ink.

A common theme in recent years among those who have spoken out against the hospital is a perceived lack of transparency.

“I think there are some concerns about the transparency and accountability of the district,” Palacherla said. “In the report we’ve provided some recommendations of how this could be a more open process — easier to understand and more clear.”

Because of the complex relationship between El Camino Hospital District and El Camino Hospital — wherein the district collects taxpayer money and channels it through its private corporation counterpart — transparency and accountability are paramount, Palacherla said.

“These are public funds,” Palacherla said of the roughly $16 million the hospital district collected from taxpayers during the 2009-10 fiscal year. “It is the public’s right to know how these funds are being used.”

“It’s not clear what’s being done with the public funds,” she said.

As they did in the wake of the Civil Grand Jury report, El Camino officials defended the healthcare organization in a carefully worded press release, which made sure to highlight the LAFCo audit’s acknowledgment that the hospital district’s practices are “consistent with state law.”

According to Palacherla, the hospital district is technically doing what it is required to do with taxpayer dollars. It has created a system to delineate between what comes in from district residents and what it generates in the private hospital corporation. Still, she said the hospital has a long way to go before everything is “transparent and clear.”

“The consultants did have some trouble understanding (the way the money was separated),” she said. “And they are CPAs.”

El Camino spokeswoman Chris Ernst said “We are committed to transparency and already have taken steps to better inform the community about the relationship between the district and the hospital corporation.”

Accountability

Palacherla said that the hospital and hospital district’s issues surrounding transparency have worked to create an El Camino that is not accountable to the community it is supposed to serve. One of the clearest examples can be observed in the hospital’s budgeting process — which, although open to the public, is difficult to understand and therefore hard to challenge in open meetings.

“The district and the corporation should establish enhanced budgetary reporting and controls,” according to the Harvey M. Rose Associates audit. These improved budgeting practices “should include detailed reporting of transfers between entities as well as debt service requirements.”

“It’s real hard to make any sense of the budget when they go over it in public meetings,” said Kary Lynch, a psychiatric technician with the hospital, who also serves as a steward for El Camino’s workers’ union. “I would like to be able to go there (to a board meeting) as a member of the public having looked at the budget and be able to have some kind of intelligent feedback in that process. I imagine that other people in the community would too.”

The only problem with that, Lynch said, is that the hospital often only publishes board meeting materials — including details of proposed budgets — a day or so before the actual meeting, which makes it very difficult to come to a meeting with an understanding of what is being discussed. And when the budget is presented, it is often breezed through quickly and members of the public are only given a few minutes to speak to the board, he said.

Countering Lynch’s critiques, Ernst noted that hospital has been working hard to “enhance financial reporting and to increase outreach and education regarding the district.” She pointed to a number of efforts the hospital has been making. El Camino has instituted “a review of the governance and organizational process,” they have created “a separate and distinct district website” from the corporation’s website to “ensure separation between district and the hospital corporation activities,” and they are working to expand the El Camino Hospital Board by three seats, as well as to institute board advisory committees with experts in policy, finance and healthcare quality.

The board

It is unknown whether the plan to expand the hospital board and bring on advisory committees will satisfy the auditors, who are critical of the way in which the two boards oversee the hospital corporation and the hospital district. “The district and corporation maintain almost identical governing boards, which include identical voting members, so that decision-making is almost indistinguishable between entities,” the authors of the audit wrote.

Hospital officials told the Voice that keeping the members of the district and hospital boards the same ensures that the hospital is not susceptible to a hostile takeover. Back in the early 1990s the hospital district was almost dissolved after a merger with the Shoreline Medical Group and Sunnyvale Medical Clinic resulted in “significant financial losses, conflicts of interest and declining physician and patient confidence in the system’s ability to deliver quality patient care,” Ernst said. “By regaining control of the hospital, the district was able to right the ship and as this report even says, the entities are operating both effectively and efficiently.”

Uncertain future

As the Voice prepared to go to press on May 30, LAFCo was holding a public meeting to discuss, amongst other items, the El Camino Hospital District Audit and Service Review Report.

“As we have in the past, we are always open to looking at ways to improve transparency and accountability,” Ernst said before heading into the meeting. “We welcome a constructive dialogue about how to best serve those living in the district and further increase transparency. Already we have taken steps to better inform the community about the relationship between the District and the Hospital Corporation, to enhance financial reporting and to increase outreach and education regarding the District.”

But, Ernst emphasized, if the district were forced to follow all of LAFCo’s recommendations to the letter or if the district were dissolved, it would only hurt the community.

“If the district were to be dissolved, we are concerned that vital health care services currently provided by the district through the community benefits program would no longer be available to district residents, not to mention that it would inhibit the hospital’s ability to continue providing state-of-the-art care,” she said.