El Camino Hospital has been thriving in recent years, bringing in millions of dollars more in profits than expected and budgeting for large-scale construction projects that will change the face of its Mountain View campus.
But amid that success, some members of the hospital's board of directors are arguing that the nonprofit ought give more money back to the community, proposing to dedicate additional tens of millions of dollars for grants to hospital and community organizations.
El Camino Hospital reported putting about $53 million into its "Community Benefit Program" for the 2013-14 fiscal year, funding a broad array of health initiatives and subsidizing health services. More than one-third of that money, $19 million, is for "un-reimbursed Medi-Cal" -- the amount the hospital loses each year providing services for patients whose coverage doesn't cover El Camino's costs.
Despite the losses, the hospital still ended the fiscal year with record-breaking profits, and whether the hospital has been doing enough to reinvest that money back into the community proved a difficult question for board members. Looking at a side-by-side comparison to other local hospitals, El Camino appears to be falling short.
A hospital staff report last month found most other Bay Area hospitals, including Marin General, John Muir, O'Connor and Lucile Packard, spend a bigger percentage of their yearly revenue on community benefits than El Camino Hospital. Lucile Packard Children's Hospital in Palo Alto, for example, brings in roughly 50 percent more in patient revenue than El Camino each year, but spends four times as much on community benefits.
Board member John Zoglin told the board at the Sept. 9 meeting that despite his inclination to stay fiscally conservative and look long-term, El Camino Hospital is well below comparable hospitals and should be spending much more on grants.
"To me, if we want to go (by) benchmarks, it seems to me we're at the very bottom of the range," Zoglin said.
Board member Dennis Chiu agreed that the hospital needs to start spending more on community benefits -- something closer to 10 percent of the hospital's annual expenses -- particularly since Congress has been considering legislation that could force nonprofit hospitals making "exorbitant revenues" to start paying more into community benefits.
There was hardly a consensus, however. Some board members said there wasn't enough information to make a good decision at the meeting, while others argued $53 million is enough. Board member David Reeder said most hospitals in the country are spending between 5 and 7.5 percent of their budget on community benefits, which puts El Camino Hospital's 7.4 percent on the higher end. Reeder said that he wasn't too worried about repercussions from Congress.
"Congress's concern is, 'Are tax-exempt community hospitals doing enough to give back to the community?'" Reeder said. "We're giving back $50 million dollars, and that's pretty substantial."
One philosophy discussed at the meeting was that El Camino Hospital should allocate community benefits money equal to the amount of taxes it would have paid had it not been a nonprofit corporation. The hospital's chief financial officer, Iftikhar Hussain, said he was uneasy with the notion that 10 percent of expenses would be diverted to the program. That number would add up to roughly $75 million, he said, which is the same amount the hospital put away as profit for the 2014-15 fiscal year.
"That's a 100 percent tax rate on our income," Hussain said. "Maybe we should go back and think through this, because no corporation pays 100 percent of its income in taxes."
The vote to increase community benefit funding failed 2-5, with board member Chiu and Zoglin voted for the motion and Reeder, Neal Cohen, Julia Miller, Jeff Davis, Lanhee Chen and hospital CEO Tomi Ryba voting against it. The board is expected to revisit the proposed increase in funding at a later date.
As a small consolation, the board did decide to set aside $10 million as an endowment, which could provide an extra $500,000 for community benefits in future years. Hussain said relying on an endowment for consistent spending, rather than ratcheting up the budget of the community benefit program, would be a much more sustainable way of contributing to the community during strong years without committing too much.
"In (fiscal year 2014-15) we had an outstanding year. We had our best year ever," Hussain said. "The question that was raised is, 'What do you do for the community when you have the best year ever?' And my answer was, 'Well, we may not have another year like this,'" Hussain said.
Bumping up community benefit funding by tens of millions of dollars could significantly change the way the hospital gives back to the community. Right now almost all of the community benefit money is spent offsetting Medi-Cal losses and offering financial assistance for patients who couldn't afford hospital services, a total of about 90 percent.
Because the cost of many of these hospital benefits are largely fixed, additional funds injected into community benefits would instead go towards paying for grants throughout the community, including funding for school programs and nonprofit organizations in Santa Clara County.
In the 2013-14 fiscal year, the hospital spent $1.4 million on community benefit grants, which went to pay for health initiatives, school nurses, homeless housing programs and mental health services. If the hospital board agrees to commit 10 percent of hospital expenses to community benefits, that pool of grant money could see a tremendous increase.
Effort to increase transparency fall flat
During the lengthy, multifaceted discussion on community benefits, some hospital board members pushed unsuccessfully to turn the Community Benefit Advisory Council, the staff committee that determines the community benefit grants for the year, into a more transparent board committee with meetings open to the public and subject to the Brown Act.
Chiu argued at the Sept. 9 meeting that deciding how to fund health initiatives, particularly community-based organizations separate from the hospital, ought to be done in public meetings and could really use the extra level of transparency for the otherwise closed-door discussions and grant application process.
"It would allow that discussion to happen in a more open setting, and to all of us," Chiu said.
Chiu's stance was in stark contrast to a hospital staff report that cited a litany of reasons why it would be a terrible idea. It claimed grant applications filled with proprietary information would become public, and that board members could end up being "lobbied by prospective grantees" if they participate in the committee, politicizing the whole grant process.
Board member Dr. Peter Fung agreed with Chiu, and said turning the Community Benefit Advisory Council into a board committee would be an important step toward increased transparency, particularly after the Local Agency Formation Commission (LAFCo) admonished the hospital district for its lack of transparency several years ago.
"This is one of our most important duties for the community," Fung said.
Zoglin questioned why the board was even considering turning the staff advisory committee into a board committee when they voted 5-2 in August to have it remain a staff committee.
"When we take a vote, we've got to move on. We can't come back and re-visit them every time," Zoglin said. "I thought this was part of our best practices, we accept votes and we move forward."
The vote to turn it into a board committee failed 3-6, with Fung, Chiu and Miller voting in favor, and Reeder, Cohen, Zoglin, Chen, Davis and Ryba voting against.