El Camino considers governance shake-up

In a bid to stay one step ahead in the competitive health care market, elected officials and top staff at El Camino Hospital say it may be time to put more experts on the board of directors. But the decision could roll back the direct oversight voters have over the community hospital’s operations.

Starting this week, more than 90,000 homes in Mountain View, Sunnyvale, Los Altos and Los Altos Hills will receive a mailer from the El Camino Healthcare District, a public agency, asking for public input on proposed changes to the structure of El Camino Hospital’s board of directors, which is charged with governance and fiscal oversight of the nonprofit hospital.

Under the proposal, El Camino Healthcare District board members, who are elected by the public, would appoint additional members to the hospital’s board of directors in an effort to give the hospital more experts to make decisions about the hospital’s future.

Understanding the implications of this proposed change is tricky without knowing what differentiates the district and the hospital.

The El Camino Healthcare District is a special tax district that extends into most of northern Santa Clara County, and was created to finance construction of the original hospital campus. The district has five elected members on its board of directors, and collects roughly $22 million in taxpayer funds each year to pay for ongoing hospital construction as well as grants to local health programs and initiatives.

The district still owns the land under the hospital’s Mountain View campus and leases it to the hospital.

Each health care district board member also serves on El Camino Hospital’s board of directors, giving voters some amount of sway on hospital decisions.

In 2012, the district’s board members agreed that they may not be best-suited to make critical decisions on how to sustain and expand the hospital and its services, given the increasing complexity of health care and the competition from neighboring hospitals in the area.

To overcome this gap in expertise, the district board agreed to appoint three additional members to the hospital board who can bring something extra to the table — whether it be a background in medicine, business, technology, nursing or public policy. That decision expanded the hospital board to nine members.

The 2012 shake-up came when the hospital was in the early stages of adjusting to major changes under the Affordable Care Act, which, among other things, proposed future cuts to Medicare reimbursement rates and put a greater emphasis on preventive care.

District board member David Reeder said there was a need to have more “subject-matter experts” to help guide the district through a rapidly changing health care environment. Looking back, he said it was the right call to expand the hospital board.

“It turned out to be a very good decision. The people who we got on the board made a huge difference because they knew what was going on in health care,” said Reeder, who was serving on the board at that time.

The expert board member positions are open to anyone, not just residents of the hospital district.

El Camino’s mailer outlines three options. The first is to leave the hospital board model alone, and keep membership at five district board members, three appointed members and the CEO. The second option is to appoint two more members to the board, raising the total to 11. The third option is to retain a nine-member board, but replace two elected district members with two appointed directors.

Strong revenues

The move to add more appointed members to the hospital board is described as an important step toward watching out for El Camino’s long-term sustainability, and advancing the “health and well-being” of the local community, according to a Q&A on the district’s website.

Although the hospital appears to be doing well financially, the website says that independent hospitals like El Camino aren’t on comfortable footing: Revenue is declining because of changes in reimbursement rates, insurance constraints and a decreasing numbers of patients for certain services.

“As an independent, nonprofit community hospital, El Camino Hospital is one of the few remaining locally-controlled health care institutions,” the website states.

The district’s financial reports don’t paint a dreary picture, however. The latest financial reports for the 2016-17 fiscal year show the hospital’s operating income to date is $33.5 million more than budgeted, and the approved budget for the year anticipates a 4.9 percent improvement in reimbursement rates among privately insured “commercial payers,” which make up 72 percent of the hospital’s net revenue.

But there’s no guarantee that El Camino will continue to have lucrative years, enabling it to stow away tens of millions of dollars for future projects, according to hospital officials.

Reeder said the level of uncertainty in health care has only increased, and changes in the field could be “quite dramatic” in the near future. At the same time, he said, the hospital has continued to expand and grow in a way that makes it tough to manage without more experienced hands on deck.

“It becomes more important with an $800 million-a-year company to have a governance board based on competency and not just political elections,” Reeder said.

Under both options that would change the hospital board’s makeup, the elected district board members would become a minority bloc, raising questions about the district’s role should the public board cede more control of the hospital’s operations to appointed members.

Mountain View City Councilwoman Margaret Abe-Koga told the Voice Monday that the hospital has been operating fairly independently from the district since the original campus was built — with the exception of capital improvement and seismic retrofit projects that the district helps finance. The move towards adding appointed members throws into question why the district even needs to exist, she said.

“If the hospital is going to have a majority of non-elected members, it could essentially run as an independent hospital,” she said.

Abe-Koga served on the Local Area Formation Commission (LAFCo) during a service review of the El Camino Healthcare District in 2012. In its report, LAFCo criticized the El Camino Healthcare District for its lack of transparency in how it handled taxpayer funds.

The review came one year after a Santa Clara County Civil Grand Jury report found that the district and the nonprofit hospital corporation didn’t do enough to distinguish themselves from each another, despite one agency receiving taxpayer funds.

The LAFCo review was fairly neutral about the district’s adding members to the hospital board, Abe-Koga said, even though the action was taken at the same time the service review was taking place.

In any of the chosen scenarios, the hospital’s corporate board will continue to follow California’s open meeting laws, even if there is only a minority of district board members serving on the hospital board, according to Kelsey Martinez, director of marketing and communications for the hospital.

Reserve powers

Board members and hospital officials have kept quiet on the idea of changing the hospital’s governance structure in recent years, and only recently revealed the proposed changes under consideration.

The district is working with the company Nygren Consulting to consider changing the composition of the board, and in March held a closed session agenda item with Nygren staff to talk about hospital governance. The item was held in closed session because of “health care facility trade secrets.”

In 2014, the district board held a robust discussion on the possible effects of changing the hospital corporation’s board, and what it might mean to have elected officials in the minority. District board member Dennis Chiu asked what would happen, hypothetically, if the hospital board decided to close the behavioral health department because it wasn’t in the financial interest in the hospital, in spite of a major disagreement by the district board.

No matter what structural changes are made to the hospital board, the district still maintains several of what are called “reserve powers” over the hospital, including the appointment of the hospital CEO, the appointment and removal of hospital directors, and the sale of hospital assets. Any decision health care district board members disagree with can be met by simply changing the slate of appointed members.

Members of the public are encouraged to weigh in on the options, which will come to the district board for possible action at the May 15 board meeting. Information about the governance changes under consideration, and the opportunity to comment, is available online at elcaminohealthcaredistrict.org.