Hospital districts share thoughts on consolidation

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Kaweah Delta voters want others to share tax burden; other healthcare districts want to maintain funding and services
By Reggie Ellis @Reggie_SGN
TULARE COUNTY – Kaweah Delta learned many lessons from its failed bond measure three years ago.
Earlier this year, CEO Gary Herbst said Kaweah Delta Health Care District (KDHCD) “blew it” with Measure H, which was overwhelmingly defeated by 57% of voters. Herbst said voters were unhappy with Kaweah Delta’s decision to ask the public for a lump sum $327 million bond to fund a $550 million project to bring its Mineral King wing up to seismic standards before the State imposed deadline in 2030.
Voters also took issue with the fact that 40% of the hospital’s patients live outside the district, meaning they don’t pay property taxes to fund the hospital that provides them acute and intensive care services. In an effort to communicate with its district voters better, Kaweah Delta formed several committees to advise the hospital on its future plans. One of those committees, Hospital of the Future, recommended looking at merging with surrounding healthcare districts that no longer operate a hospital.
At its June 3 meeting, KDHCD’s board of directors reviewed a report by QK, Inc. that studied the possibility of consolidating with the Lindsay, Exeter, and Dinuba healthcare districts and annexing the Woodlake area.
“We are not suggesting or recommending a district merger; we have simply taken a cue from the community and explored another option,” wrote Herbst in a recent statement. “From our perspective, we are already caring for people who live in Dinuba, Cutler-Orosi, and Exeter. That will not change.”
Marc Mertz, Kaweah Delta’s Vice President of Strategic Planning and Business Development, said the report, which was purely preliminary, was just one possibility for Kaweah Delta to fund its seismic upgrades without asking its current voters to bear the brunt of higher property taxes. By creating a larger healthcare district, the report pointed out that property owners would pay a third less because the cost of borrowing would be spread out over a larger number of properties.
If Kaweah Delta were to move ahead with expanding its boundaries it could be as simple as a majority vote by each healthcare district board through a process called district consolidation. Legally, there is even a pathway forward without the consent of the other boards by filing an application with the Local Area Formation Committee (LAFCo), which oversees the boundaries of local jurisdictions. Under Gov. Code 5700, at least 25% of property owners or 25% of the voters in both the hospital districts would have to file a formal protest to force an election to consolidate the districts for voters in both districts. If not, the consolidation could happen without a vote of those living in the district or the board they elected to represent them. Regardless of voter opposition, both healthcare districts would still have to file plans for or against the merger and would both have the opportunity to attend a hearing held by LAFCo.
“We absolutely would not do that,” Mertz said. “In order for us to entertain it, it would have to be a win-win for both residents and we would want to have overwhelming support for it.”
If more than 50% of property owners or voters within the districts protest, the application would be denied and there would not be a need for an election. If both boards agree to the consolidation, the 25% rule remains in effect to force an election.
District Discussions
None of the three districts mentioned in the report have had any discussions with Kaweah Delta regarding consolidation. All of the healthcare districts are active in their own way collecting property tax revenue and funding health-related activities in the areas they serve. When the Lindsay Hospital closed in 1990, the property reverted to the City of Lindsay. The City used the property to build the Lindsay Wellness Center, a $5 million facility that opened in 2010. In order to help fund senior exercise programs, diabetes cooking demonstrations, health screenings, and educational classes, the Lindsay Local Hospital District’s (LLHD) board of directors agreed to fund operations at the Wellness Center to the tune of $233,000 per year. Over the last several years, LLHD has given the facility an additional $80,000 in discretionary funds. LLHD has also purchased ambulances for local providers, paid for youth sports tournaments, sponsored events, and partnered with the school district and city hall to identify projects within the city.
LLHD attorney Starr Warson said Lindsay and Kaweah Delta already partner on several fronts. He said Kaweah Delta leases its Lindsay clinic space at 839 N. Sequoia Ave. from LLHD and provides funding and programming for diabetes in the city.
“We already have a partnership and I don’t see the board wanting to give up local control of its funding,” Warson said. “I think they would question how much of the tax revenue would stay in the community if it was part of a larger district.”
Alta Healthcare District, which encompasses Dinuba and Cutler-Orosi, operated a hospital until 2002, when it declared bankruptcy. In October 2015, Alta Healthcare District (AHD) emerged from Chapter 9 filings and was able to pay back all of its debt. AHD attorney Michael Wilhelm said since that time the district has used its tax revenue to purchase three ambulances and portable defibrillators for the Dinuba Fire Department, which operates its own ambulance district, funded nutrition education and vision screening at local schools, and fueled CSET’s Meals on Wheels program. Wilhelm said there is a movement in California to consolidate healthcare districts and an offer from Kaweah Delta would not be dismissed.
“After the board looked at it, if it provided better benefits to the voters, there is a possibility they could be in favor,” Wilhelm said. “If not, they would continue to operate on their own.”
Even more unique is the situation regarding Exeter’s healthcare district. When voters in and around Exeter agreed to assess themselves in 1977 to create a public ambulance company they actually voted to form a healthcare district without a hospital. It has been a tumultuous existence for Exeter District Ambulance (EDA), which has flirted with bankruptcy, entertained dissolution, and, as recently as last year, nearly lost its contract to provide ambulance service in the county.
Peter Sodhy, district manager for Exeter District Ambulance, said nearly all of that is behind the district which is now poised to expand its boundaries and tax base to possibly include Woodlake and Three Rivers, which are not currently within a healthcare district. He said all of the tax base of its boundaries is required to keep the ambulance company running, and even that must be supplemented by insurance reimbursements and private pay for ambulance trips.
“I doubt Kaweah Delta will want to run a public ambulance company which is very unique and has its own unique set of challenges,” Sodhy said.
Seismic Solution
Studying the expansion of its boundaries is not new for Kaweah Delta. Herbst said KDHCD has periodically studied a merger with other healthcare districts but did say this is the most in-depth analysis that has ever been done.
Mertz pointed out that four district hospitals have closed in Tulare County, including Tulare District Hospital for a year, and Kaweah Delta has never expanded its boundaries since it was formed in 1963. He also said it was unlikely that Kaweah Delta would consolidate with Sierra View, the only other district hospital since Adventist Health Care took over the Tulare hospital earlier this year. The North Kern/South Tulare Health Care District and Kingsburg Tri-County Healthcare District are mostly in other counties.
“We already have a partnership with Sierra View that is predicated on both districts maintaining their independence,” Mertz said.
Of the 79 hospital districts in California, there are 39 hospitals operating in 40 counties. Only two districts are operating more than one hospital and 42 districts don’t operate a hospital at all. Most hospitals in California are non profit (209) or private hospitals (50).
QK, Inc.’s report will now be shared with the various Community Advisory Committee and Ambassador groups formed by Kaweah Delta following the failure of Measure H. Even without consolidation, Herbst said Kaweah Delta is firmly committed to looking at replacing the 221-inpatient beds in the outdated Mineral King wing.
“As we learn more, we will further involve the community to gather feedback and at that time, we will listen,” Herbst said. “Working with the community has been a phenomenal experience and as a result, we know that no matter the challenge, we will end up with a better solution.”