Tom Hayes, chief executive officer of Eastern Plumas Health Care, came to the regular June 15 meeting of the Portola City Council to ask for the city’s help.
Citing a half-million-dollar net loss in February, Hayes said, “We don’t have the reserves to weather the storm.” He went on to explain that while EPHC’s insured patient base has declined, its MediCal patient base has increased. It has witnessed a “huge increase in bad debt in the last six months” and experienced a drop in volume.
“Cash flow is our most critical issue,” Hayes said, adding that he is looking at ways to restructure the debt load.
He then described a vacant 35-acre piece of land adjacent to the hospital known once as the Markwell property and currently owned by the hospital district.
The district purchased the property in 2003 for $554,000 and currently owes $354,000. It makes payments of $5,200 a month, pays 7.8 percent interest, and has a balloon payment of $263,000 due in 2013.
“We’re proposing that the city consider buying that property for what we owe, less than half of what we paid,” he said, suggesting that the city could develop it. He also hoped that the city would consider selling the district back four to five acres in the future if hospital expansion were warranted.
Hospital board member Larry Fites gave a short history of the property and previous development attempts, pointed out that the northern third was zoned light industrial, and outlined infrastructure access.
Portola City Manager Jim Murphy asked whether an appraisal had been done and felt it was necessary before there could be any discussion of expending public dollars.
“We’re going through the same things that you are and we appreciate your challenges,” Murphy told him.
Discussions of the proposed purchase were extensive, taking up an hour of the meeting time, and Hayes fielded several questions from council members regarding other possible buyers and other things the hospital might do.
Since EPHC has been battling cash flow problems for some time, Hayes described what had already been done and how the hospital planned to meet its future challenges.
“We’re looking at everything and leaving no stone unturned,” Hayes told the council.
“So are we,” countered Susan Scarlett, finance officer for the city.
“The difference is that the city has a reserve. We don’t have a reserve or we wouldn’t be here asking for help,” Hayes said.
“We can’t really delve into our reserve without doing a hell of a lot of research. Respectfully, that’s where I stand,” said council member William Weaver.
Murphy added, “Citizens are already upset about rate increases. How are we to invest in infrastructure and roads on top of that?”
Although city staff and council members were sympathetic, they felt that more steps must be taken before a sale could be discussed seriously.
Their first obstacle, according to Murphy, was the need for legal counsel. City Attorney Steve Gross had recused himself at the beginning of the discussion because he is also attorney for the hospital.
The council voted to waive conflict of interest in order to have Gross advise both parties, but Hayes will have to take the idea before the full hospital board for approval as a next step.
Local Realtor B.J. Pearson urged the council to accept the proposal, “Loss of the hospital would virtually eliminate the prospect of a business of any size moving to Plumas County.”
Supervisor Terry Swofford countered that there is already an industrial park in Chilcoot and several businesses there have failed. “When businesses move in California, they move out of California,” he said, citing California’s reputation for being one of the worst states to do business in. “I want to keep the hospital here, but we can’t bank everything on light industry. I don’t see that happening at this point in time.”
Pearson also brought up the fact that the city had loaned the county $350,000 for the Lake Davis Treatment Plant, and he thought the city might show equal support for the hospital and save jobs that might be in jeopardy.
According to Hayes, the hospital employs 240 people, and all but 15 live in Sierra and Plumas counties. The 240 jobs calculate into 178 full-time equivalent positions.
Murphy asked Hayes if a low-interest loan from the city would be helpful.
“This is about cash flow,” said Hayes, “It would help.”
Mayor Pro Tem Juliana Mark summarized, “We need to take care of some of the variables: look into both options, get Steve involved and get an appraisal.”
Upon Gross’ return to the room, he was presented with the council’s waiver of conflict of interest.
He said that usually a waiver of that kind happened after terms had already been negotiated, which was not the case here. He cautioned that there was a potential for a conflict of interest, but that he was willing to try. “If it feels uncomfortable, I will have to stop.”
As a next step, Hayes will bring the attorney’s conflict of interest issue before the full hospital board at its next meeting and introduce discussion about securing a loan.
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