Kaweah Health CEO writes open letter to Newsom seeking financial help for struggling hospital

Kaweah Health CEO says layoffs are possible if the hospital doesn't get help to close budget shortfalls.
Kaweah Health CEO says layoffs are possible if the hospital doesn't get help to close budget shortfalls.
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Dear Governor Newsom: District hospitals and the teams behind them – doctors, nurses, medical providers, etc. – have been “good soldiers” throughout this pandemic. They have provided heroic, selfless care to their communities, but they now suffer deeply and need your help. The COVID-19 pandemic, and its aftermath, have brought District hospitals to the brink of financial collapse. Without your help, it will soon be virtually impossible for Medi-Cal patients to receive anything but emergency medical care in the State of California.

My name is Gary Herbst, and I am the Chief Executive Officer of the Kaweah Delta Health Care District (“Kaweah Health”), a political subdivision of the State of California and the largest of the 33 district hospitals still operating in California. I will use Kaweah Health to illustrate the dire situation that district hospitals currently face.

This public, community-owned, 613-bed hospital and health system in Visalia, California, in the County of Tulare, serves a two-county population of approximately 600,000 people and is situated in the heart of California’s agricultural basin—the Central Valley. With almost 60% of Tulare County’s population enrolled in the State’s Medicaid program (“Medi-Cal”), Tulare County ranks number one out of the State’s 58 counties. Not surprisingly, Tulare County, and many of its neighboring counties, also rank worst in the State in number of physicians per 1,000 population; access to clinical care; premature death; overall health outcomes; health behaviors; and number of persons under 18 years old living in poverty.

Despite being an incredibly-busy hospital each year (seeing 81,000 patients in our ER; more than 112,000 in our urgent cares; more than 124,000 in our clinics; delivering more than 4,500 babies; and performing almost 10,000 surgeries), and one that is considered efficient, cost-effective, and award-winning (in February, Healthgrades named us as one of America’s top 250 hospitals in the U.S. for clinical outcomes), the pandemic has been financially devastating. Since the pandemic arrived, Kaweah Health has:

  • Sustained a cumulative operating loss (total revenues minus expenses) of $127 million (through September 30, 2022), offset in part by federal Provider Relief Funds of $61 million;

  • Lost $29 million from operations in the first three months of our fiscal year;

  • Witnessed our cash reserves plummet from 130 days cash on hand at the start of the pandemic to just 84 days cash on hand (September 30, 2022); and,

  • Learned we will soon be in default on over $200 million in revenue bond debt, far from our pre-pandemic position as one of the financially-strongest hospitals in the Valley with a credit rating of A3 from Moody’s Investors Service.

The cause of our financial condition is multi-factorial:

  • The repeated closure of elective surgeries and procedures throughout the pandemic in compliance with the State’s executive order;

  • Steep declines in patient volumes as people feared and still fear coming to the hospital;

  • The care and treatment of thousands of severely-sick COVID-19 patients with virtually zero increase in reimbursement rates from Medicare, Medi-Cal, or commercial payers (at one time, Kaweah Health had more COVID-19 inpatients in its hospital than any other hospital in the State);

  • An unprecedented dependence on highly-expensive contract labor to fill hundreds of workforce vacancies ($81 million spent since March 2020; we currently have 240 traveler nurses and 500 employee vacancies);

  • Tens of millions spent on overtime and extra-shift bonuses; and,

  • Some of the highest inflation rates we have ever experienced resulting in the skyrocketing cost of drugs, supplies, food, energy, and every other resource that goes into taking care of a patient.

Sadly, with virtually no hope for further COVID relief funds from either the federal or State government, we are faced with no choice but to begin laying off staff (likely in the hundreds), closing services (we just announced to staff that we are closing our skilled nursing unit and our neurosciences clinic), stopping elective surgeries and procedures that are provided at a loss (largely affecting the Medi-Cal population), and taking any and all other steps necessary to stem our losses. It is gut-wrenching and agonizing, to say the least.

Gary Herbst
Gary Herbst

As a further result of our current financial crisis, our plans to achieve the State’s mandated seismic compliance by 2030 have evaporated. We do not have the funds to build the $730 million, 10-story patient tower to replace over 200 non-compliant acute care inpatient beds, surgical suites, and our pharmacy, dietary/cafeteria, and PACU, all located downtown Visalia in a building built in 1969. While this building lies within one of the lowest seismic-risk areas in the State, we have been granted no relief from the requirements of SB1953. Without an exemption from or significant modification to SB1953, Kaweah Health will be forced to close many of its beds and services.

Governor, I’m delighted that our State government has generated close to a $100 billion dollar budget surplus this past year. Still, I implore you please remember the “good soldiers” of your State’s district hospitals. In appreciation of their selflessness, please dedicate one-time funding to help assist district hospitals in their financial recovery efforts and reform Medi-Cal reimbursement so that we can avoid disparities in the care of your poorest Californians. Thank you.

Gary K. Herbst is the Chief Executive Officer of the Kaweah Delta Health Care District.

This article originally appeared on Visalia Times-Delta: Kaweah Health CEO writes open letter to Gov. Gavin Newsom