During this year’s budget debate, I suggested that the numbers were overly optimistic, unrealistic, and inaccurate. My fellow Board members disagreed, sometimes vehemently. Here we are some months later and Management presents another set of numbers that are overly optimistic, unrealistic, and, in my opinion, likely inaccurate.
And the vaunted escape clause for this project is inadequate at best and worthless at worst. The clause allows AH to begin the process of termination, not for any reason, but only for the reasons outlined:
(And the lawyers can and should correct me if I’m wrong. I would be comforted if AH – AH? Are we not the City of Alameda Healthcare District? why is the Hospital always the be all and end all of what people think we should be doing instead of concentrating on improving healthcare outcomes? – had sole discretion for any reason, or no reason, to exercise its termination option, but I am pretty sure that is not the case.)
1. Regulatory reasons: This would be easy for the Zimmerman’s to argue that AH overreacted.
2. Elimination or “drastic” reduction in reimbursement: Drastic is not defined so the Zimmerman’s can easily argue that there is no problem here. The District’s own analysis points out that contribution is positive even when distinct part reimbursement drops to freestanding levels. Never mind that this analysis is incorrect, I wonder if it might lead to an expensive legal fight. Also, what does drastic mean, is it relative to the rate today or relative to each bill passed by the Legislature. What if rates are just reduced 5% more and then frozen for the next 20 years. Does that qualify as “drastic”?
3. Adverse regulatory or statutory requirements: Similar problem as 1 and 2 above.
What is missing is an escape clause if the District no longer qualifies for distinct part because it wants to close down its acute care services. Read the clause again, absent a forced closure by the State, I am not sure that this qualifies unless you read everything after “no longer continue to operate a distinct part SNF whether …” as moot. But that won’t happen because the argument will be that the language would not be present if it was moot.
So there is a good chance that this much touted escape clause which, at a minimum requires continued payment of a minimum of 9 months at the current lease rate plus significant liquidated damages plus the absorption of at least 9 months of operating losses (and losses are almost guaranteed during that 9 months because, otherwise, why would the District be exercising the termination clause in the first place?). In addition, operating losses have to be continued to be absorbed until every last patient has been placed. This is a potential liability far in excess of the numbers that management presented in the non-standard, “ROI/Contract Risk” analysis (an approach and presentation I have never seen in my career). The number easily could be over $5,000,000 and maybe even more because, after all, operating expenses in their own analysis are over $1,000,000 per month. Management has presented a rosy scenario where the District chooses to exercise its termination option while it is still making money. Does nobody else see the contradiction in that analysis?
So back to the budget; Management has already missed budget in just two months of reported results by over half a million dollars. Shouldn’t we be asking Management why we should believe them this time instead of complimenting them on their hard work?