AHS Facing Dire Finances

AHS Facing Dire Finances

The Alameda County Civil Grand Jury report includes Alameda Health System, which operates local hospital 

The health organization that operates Alameda Hospital is in dire financial health. This according to the Alameda County’s 2019-2020 Civil Grand Jury report.  

In the report, which was released last month, AHS’ audited financial statements from June 30, 2019 show AHS having a negative net worth of $300.6 million. AHS’s internal budget documents report AHS having a cash deficit of approximately $144 million in fiscal year 2020. 

AHS’s negative net worth and substantial annual cash deficits led to the Civil Grand Jury investigation. The Civil Grand Jury learned that AHS labels its budget as “balanced” because it only factors in “the revenue and expenses needed to operate AHS day to day.” It does not factor in AHS’ liabilities.

According to the report, AHS borrowed from the Alameda County Consolidated Treasury in the early 2000s that led to an accumulated debt of $200 million. In 2004, the Alameda County Board of Supervisors (BOS) placed a $200 million limit on borrowing by AHS and established a repayment schedule. 

AHS took out another loan from the County in the early 2010s. AHS and the County replaced the existing repayment agreement with the current Permanent Agreement in April 2016. This agreement increased AHS’ debt limit from $70 million to $145 million and required it to be paid down by $5 million per year to $50 million by June 2034.

Also, in March 2019, AHS was informed that California intended to request reimbursement of $99.6 million by December 2020 for overpayments the state made to AHS on Medi-Cal waiver claims from 2008 to 2015. 

AHS ability to lower operating costs was being hampered by several factors including late or erroneous patient billings and delayed or late collection efforts; service claims declined by Alameda County and/or the state of California; and labor costs, which account for about 78 percent of AHS’ total operating expenses.

The Civil Grand Jury also reported that Alameda County has added to AHS’ inability to control costs. The County incorporated Alameda and San Leandro hospitals into AHS even though both hospitals were labeled “loss leaders.” AHS also spends more in rent annually after leasing a more expensive office space previously leased by the County. The County also reclaimed its non-federal share of Medi-Cal supplemental reimbursements to AHS. 

Also, the County’s political pressure has caused AHS to take on issues that increased costs. AHS chose to approve a $20 million seismic upgrade to Alameda Hospital after initially voting against it after a BOS member expressed their support for the project. Also, the Civil Grand Jury said a County supervisor appeared at a hearing concerning a contentious AHS labor negotiation dressed in the uniform of the involved labor union.

These events have led to a poor relationship between AHS administration and the County, according to the report. AHS wanted to include the $99.6 Medi-Cal reimbursement payment to California as part of its 2019-2020 fiscal-year budget. But to do so would likely exceed AHS’ debt limit per the 2016 Permanent Agreement. AHS notified the County of this development. The County responded by expressing contempt with AHS for its lack of transparency and retained an independent consultants to evaluate AHS’s fiscal condition. 

AHS chief executive officer responded in a letter to AHS employees calling for more aid from the County. 

The two sides have been in an ongoing fight for years. The Civil Grand Jury believes the lack of peace has contributed to AHS’ financial situation.

AHS is operated by the AHS administration, which reports to the AHS trustees. The Alameda County BOS controls the AHS bylaws and appoints the AHS trustees. 

Part two

The Civil Grand Jury (CGJ) detailed the contentious relationship between AHS administrators and Alameda County Board of Supervisors (BOS) in its 2019-2020 report. The squabbling was on full display when the two sides were drafting the budget for the 2019-2020 fiscal year (FY).

In a meeting on April 3, 2019, AHS administration notified the chair of the BOS health committee that they would not be able to remain in compliance with the debt limit — AHS was not to exceed more than $125 million in debt in 2020 — in the 2016 Permanent Agreement. AHS officials asked the BOS for assistance including possibly suspending the agreement. 

At a meeting on May 22, 2019, AHS administration further explained its position to the BOS health committee. They said it was a possibility that with no financial assistance AHS might be $572 million in debt to the County by FY 2022. 
BOS sent a letter to AHS trustees, which are appointed by the County, on June 4, 2019, stating that this information only came after BOS officials interrogated AHS administration. 

“It was only after additional questioning that AHS disclosed a major structural deterioration in financial performance that is not limited to the FY 2020 budget,” the letter stated. “AHS disclosed a long-range forecast that shows AHS’s operating cash flow declining from a $46 million surplus in FY 2018-19 to a $169 million deficit in FY 2021-22.” BOS stated it would hire an independent consultant.

On June 12, 2019, AHS responded with a trustee-authored editorial to the public.

“The County’s support has always been necessary for AHS to survive, but it has become increasingly insufficient as other reimbursement programs decline or grow at a pace that hasn’t kept up with the inflationary growth in expenses,” the editorial stated. 

AHS officials also expressed in the editorial the lack of financial support they receive from the County compared to other  health organizations.

“In other counties, public health systems receive substantial county general funds to help cover these costs,” the editorial read. “Alameda Health System does not.”

BOS members were enraged by the editorial, according to the CGJ report. On June 13, 2019, a County supervisor and the Alameda County Health Care Services Agency director both read statements to the AHS finance committee condemning AHS’ editorial. The next day at a BOS town hall meeting, two County supervisors also publicly condemned AHS officials. 

Eventually, the two sides were able to finalize an agreement on the budget for FY 2020 on September 29, 2019. The balanced budget was accomplished through an unexpected windfall from several state and county programs totaling $60 million. The budget projected an annual operating income of $28.8 million.

The finalization of the FY 2020 budget has not stopped the two sides from clashing over issues. The CGJ gave AHS and the County a list of recommendations to work better together in the future. 

First, AHS and the County must agree on the scope of services and the least politically damaging way to provide them. Also, AHS must include all revenue and expense accounts in accordance with pronouncements of the Governmental Accounting Standards Board, beginning with the 2021 fiscal year budget. The CGJ also wants the County and AHS to collaborate to pay AHS’ long-term debts with the County and set aside cash to pay prior-year liabilities. Lastly, BOS members must not interfere in the day-to-day operations and management of AHS including labor negotiations and structure of service delivery.

The County and AHS has 90 days of the report filing, June 15, to respond to the report. They can agree or disagree with details in the report.

The CGJ also investigated AHS in 2015. In that report, AHS’ finances were also in question. In 2014, AHS needed $220 million to maintain financial stability. In the previous report, a lack of transparent communication between AHS and the BOS was also to blame for AHS’ financial status.

To read the full report, visit www.grandjury.acgov.org/index.page.