Just outside Highland Hospital’s administrative wing, a crew of physicians lingered in their blue and green scrubs, rolling their eyes at the boneheads who run this place. Like everyone else, they had heard about the unprecedented financial catastrophe that was about to lay waste to the main health-care provider for 107,000 uninsured Alameda County residents, but they were too busy doing their jobs to consider the true scale of the disaster.
In a small classroom on the third floor, though, an army of middle managers and labor union representatives was about to learn exactly how deep in debt the county hospital system was. It would take their breath away.
On November 18, the executive staff and trustees of the Alameda County Medical Center took their seats and prepared to deliver the news. Each year, this constellation of hospitals — Highland, Fairmont, and John George — and assorted clinics provides health care to 125,000 of the East Bay’s poorest people. Doctors and nurses clamp the arteries of people shot in the streets of Oakland; they jab schizophrenics with Haldol; they offer cancer screening and labor and delivery care to thousands of immigrants. But within twenty minutes, many of those services would be abolished.
Interim CEO Efton Hall Jr. took the mic, declared “Good afternoon,” and waited. After an awkward moment, the crowd murmured back, “Good afternoon,” and laughed to relieve the tension. Amid the giggles, someone in the back called out, “What’s good about it?” but if Hall heard, he pretended not to notice. “Thank you,” he exhaled. “I need your cheery faces to lighten my burden.” Hall’s diagnosis was truly grim: The medical center faced a staggering budget deficit of $86 million, almost twice what officials had predicted just five months earlier. Merely trimming the fat wouldn’t begin to address the problem, and interim Chief Financial Officer Robert Strawn dispassionately ran down the list of health services they would have to slash. At Highland Hospital, all obstetric services would be wiped out, and the 37-bed telemetry ward, where cardiac patients are monitored, was gone. Twenty-one beds at the John George psych ward would be eliminated, as well as 32 beds at Fairmont’s skilled nursing facility, where the elderly poor convalesce. Even after all these cuts and more, the medical center faces a $33 million deficit.
The county’s hospitals have teetered so often on the edge of disaster that readers may be forgiven for feeling disaster fatigue. Others may assume that this financial catastrophe was as inevitable as the weather, triggered as it was by a dramatic rise in health-care costs, steady dwindling of state and federal funds, and growing numbers of uninsured patients.
But this crisis is entirely different. Perhaps never before has the county come so close to losing the last fibers of its health-care safety net, and the medical center may finally be reduced to what its supporters have long feared, a “treat and transfer” facility that is little more than an emergency room. Yet it was human beings running the medical center — people who had plenty of time to prepare for this crisis, but wasted months in banal squabbling, budgetary doublespeak, and political maneuvering. Now, the county’s leaders are about to beg you to approve a March sales tax to save the medical center from insolvency and dissolution. But the last twelve months of rancorous feuding have so poisoned the well that these same leaders may be too consumed with bitterness to mount a successful campaign.
The man at the center of this tragic farce was Ken Cohen, the renowned CEO of the medical center and a reputed expert in “hospital turnaround.” In the two years he ran the center, Cohen, who did not return a phone call seeking comment, accomplished more than his share of miracles. He took an institution on the verge of losing its accreditation and turned it into one of the state’s highest-performing public hospitals. He reorganized the records and information systems and achieved remarkable innovations in matching immigrant patients with health-care workers who spoke their native language. “He was probably the best public-hospital CEO that Alameda County could’ve gotten,” says Robert Phillips, the former secretary treasurer of the medical center’s board of trustees. “He turned it around in eighteen months.”
But as with Dennis Chaconas, the Oakland schools superintendent who accomplished solid academic gains while silently presiding over a historic financial meltdown, the budget would ultimately be Cohen’s undoing.
To this day, almost everyone connected with public health will rush to defend Ken Cohen. Nancy Friedman, the executive director of the health-care advocacy group Vote Health, maintains that he did the best he could with what he had. “He was a good leader,” she says. “I think Cohen and the trustees were the fall guys for a society that doesn’t provide health care for its indigent residents.” But this conventional wisdom is simply wrong. All of the elements that ultimately created this mess were obvious to anyone who was paying attention, and many critics argue that Cohen never treated the looming financial crisis with the urgency it required. By the time he finally acknowledged the center’s grim prospects, say critics such as County Supervisor Keith Carson, it was far too late.
In 1998, the county supervisors fundamentally changed the way the medical center was run. Rather than overseeing it directly, they farmed out the job to a board of trustees made up of health-care and management professionals. The supervisors claim they wanted to create a governing body with a special level of expertise; others claim, rather credibly, that the supervisors were just too chickenshit to weather the political storms that come with running an operation always on the brink of disaster.
The end result was that when the center first experienced a hint of financial crisis, it was hamstrung by two layers of governance: medical center trustees, who had nominal authority but limited control over its purse strings; and county supervisors, who had ultimate responsibility. As the crisis unfolded, the supes and the trustees turned on one another in mutual recrimination, depriving the medical center of any coherent way out of this problem.
It all started in the summer of 2002, when county auditor Pat O’Connell took a closer look at the center’s budget. According to one inside source, O’Connell added up the center’s assets and liabilities, and told both Cohen and Carson that it could be as much as $18 million in the red by the end of the fiscal year. Carson claims that he asked for more details, but that Cohen and his assistants hid the true extent of the center’s problems behind a fog of accounting lingo. “I kept asking at all those meetings for greater written detail,” Carson says. “They hemmed and hawed some more and promised to address the problem not with any structural change, but to more aggressively generate revenue. … We were under the impression that they were addressing it.”
A hospital’s budget is a unique animal. Money goes out right away, but comes back in at a pace that doesn’t neatly coincide with the end of anyone’s fiscal year. For example, when Medi-Cal patients show up at Highland, doctors blow a wad on treatment right then, but the government doesn’t get around to reimbursing the hospital for up to eighteen months. Consequently, the medical center’s bean counters deal not in year-end deficits, but in cash flow. Cohen and his subordinates never translated their complex accounting into a language readily understood by Carson, who began to suspect them of hiding the scale of the disaster.
This oversight revealed Cohen’s casual attitude toward finances, one inside source claims. “Because Ken was so under the gun, and the board of trustees was pressuring him to make all these improvements in like six to eight months, other things slipped,” the source says. “One of the things where we were kind of weak was in the financial department. … On the finances and budget, Ken came to them too late.”
Carson had had enough by January and demanded some hard numbers, or else. “At the top of the year, the board basically threatened Ken to get it together,” says trustee Phillips. Two months later, Cohen put together a financial picture that had since grown much worse: He issued a report that estimated the deficit to be at least $28 million, and both the trustees and the supervisors began contemplating cuts in service. But when Cohen released his plan to cut $14 million from the budget, Carson and other politicos were livid. Included among the cuts was a proposal to close the Fairmont skilled nursing facility, which tends to poor, uninsured elderly people who often suffer from terminal illnesses. The prospect of kicking dying old people out on the street was politically unthinkable, and Carson says Cohen deliberately proposed cutting Fairmont in a gambit to blackmail supervisors into finding money to bail him out of the hole he had dug for himself.
If it was a ploy, it paid off in the short term. “They knew that next to closing the trauma center, the most contentious thing was closing the skilled nursing center at Fairmont,” Carson says. “We said, ‘You can’t do that, you can’t kick all these old people out. These people are probably going to stay there till they died.'” In short order, county supervisors found $4 million to keep the facility open for two more years. But Carson never forgave Cohen.
Beginning in May, trustees began worrying that Cohen was being set up as a fall guy. Former deputy superintendent of Oakland schools Bob Blackburn was appointed to the board around this time, and soon became disillusioned with what he saw as the supervisors’ systematic campaign to finger Cohen for all the medical center’s problems. “They ignored the problem, and when they couldn’t any longer, they began looking to any source to excuse their inattentiveness,” Blackburn says. “In the looming crisis, scapegoats were being sought and given names.”
In June, Cohen announced that to come close to resolving the budget deficit — which had now ballooned to $45.7 million — the center would have to close everything but the Highland emergency and inpatient services, John George psychiatric services, and recovery and rehab. Once again, the skilled nursing facility was back on the cut list. But most prominent on the chopping block was Highland’s vaunted trauma center, which treats Oakland’s gunshot victims and once even saved Blackburn’s life after he was shot along with former schools superintendent Marcus Foster in 1973. With Oakland’s homicide rate on the rise, closing the trauma center was considered political suicide. Carson again fumed that Cohen was playing a game of chicken with the supervisors, holding critical services hostage to squeeze more money out of the county’s general fund. But Blackburn claims that Cohen was simply being frank. “He felt without severe cuts or additional resources, we couldn’t proceed,” Blackburn says. “They wanted some magical solution that would cut no services but would bring in some balanced budget.”
Perhaps the summer’s most controversial moment occurred behind closed doors. Just as Cohen proposed a new round of deep cuts, the trustees agreed to give him a lucrative new severance package. If Cohen were ever fired — as he eventually was — he would leave with roughly $500,000. When Carson heard about this, he was livid that the man he thought had created this mess would walk away with such a golden parachute. “Ken Cohen has definitely been a gross problem,” he snarls. “He left with that half-million-dollar severance package they gave him, and now he has a new $180,000 job in the Valley.”
The supervisors made their move in August. In the space of a few weeks, they removed Cohen from the board of trustees, capped his ability to sign contracts at $50,000, and tried to put county auditor Pat O’Connell in charge of the center’s finances. The trustees responded by firing Cohen, claiming that they were unwilling to sit back and watch his reputation ruined while the supervisors made his job impossible. When the supes subsequently appointed three new trustees in an apparent effort to stack the board with their own loyalists, five trustees — including Phillips and Blackburn — resigned in protest. The bloodbath was complete.
“We trustees knew our task would not be easy when we accepted it,” the five trustees wrote in their resignation letter. “What we did not realize was that we would face our biggest obstacle from our partner, the County, which instead would act as an adversary.”
So the supervisors have their medical center back, for all the good it will do them. Carson’s dim view of Cohen’s financial performance seems reasonable, but the supervisors’ proxies have run the center since September, and the deficit continues to spiral out of control. Now, everyone from labor unions to Vote Health activists have joined the supes in support of a sales tax ballot measure this March. But the rift between the supervisors and the trustees has become so public that unless the county soon fixes the way it runs the center, the public may not have enough confidence to trust them with yet more of their tax dollars.
So here is a way to restore public faith in the system: Abolish the board of trustees.
The terrible war of the last eighteen months was clearly exacerbated by the lack of communication between the trustees and the supervisors. Folks such as Supervisor Gail Steele claim that the supes don’t have the expertise to run a medical center, but the fact is that no other county in the state has an extra layer of governance to run its hospitals. And guess which county’s hospital was just admitted to the intensive care unit?
