The Impact of Health Care Reform

Apr 10, 2014 | From the SVH CEO | 0 comments

The need to reinvent our Hospital has been apparent since I arrived here in 2010. It is in part a response to Health Care Reform and the many changes underway in the health care industry, and also because the Hospital required revitalization to better serve the Sonoma Valley.

We’ve had to modernize an aging facility, which we’ve largely accomplished although there’s still work to be done. We needed to rethink the services we provide, something we continue to do out of financial necessity. And we’ve had to adapt to shifting government reimbursement rates and medical practice rules and regulations. While doing all this, we also needed to improve quality of service and patient satisfaction.

Given this, I feel that what we’ve accomplished here in the last four years is nothing short of incredible. In the past, however, doing all of these things properly would have led to a financially viable hospital. That’s no longer true.

The reality is that Health Care Reform has changed the rules for all health care providers, and especially small hospitals like ours. Reform has accelerated many changes that were already underway while initiating a number of new ones.

One major change is the shift in emphasis from inpatient to outpatient services. Previously, patients were admitted to the Hospital and the reimbursement for this care covered most of the overhead. This is no longer the case. Our inpatient admissions have dropped by 40 percent in the past year, from 140 to 80 per month, because payers like Medicare do not cover as many admissions as in the past.

This continues to drive down net revenue. While we are working to keep pace by reducing salary and other expenses, with net revenue so much lower than planned, more changes must be made by the end of this fiscal year to maintain viability.

Inpatient care is a challenge because getting reimbursed, whether by the government, or by private payers which tend to adopt government policies, has become more complicated. For example, if a patient is re-admitted to the Hospital within 30 days of their stay, the Hospital is not paid because Medicare has determined that it is the responsibility of the Hospital to ensure the patient does not have a relapse.

Many patients still stay up to two days under “observation,” but then the Hospital is reimbursed 65 percent less than when we admitted patients in the past. The result is we still provide the same amount of care at the same expense, we just get paid less. 

These and other changes are leading us to create a new model for hospitals in small communities like ours, one with a focus on outpatient services.

Increasingly, the patients who use our Hospital require outpatient and specialized care services such as Diagnostics, Home Health Care, Skilled Nursing, Occupational Health, and Rehabilitation services such as physical therapy. The encouraging news is that our outpatient gross revenue has increased by over 50 percent since 2010, which has considerable implications for our future.

There are other emerging trends that may eventually prove helpful to the bottom line. The move to capitation may help with both margins and cash flow, and a tighter alignment of physicians and hospital networks, along with advances in technology, medical treatment and health care practices, may help us to better manage expenses. But these are not here yet.

We are managing to keep up with these changes because we have a strong leadership team, loyal physicians and an incredible staff. Our staff satisfaction is very high and in recent years we’ve cultivated a strong, positive culture within the Hospital that is apparent to physicians, staff and patients, resulting in quality scores that place us among the top hospitals in the nation in many areas, and earn us consistently high marks in terms of patient satisfaction.

We were pleased to learn that that SVH was recently ranked among the 15 safest hospitals in the country by Consumer Reports. I feel this is directly attributable to our Culture of Safety initiative.

We truly value the support of our community, which demonstrated its commitment to SVH in helping us raise the funds needed for our new Emergency Department and Surgery Center. We continue to talk with philanthropists in our community about other needed improvements to the Hospital.

I believe we have made great strides in the past few years in many critical areas that have helped to stabilize the Hospital financially and improve service delivery and quality. While important challenges remain, when you step back and look at the bigger picture, it’s clear we are making progress in reinventing the idea of a community hospital. In this new model, the Hospital becomes a guide and partner in creating a healthy community, and is not exclusively focused on serving the needs of the acutely ill.

We see this as our mandate, one that is aligned with the realities of Health Care Reform and supports the need to maintain a vital and financially viable Hospital in the Sonoma Valley.

In good health,


Kelly Mather
President and Chief Executive Officer
Sonoma Valley Hospital