Crisis in health care

The resignation of Santa Rosa Memorial Hospital's top executive comes during a precarious period for health care in Sonoma County.

When George Perez, 54, steps down Sept. 15 as president and chief executive officer of Memorial, he will be leaving behind a health-care community stricken with systemic ills.

"This is the most challenging and worrisome period of our history," said Perez, a hospital administrator for 29 years.

Physicians are being driven out of business, hospitals are struggling to remain profitable and doctors are turning away elderly and low-income patients who have government-paid coverage.

While the problems have been apparent for years, the situation is getting worse and the current economic downturn is making the pain more acute.

"We live on the edge now," said Mike Cohill, chief executive of Sutter Medical Center in Santa Rosa. "I have never been so pessimistic about health care as I currently am."

Perhaps the most radical change in Sonoma County's health care industry is the growing clout of Kaiser Permanente, which has increasingly become a competitor to Memorial, Sutter and independent physicians across the county.

Every year, Kaiser gobbles up more of the most lucrative share of the health care market: People who pay for private insurance.

Meanwhile, the rest of the county's doctors and hospitals are being pushed to the brink as they lose privately insured patients while continuing to treat a far greater number of people who pay with Medicare or Medi-Cal, government programs that often don't fully reimburse doctors or hospitals for their costs.

Perez, who has run Memorial since 2005, said he knows of no other community in which doctors and hospitals are as severely squeezed by inadequate reimbursement and expanding Kaiser enrollment.

"We can't raise our rates," he said, because that would "drive more people away from our services."

The fallout

Some key parts of health care in Sonoma County are slowly sinking, according to hospital administrators and local physicians.

"Our ship has already hit the iceberg and it's starting to go down," said Dr. Bo Greaves, president of Santa Rosa-based Primary Care Associates, a group of independent physicians that began dismantling its operations this month.

Primary Care Associates has dwindled to 14 doctors, down from 25 at its peak in 2002. Its remaining physicians are being forced to realign with larger organizations, such as Sutter, Memorial and Kaiser, and the group will cease to exist Oct. 1.

More than a half-dozen physician groups have gone under in the past decade. While some doctors continue to practice medicine, others have grown tired of working in the calamitous environment and have chosen early retirement, Greaves said.

The cracks in the county's health care system began to widen in 2002 when the North Bay's leading health insurer, Health Plan of the Redwoods, collapsed under $30 million in debt.

Today, Palm Drive Hospital in Sebastopol is struggling to pull out of bankruptcy, while Sonoma Valley Hospital has had to turn to taxpayers to fund its expansion.

Even at large institutions, earnings continue to worsen. Some people wonder how much longer Memorial and Sutter can survive without drastic changes.

Change in plans

Sutter tried to close its Sonoma County facilities last year, saying it had lost $70 million over five years. But the county refused to let Sutter go, holding it to a contract requiring Sutter to stay in town through 2016 and provide the county's public health programs.

After it announced it wasn't leaving, Sutter began cutting its staff. In June, it notified 128 employees that their jobs were being eliminated or their hours reduced.

But before Sutter reversed course and announced it was staying, Memorial had launched an ambitious plan to fill Sutter's expected void. Memorial added 80 beds and began construction to double the emergency room's capacity and expand its intensive-care unit and trauma services. It spent $70 million on the projects last year, and construction is expected to continue until 2010.

Now with Sutter staying in the game, some people question whether Memorial will be able to draw enough patients to pay off its accelerated expansion.

In February, Memorial announced it would close an inpatient psychiatric care unit and a skilled nursing unit and cut 91 jobs, saving up to $7.7 million a year. The move helped fend off a looming deficit and bring the hospital back into profitable territory.

Those were tough decisions, Perez said, and more are likely. "You're going to see services being narrowed," he said.

There are no local inpatient options for treating the mentally ill after both Memorial and the county cut their programs, said Dr. Gary Greensweig, chief medical officer at Memorial.

"If you come in with a psychiatric emergency, we should be sending you to a local psychiatric care unit, of which there is now none," he said. "That is a huge issue for community hospitals."

The reasons

Several factors have damaged the financial footing of local physicians and hospitals.

Sonoma County is designated as a rural zone by the federal government. Despite the county's high cost of living, doctors receive about 10 percent less in Medicare reimbursement than physicians in neighboring areas deemed urban, such as Napa and Marin counties. Several efforts to get Sonoma County reclassified as an urban zone have failed.

The state government cut Medi-Cal payments by 10 percent in July. On the federal level, Medicare payments have not risen, and after adjusting for inflation are lower than in years past.

The single biggest issue cited by physicians is Kaiser. It continues to entice patients away who pay for private insurance.

Kaiser's Santa Rosa facility, which does not include members in Petaluma who go to its San Rafael offices, is adding about 4,000 to 5,000 members a year. It has grown 30 percent since 2000, and now has 135,000 members.

Many large employers are turning to Kaiser because of its competitive insurance rates. Kaiser is a member-based program, and people who register for its insurance plan are required to use its hospital and physicians. As a result, other local physicians and hospitals are left with fewer high-paying patients to help cover the costs of those who either can't pay or have government insurance that provides meager reimbursements.

The ratios at both Sutter and St. Joseph Health System's two hospitals, Memorial and Petaluma Valley, have gotten steadily worse over the last seven years, and more than half of the hospitals' patients are underinsured. In 2007, only about one in four people treated at the hospitals had private insurance, according to Sutter and Memorial.

For St. Joseph in Sonoma County, that is a rapid decline from 2001, when nearly 50 percent of its patients had private insurance.

At Sutter, the number of commercially insured patients has remained about the same. But its burden of low-paying Medi-Cal patients increased significantly, from one in four patients in 2001 to one in three patients last year.

In contrast, four out of five patients treated at Kaiser are paying for one of its full-priced private insurance plans. That ratio has remained virtually unchanged since 2005.

Societal issue

Dr. Bob Schultz, medical director of Kaiser facilities in Sonoma County, called it a societal problem that must be fixed by lawmakers. He is no more hopeful about the future of health care than his colleagues at other hospitals.

"I think there is going to be some kind of crisis in the next five years that will require government intervention," he said. "I've seen it get worse over the years. And as it continues to get worse, I keep wondering when it will collapse."

Politicians will be forced to act as more and more people become underinsured and are turned away by physicians, he predicted.

That trend already is accelerating in Sonoma County, where primary care physicians are turning away people with Medicare or Medi-Cal because they already have too many on their books and can't afford to take on more. Those rejected by physicians are increasingly heading to hospital emergency rooms, where they won't be turned away.

"I am amazed at the number of underfunded and uninsured patients we see in the emergency room," Greensweig said.

Medical institutions closest to the brink will continue to fail, according to local health experts.

Those closest to the edge are independent physicians, who have fewer resources to weather the rising costs and are stuck with flat or declining revenues. More are expected to join Kaiser, Sutter, or the St. Joseph Health System, which owns Memorial.

"It is a crisis," Greaves said. "And it's getting worse."

Staff Researcher Vonnie Matthews contributed to this story. You can reach Staff Writer Nathan Halverson at 521-5494 or nathan.halverson@pressdemocrat.com.