Issue | Background | Findings | Conclusions | Recommendations | Responses | Attachments Sequoia Healthcare District

If one or more hospitals can be built in the District without SHD assistance, the SHD should initiate a public dialogue on the its own future.

Sequoia Healthcare District should explore more options to further develop the workforce. The first action is the concern that the rebuild of Sequoia Hospital will result in redundant facilities within the South County. The Palo Alto Medical Foundation is planning to build a new facility in San Carlos; Kaiser is seeking a new location in Redwood City; and Stanford has expressed interest in locating a specialty center there as well. As there is no definitive answer to the number of beds or facilities that will be needed in San Mateo County, especially since each seems to be following the model of providing more clinic and outpatient services rather than increasing acute care facilities, hospital count is too narrow a measure to determine the future medical needs of either the District or the County. The second action urges the SHD to develop housing, training, and opportunities for hospital staffing. This is a suggestion consistent with its sponsorship of a regional nurses training program. The SHD offers the following: 4 • In 1996, voters approved the reorganization and the SHD continues to represent the public with its five-member oversight board. • The SHD’s original responsibility is to support community health and is not limited to hospital operations. • The practice of medicine has become more specialized and geographically dispersed with some facilities located beyond the SHD borders. The hospital could no longer serve as the sole source of all community health needs. • The SHD supports many county-wide initiatives for the benefit of SHD and county residents including: a ten-year nurses education program in cooperation with local colleges and universities; a $1 million plus per year contribution to the Children’s Health Initiative that offers previously unaffordable health care; funds for school nurses in the budget-limited Redwood City School District; support for Samaritan House, a free clinic using the skills of retired medical professionals in offering primary and preventive care to workers making too much money for Medi-Cal and not enough for insurance. • Sequoia Hospital, under the direction of CHW, provides free lab and x-ray services in support of Samaritan House. • Continued funding of hospital improvements. While the District’s detractors would like to see its dissolution, there are two positions that argue against that outcome. The first was offered by the San Mateo County Counsel who indicated that the District's collection of taxes is legal and that the District's board members should decide the best use of its resources. The second was offered by LAFCO (Local Agency Formation Commission) that notes taxpayers would see no drop in taxes even if the SHD Board initiated dissolution with voter approval. Proposition 13 set property tax assessment in California at 1% of the assessed value. All properties in the county are assessed at 1% and an increment of that 1% is distributed to Sequoia Healthcare District. That increment is approximately $72.00 for a home in the SHD assessed at $500,000. If the District is dissolved, the property tax would remain at 1% and SHD's share would be redistributed based on a formula reflecting the remaining agencies' sharing in the affected tax rate areas. The taxes would not be returned as a discretionary resource for the County. Board Member and CEO Compensation SHD board members receive a fringe benefit of health insurance. It is common practice for special districts to provide board members with insurance and their program is consistent with other districts the Grand Jury has reviewed. Members do not receive other fees for services even though such fees are within the special district legislation. The CEO’s earnings are well within the bounds of a chief administrator’s expected income for a special district. Governance Failure to file state-required reports could be an indicator of lax management. While the time stamp on the 2003 State Controller Annual Report was after the filing date, thus exposing the SHD to penalties and interest, the source of the delay was the Controller’s office. No penalties or interest were levied. The District employs a professional investment management company. The investment strategy pursued has resulted in a prudent rate of return consistent with conservative, governmental investing. Reporting, particularly the balance sheet item, "Accrued Liability – Escheat," deserves immediate attention. Escheat is an arcane part of the law used in reference to unclaimed property. Such property as lost or uncashed checks and unclaimed refunds or insurance payouts, over time, become the property of the state. The State Controller can impose penalties and interest for failure to file or for late filing of unclaimed property. The SHD has stated that as a result of the hospital divestiture in 1996, the liability resides on their balance sheet, as a governmental body cannot lawfully assign liabilities to a succeeding, non-governmental entity. It was agreed that Sequoia Health Services would be responsible for paying these claims. While special districts are exempted from submitting these types of funds to the State Controller, it still leaves the question of why these 1996 claims were not transferred to the state by Sequoia Health Services, which has five SHD board members, and the liability removed from the SHD’s balance sheet. There is almost universal concern regarding the SHD’s management of its large financial reserves. The SHD indicated that it would soon begin the process of developing a 10- year plan for the expenditure of the reserves of approximately $68 million plus surplus property. Twenty-five million dollars of this surplus has already been committed and is payable over a five-year period primarily for the seismic rebuild of the hospital. The estimated total cost for the hospital is $130 million, and is not the responsibility of the SHD. Current community funding commitments are: Children’s Health Initiative ($1.35 million over 5 years), SFSU Nursing Program ($1million per year for 10 years), Samaritan House Free Clinic ($500,000 per year), Sequoia Hospital Foundation ($1million per year), and Redwood City School District Nursing Support ($291,000 over 3 years). For 2004, annual tax revenues were $5.5 million of which approximately $4 million is allocated to the first four programs mentioned with the remainder set aside as board-designated strategic reserves and for administrative costs. Conclusions The Sequoia Healthcare District continues to represent and serve the health care interests of the District. The divestiture of direct responsibility for owning and operating Sequoia Hospital has not diminished the value provided. In fact, separation has allowed for the redirection of resources to additional and complementary services that are not provided by the hospital. The Supervisors’ Task Force questioned whether the rebuild of Sequoia Hospital was necessary and whether the Sequoia Healthcare District has any viability in light of other 6 planned new hospital construction. A hospital count ignores the fact that some of these facilities will be for medical specialties and that some are modeled in support of outpatient and clinic services rather than acute care beds. As of this writing, there is neither an accurate way of predicting the future hospital needs of the county nor where these facilities should be sited. Additionally, the dissolution of the SHD would not provide tax relief as there would be a redistribution of the revenue to other agencies that may have a mission other than health care, resulting in a net loss in health care resources. The Task Force urged Sequoia Healthcare District to explore options to develop the work force. The nurses training program is an important recruitment tool and needs to be partnered with concepts of staff retention. One of these is low-cost housing, an idea guaranteed to be on any task force agenda. If subsidized housing is not a reality, then retention must include the needs of young professionals. Professionals with young children need an affordable and readily available source of child day care. Without it, experienced professionals seek employment closer to home or request shorter work schedules, and may be replaced with less experienced professionals. The key to engendering district-wide support is to provide a long-range investment strategy that ably demonstrates a thoughtful use of its large financial reserves. As a step in that direction, the SHD board is meeting to plan for future community investing of financial reserves as well as budgeting. The Grand Jury endorses the suggestions heard in County Supervisors’ meetings and other forums exploring the possibility of joining Sequoia Healthcare District with Peninsula Hospital District into a single agency addressing the needs of all County residents and not just those fortunate enough to reside in a district. There are obvious differences between the two districts, such as the best way to divest responsibility for a hospital as well as the size of funding reserves. However, philosophically they both profess the same health care goals. The districts are already providing de facto funding of non-district taxpayers through direct grants as well as paying for the enrollment of district residents in non-district programs. In combination, the two districts can offer greater resources for these and other programs and perhaps gain some economies of scale. This combination would cause no increase in property taxes. All homeowners pay the same 1% General Tax no matter where they live in the county. Currently, residents in both districts have an advantage over other county residents as a portion of the 1% is returned specifically for funding district programs. The district tax receipts drawn from the 1% county property tax theoretically deprive non-district residents of funds that could be used for additional services. As Prop. 13 rewards the homeowners for length of residence by paying less tax and still getting the same services as their recently arrived neighbor, district owners are rewarded based solely on location. The County is facing dramatically increasing health care costs for the indigent, working poor, elderly, and others unable to pay. Dissolving the SHD would redirect health care dollars to other agencies within the SHD to be used for non-health care purposes. Merging the two districts, through a joint powers agreement or merger structured to serve the entire county, amplifies the effect of both and levels the playing field for all county residents.