2010-2011 Santa Clara County Civil Grand Jury Report El Camino Hospital District

Conclusions 4

• CL1 Page 8
  There is a lack of transparency with regard to where the El Camino Hospital District spends tax revenues. Tax revenues from the 1% tax levy, tax revenues from the 2006 bond measure, and hospital operating revenues are intermingled in published audits. The District provides no published detailed breakdown of how tax revenues are actually spent, such that the public may determine whether monies are well spent.
• CL2 Page 9
  There is no one who is accountable to the District taxpayers as to how taxpayer monies are spent. Every member of the District board is on the Corporation board, and as such, every member of the District board is responsible for management and profitability of the Corporation. Should a conflict arise, such as the Corporation wanting to purchase and operate a facility outside the District’s SOI, it is unclear how the essentially common board would be able to successfully represent the independent interests of the District.
• CL3 Page 9
  Board members do not seem to know whether they represent a District or a Corporation, switching roles as needed and ignoring certain responsibilities of being a special district, such as communication with LAFCO.
• CL4 Page 6
  The El Camino Hospital is a very successful hospital, with a dedicated and caring staff. However, the District does not perform as well when it comes to demonstrating the accountability and transparency required of being a special district. The District does not adequately account for taxpayer monies separately from the hospital operating revenue stream, and does not show in sufficient detail that tax monies are used for community benefit within its district. This means that it is difficult—if not impossible—for the public to determine precisely how its tax monies are being spent, if the monies are spent at all. In fact, the District currently is banking close to $10 million and the Corporation $400 million in reserve accounts. 6 Regardless of the statement by the boards that it was the Corporation and not the District that bought the CHLG facility, in reality the District and Corporation act as one. The Corporation exists only as an agency of the District, the CEO of the District is provided by the Corporation via a Management Service Agreement, and funds from all six entities within the District are audited as one. Although these six entities appear to operate as one from a financial viewpoint, the District insists the Corporation acted independently of the District when purchasing CHLG. In doing so, the District asserts this separation did not require seeking LAFCO approval, nor a simple notification to LAFCO that the Corporation was planning to purchase the CHLG, a facility clearly outside the District’s boundary and SOI. Although board and staff state that Corporation monies, and not District funds, were used to pay for the CHLG facility, there is no way to confirm that, given the current accounting situation. The differentiation between the Corporation and the District actions appears to be illusory at best; attributing the CHLG purchase to the Corporation seems more a matter of convenience to avoid LAFCO and its probable disapproval of the purchase. The Grand Jury found a lack of transparency on how tax revenues are spent. The District, including the Hospital, the foundation, and the other entities within the District, may very well spend more for community benefit than the approximately $10M received from property taxes. And they may spend more on facilities improvements than the approximately $7M received from bond monies. However, without a clear accounting of where tax dollars go, property owners within the District boundary might conclude that at least some of their tax dollars were spent for items such as CHLG and sponsorship of the San Jose Sharks playoffs. Consistent with being a special district that receives tax revenues, the District should show where tax dollars go, on a line item basis. Such a report showing tax receipts and expenditures should be published and easily available to taxpayers, and should be audited separately from other revenue streams. The Grand Jury concluded that the taxpayers would be better represented if the District Board included some members who were not also responsible for the management of the Hospital. The Grand Jury cannot say whether purchasing the CHLG facility made good business sense or not; it may very well be financially beneficial to both the Corporation and the District. However, there is no person with specific oversight only for tax revenues, resulting in no way for the public to see where tax revenues go. It may be that hospital districts are given more latitude to operate outside their boundaries. However, it seems to the Grand Jury that, by virtue of being a special district, the District must seek approval from LAFCO when taking actions outside its boundaries and keep LAFCO informed as to its extraterritorial activities. The District should continue to work with LAFCO to fully understand its special district responsibilities as it relates to its ability to operate, through the Corporation or other entities, outside its jurisdiction boundaries or SOI. If the District were to decide that the responsibilities of being a special district are overly burdensome and that tax revenues are no longer necessary for the success of the enterprise, then LAFCO is the agency that can provide options such as district dissolution. 7 While the Grand Jury considers the acquisition of CHLG without LAFCO involvement to be an intentional act on the part of the District board, the lack of transparency with regards to budgets and boards makes it impossible to determine whether that there was also misconduct. Furthermore, with essentially the same board members, but with the Corporate board outweighing the District board by one (the Corporation’s CEO), it is unclear how the boards would resolve conflicts of interest, particularly where an issue was raised on behalf of the District to the disadvantage of the Corporation. The added confusion of intertwining of funds does not support the separate and distinct Corporation and District entities as the combined boards contend, again making the argument that the CHLG purchase was the Corporation’s, and not the District’s, illusory at best. Given the District’s historical contribution—in monies and property—to the Corporation’s success, at worst we may have a non-public entity being unjustly enriched by public monies. The Grand Jury was favorably impressed by the commitment of the District board members and by the success of the Hospital. In fact, the Corporation appears to be so successful financially —such that it could purchase the CHLG—that perhaps the District may no longer need the tax monies. Dissolution of the District would free up a portion of taxpayer revenues that could be redistributed for other county purposes, such as funding libraries. Findings and Recommendations Finding 1 There is a lack of transparency with regard to where the El Camino Hospital District spends tax revenues. Tax revenues from the 1% tax levy, tax revenues from the 2006 bond measure, and hospital operating revenues are intermingled in published audits. The District provides no published detailed breakdown of how tax revenues are actually spent, such that the public may determine whether monies are well spent. Recommendation 1A The District should develop and implement an itemized financial statement that shows how much money came in from taxes and toward which community program the monies are spent and specifically how much. Recommendation 1B The District should perform an annual financial and performance audit of the District’s tax revenues and expenditures, to be published separately from the Hospital revenues and expenditures. 8 Finding 2 There is no one who is accountable to the District taxpayers as to how taxpayer monies are spent. Every member of the District board is on the Corporation board, and as such, every member of the District board is responsible for management and profitability of the Corporation. Should a conflict arise, such as the Corporation wanting to purchase and operate a facility outside the District’s SOI, it is unclear how the essentially common board would be able to successfully represent the independent interests of the District. Recommendation 2 The District should appoint an independent manager accountable to the District who is responsible only for the detailed District financial reporting, or, alternatively, allow only a minimum number of overlapping board positions (i.e., maximum of 2) between the District and the Corporation boards. Finding 3 Board members do not seem to know whether they represent a District or a Corporation, switching roles as needed and ignoring certain responsibilities of being a special district, such as communication with LAFCO. Recommendation 3A Going forward, the District should inform LAFCO about actions that involve activity outside the District’s boundaries or SOI. Recommendation 3B The District should continue to work with LAFCO to understand the requirements of being a special district and to resolve previous actions taken without LAFCO approval. 9 Appendix A Amended and Restated Bylaws of El Camino Hospital District. Adopted March 1, 2006. http://www.elcaminohospital.org/Portals/0/documents/BOD/dbod_bylaws.pdf California’s Health Care Districts, a paper by Margaret Taylor. Prepared for California HealthCare Foundation. April 2006 http://www.chcf.org/publications/2006/04/californias-health-care-districts http://www.chcf.org/~/media/Files/PDF/C/PDF%20CaliforniasHealthCareDistricts.pdf El Camino Hospital Capabilities. An on-line brochure. http://www.elcaminohospital.org/Portals/0/documents/brochures/Capabilities_brochure. pdf El Camino Hospital and ECH District website. http://www.elcaminohospital.org/About_El_Camino_Hospital/Board El Camino Hospital Community Benefit Report for FY 2010. http://www.elcaminohospital.org/Portals/0/documents/Publications/Community_benefit1 0.pdf El Camino Hospital District Audit, 2010. http://www.elcaminohospital.org/Portals/0/documents/BOD/District_Audit_090810.pdf El Camino Hospital To Sponsor Sharks Playoffs. Sharks press release, March 31, 2011 http://sharks.nhl.com/club/news.htm?id=557868 It's official: El Camino adds Los Gatos site. Mountain View Voice. April 16 2009. http://www.mv-voice.com/news/show_story.php?id=1392 Northwest Santa Clara County Service Review and Sphere of Influence Recommendations. 15.0 El Camino Hospital District. October 2007 http://www.santaclara.lafco.ca.gov/service_reviews/northwest_2007/15.0%20NW_El%2 0Camino%20Hospital%20District.pdf 10 Appendix B Excerpted from El Camino Hospital Community Benefit Report for FY 2010 http://www.elcaminohospital.org/Portals/0/documents/Publications/Community_benefit10.pdf Organization: El Camino Hospital Multi Executive Summary Including Non Community Benefit (Medicare and Bad Debt) For period from 7/1/2009 through 6/30/2010 Persons Benefits Community Health Improvement Services (A) Community Health Education (A1) 42,396 815,021 Community Based Clinical Services (A2) 9,420 1,346,48 Health Care Support Services (A3) 2,090 205,251 **** Community Health Improvement Services 53,906 2,367,120 Health Professions Education (B) Nurses/Nursing Students (B2) 362 1,113,241 Other Health Professional Education (B3) 68 377,789 Other (B5) 3 346 **** Health Professions Education 433 1,491,376 Subsidized Health Services (C) Emergency and Trauma Services (C1) 1,028 7,461,017 Other (C10) 1,028 0 Renal Dialysis Services (C6) 699 10,996,383 Behavioral Health Services (C8) 664 4,415,119 **** Subsidized Health Services 3,419 22,872,519 Research (D) Clinical Research (D1) 83 822,886 **** Research 83 822,886 Financial and In-Kind Contributions (E) Cash Donations (E1) 0 266,262 Grants (E2) 24,853 3,067,835 In-kind Donations (E3) 0 132,000 **** Financial and In-Kind Contributions 24,853 3,466,097 Community Benefit Operations (G) Assigned Staff (G1) 0 183,976 Other Resources (G3) 0 39,230 **** Community Benefit Operations 0 223,206 Traditional Charity Care Traditional Charity Care 1,330 2,834,351 **** Traditional Charity Care 1,330 2,834,351 11 Appendix B - continued Excerpted from El Camino Hospital Community Benefit Report for FY 2010 http://www.elcaminohospital.org/Portals/0/documents/Publications/Community_benefit10.pdf Government Sponsored Health Care Unpaid Cost of Medicaid 6,347 26,323,521 Means-Tested Programs 150 150,000 **** Government Sponsored Health Care 6,497 26,473,521 Totals - Community Benefit 90,521 60,551,076 Unpaid Cost of Medicare 13,919 59,446,050 Totals with Medicare 104,440 119,997,126 Totals Including Medicare and Bad Debt 104,440 119,997,126 . 12 This report was PASSED and ADOPTED with a concurrence of at least 12 grand jurors on this 19th day of May, 2011. Helene I. Popenhager Foreperson Gerard Roney Foreperson pro tem Kathryn Janoff Secretary 13

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