San Pedro Hospital, Shaken by Losses, Considers Its Future

The 64-year-old San Pedro Peninsula Hospital is assessing its future after recording the first financial losses in its history during the last two years, technically defaulting on $18 million in bonds and forcing the resignation of its president, who had earlier called for personnel cuts and elimination of some hospital programs.

According to hospital officials, San Pedro Peninsula, which opened in 1925 and is San Pedro’s only hospital, lost $2.7 million in 1987. Losses in 1988 are expected to hit $4.6 million on a budget of $86 million. Officials say a variety of insurance problems, including misclassification of insurance coverage for some patients, caused the hospital to receive less for services than it expected.

Made Bond Payments

The 1988 loss put San Pedro Peninsula in technical default on a 1985 bond issue guaranteed by First Interstate Bank. John Wilson, 39, acting chief executive officer, said the hospital has not missed any of its $100,000-a-year payments on the bonds but went into default because “the level of profitability is not sufficient to support the bonds” under the bond agreement.

The national accounting firm of Ernst and Whinney is developing a plan to put the hospital back in the black and will report to the hospital’s board of directors March 3. Wilson said the firm has spent “several weeks looking into our operations, analyzing our systems,” and will recommend ways to reduce hospital costs and increase revenues.

On Jan. 25, the board forced the resignation of Rodney Aymond, 52, who had become president of San Pedro Peninsula in October, 1986, after heading a hospital in San Jose. Board members, attributing the action to “philosophical differences,” have declined to elaborate.

But Aymond said his ouster stemmed from an October retreat, attended by board members and medical staff leaders, at which he recommended that the hospital eliminate 100 jobs through attrition, close what he considered non-essential programs and reduce costs by about $5 million. There “was a rather spirited discussion” at the retreat, Aymond said. “I was in the minority.”

He said that in addition to billing and insurance problems, some money-losing hospital programs, among them defunct eating-disorders and pain-management programs, contributed to the red ink.

Aymond also said the hospital should attract more patients from San Pedro, which he called its essential service area. He said his goal was to “recapture some local community population” by dropping unprofitable programs and emphasizing “programs important to the San Pedro community.” These include obstetrics and pediatrics--where he said the hospital is lagging--the emergency room, surgery and general medicine.

Dr. Bruce N. Goldreyer, chief of staff and a hospital board member, disputed Aymond’s opinion that the hospital is not supported by the community. “If you look at patient population in relation to where they come from, it is clear that we have more than a 50% market share from San Pedro,” he said. “Many hospitals in California would be ecstatic with a 50% share.”

Called ‘Viable’

Contrary to Aymond’s view, Goldreyer said the hospital “is viable, provides needed patient services and can continue and even expand services.”

After obtaining Aymond’s resignation, the board approved what Wilson called a “break-even” 1989 budget of $95 million that eliminated no jobs or programs but did impose a hiring freeze.

Goldreyer said the hospital’s problems lie with “business procedures, not services. . . . The crux of the problem had to do with management.” He said the Ernst and Whinney study is looking at billing and admission procedures in order to restructure them.

At the same time, Goldreyer said, the medical staff is concerned that hospital programs be financially sound and serve the community “and is looking at all programs in terms of medical needs.”

The hospital has commissioned a Gallup telephone poll to determine how San Pedro residents select doctors and hospitals, according to John A. Calderone, marketing and communications director.

Wilson, who came to the hospital only two months ago as chief operating officer, said the bulk of the insurance losses came after federal Medicare and state Medi-Cal denied claims for some services after they had been performed.

Some of these claims were denied because of Medicare’s practice of placing ceilings on how much it will pay for procedures regardless of how much they cost or how much the hospital would bill patients with commercial insurance. This is a problem, Goldreyer said, that all hospitals face.

Aymond said he solved another insurance problem that cost the hospital more than $2 million, a problem he said he inherited.

He said clerical staff erroneously put patients in billing categories that paid more than the insurers had agreed to pay. For example, Blue Cross patients include those in regular Blue Cross plans, which pay full rates, and “preferred provider plans,” which pay a reduced amount. As a result, only part of some bills were paid, though the hospital had budgeted as if it would receive the full amount.

To correct this, Aymond said, clerks were retrained and given new supervision.

Wilson, noting that San Pedro Peninsula’s average census of 250 to 275 patients a day rose in January, said the hospital is already reducing expenses. He added: “My objective is to improve the financial picture of profitability, hopefully in the first quarter.”

But Aymond said the hospital is “going to have to make major changes” to recover financial health.