CNMI Government Urged To Provide $10 Million Hospital Subsidy

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Without subsidies, divisions will be shut down, services culled

By Alexie Villegas Zotomayor

SAIPAN, CNMI (Marianas Variety, May 1, 2012) – The Commonwealth Healthcare Corp. (CHC) is in a financial "firestorm" and will need the Commonwealth of the Northern Marianas’ (CNMI) government’s subsidy of $10 million every year for the next three years in order to survive.

In his meeting with the trustees and officials of the last Friday, CHC chief financial officer Alvaro A. Santos admitted, "Without the $10 million subsidy, I don’t think the hospital can survive."

He said he is crossing his fingers that the CHC would be given this subsidy in the next three or four years to tide it over the crisis.

"Without the subsidy, Mr. Chairman, I can say in general terms, there will be divisions in the hospital that will be shut down. It has to downsize its service to make it more affordable," admitted Santos as he addressed Marianas Public Land Trust (MPLT) chairman Pedro R. Deleon Guerrero.

Santos candidly addressed the trustees telling them that relying on their revenues solely wouldn’t be sufficient.

Since he assumed the position of CFO for the hospital on Feb. 27, Santos said he has been "putting out fires" on daily basis.

"Right now, there is a big firestorm going on down there."

Elaborating on the downsizing of services, Santos also said, "The hospital has to meet the certification by the American Medical Association in disease prevention, in the administration of medication, and it has to have certain level of medical supplies."

He stressed the importance of this certification to the hospital without which, CHC will immediately lose Medicare and Medicaid.

For Santos, "Medicare and Medicaid are big sources of revenue for any public hospital."

He told the MPLT trustees that without those, "there is no point in running a public hospital."

[PIR editor’s note: Meanwhile, House members Joseph M. Palacios and Francisco Dela Cruz and Senate Floor Leader Pete Reyes have expressed their support for the annual subsidy, saying the $5 million seed money given to the hospital was not enough to sustain the facility.]

Lack of trust

The former MPLT board chairman expressed his frustration with the "lack of trust" from the Finance, Office of Management and Budget and the Office of the Attorney General.

Since MPLT authorized CHC as recipient of the $3 million line of credit, "I immediately sensed a lack of trust from these three divisions: OMB, Finance, AGO. I have that feeling that just because the old gang messed up the hospital, the new management would also do the same."

He also said, "Here I am trying to fix an old, defective system, and you are still going to be suspicious that I will mismanage money when we are swamped, engulfed by all obligations? You are even insinuating that we will abuse, or there’s a possible mismanagement of the funds?"

Santos said at one point he shared this sentiment with the Secretary of Finance saying they could make it easy. "You know what? Forget about this channeling of documents and reporting. You guys hold the money. I’ll just send the bills up and you guys pay."

Earlier in the meeting, MPLT board consultant Bruce MacMillan recalled his and the chairman’s visit with the Lt. Gov. Eloy S. Inos who expressed with them his dissatisfaction with CHC and due to the lack of collections and other issues.

MacMillan earlier reported to the board that Inos wanted the executive branch to have some oversight on how the money — the $3 million line of credit plus the $1.58 million loan for the electronic health record project — to be advanced to CHC would be spent.

This, he said, resulted in a memorandum of agreement between the AGO and CHC.

Santos continued conveying his sentiment. "For our authorities to lack trust on our mission to rehabilitate the hospital, keep the money and we’ll send the bills. That will save you from mistrust and save us having to go through the hurdles that you created."

For Santos, they are already saddled with obligations. "We are swarmed with debts, what is there to abuse?"

Santos pointed out, "Our goal is very sincere: to rehabilitate a sick hospital."

In the one month and a half that he has served as CFO, Santos said he has a clear picture of how the hospital covers its expenses, why and how if failed.

Contingency plan: Downsize

Santos shared with the trustees that the medical staff at the hospital has prepared a contingency plan in the event CHC fails to obtain the financing it sorely needs to stay afloat.

"If the line of credit fails, with the large amount of past obligations, and for the hospital to rely solely on its revenues, and the line of credit that has to be paid, the alternative… is to downsize services of the hospital. Some divisions will be shut down."

On Friday, Santos said they would be meeting to discuss the fate of the Rota and Tinian employees.

On Saipan, he said, the hospital used to have 600 employees; however, in their latest budget submission, that number has been whittled down to 436 or a reduction of 164 employees.

He also anticipates further resignations from employees.

He said the CHC anticipates about 30 nurses tendering their resignation to take advantage of withdrawing their retirement contributions.

He also shared with the MPLT that the CHC trustees and CEO have been evaluating the functions of the employees to see where else cuts can be made.

"If there are overlapping functions, we have to eliminate those overlapping functions," he said adding that multitasking will be the new norm.

He also said some employees will be transferred to the federal programs.

"This is a very hard decision for the trustees and the CEO and it could not have come at the worse time," Santos said.

But he said CHC could only cut to a certain point as it may affect Medicare and Medicaid requirements.

"When we lose those, we are finished," he said.

In downsizing the services, Santos said someone has to bite the bullet.

He also hinted at the possibility of privatizing the hemodialysis center which is part of the contingency plan.

He admitted that they are not getting any revenue from the facility.

Last week, Santos told Variety that CHC paid J.C. Marketing $150,000 for hemodialysis supplies that could last up to four weeks.

Asked by Deleon Guerrero what other possible sources of revenue CHC can tap into, Santos said the laboratory.

He said the past debts are driving down the CHC.

He said, "The government has a choice: Fund the hospital or down size its services to the level where it can afford.

Due diligence

MacMillan reminded the CHC management of the need for the healthcare corporation to turn over the required documents to satisfy MPLT’s due diligence requirements.

In as much as they want to help CHC, MacMillan said they will need these documents to conduct due diligence.

"CHC never came to us with a plan or a definite proposal constructed around indentifying all their problem areas and corrective solutions and estimated time to make those corrections," said MacMillan.

Since the approval of $4.58 million loan to CHC, MacMillan said the MPLT has yet to get a copy of the hospital’s business plan.

Deleon Guerrero said they were promised it would be forthcoming.

"We want to help. Provide us what we requested," asked Deleon Guerrero of Santos.

Santos begged for more time to come up with the business plan, among other pertinent documents to satisfy MPLT’s due diligence requirements.

"We will do it. Just give me time," replied Santos.

For Deleon Guerrero, one month would be sufficient for CHC to come up with the plan and he suggested to Santos if he could delegate this to other CHC management team members.

MacMillan, in his memo to the CHC management, expressed the MPLT’s concerns and outlined what they expected of CHC.

MacMillan anticipates that should the Legislature pass H.B. 17-278 and if the governor signs it into law authorizing the $11.58 million loan to CHC to be offset by the future income distributions, MacMillan anticipates that the money would be used up in a short period of time. "The risks from our side are going up steeply from where we started talking about this."

Asked by Deleon Guerrero what MPLT requested of CHC, MacMillan said in his memo he stated the need to come up with a business plan and highlighted the points to address in the business plan.

He said MPLT would be needing a business plan, forecast of the operations, statement of cash flow, drawdown schedule, projected balance sheets in the next two to three years beginning the end of the fiscal 2012.

"I don’t want MPLT to be alarmed because of all these developments. I would like for MPLT to stay the course. We are doing our best with what we have," said Santos.

The MPLT in two prior occasions went out of its way to assist CHC obviating the need for a legislative action on the $4.58 million loan.

Seeing that the CHC was teetering on the edge of closure, MPLT met with CHC and conferring with their legal counsel decided to release the remaining $2 million irrespective of the MOA of CHC with AGO to prevent the hospital from shutting down.

In the meantime, the Senate has yet to pass the H.B. 17-278 that will give an additional $7 million line of credit to CHC to bring to the total to $11.58 million.

For MPLT’s Deleon Guerrero, "Hopefully the Legislature will finally get together and reach an understanding, compromise and so they can immediately consider the additional $7 million."

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