Neighborcare hands hospital district a $653,000 bill

Administrative overhead plus the island clinic’s operating deficit amounts to a hefty shortfall.

Last Wednesday, commissioners of the Vashon Health Care District agreed on a response to a March 11 request from Neighborcare Health for funding the island clinic, which has long operated at a substantial deficit.

In response, commissioners offered to compensate Neighborcare for all of its losses directly associated with operating the island clinic on a quarterly basis. But the commissioners also agreed they need more information about specific operating losses and administrative-overhead costs before they are willing to work out the full details for compensating Neighborcare.

The Seattle-based nonprofit requested $653,152 — enough to help the island clinic break even for the period of December 2019 through June of this year and cover 100% of its actual and projected losses, wrote CEO Michael Erikson in a March 11 letter to the commissioners.

With $1.8 million projected in clinic operating revenue and $2.1 million in clinic operating expenses in 2020, the Vashon clinic will run an operating deficit of about $319,319 this year. But outside of the losses directly associated with operating the island clinic, Neighborcare’s budget also allocates a portion of the cost of its system-wide administrative overhead called “shared services” to the Vashon clinic’s budget, or what is considered the Vashon clinic’s fair share of it.

That’s everything Neighborcare does — from billing to running its call center, finance, information technology, human resources, fundraising, marketing, eligibility assistance, administration and other departments that serve all of Neighborcare’s two dozen medical, dental and school-based clinics.

In his letter, Erikson did note, however, that the island’s school-based health-center was independent of the funding request.

The cost of Neighborcare’s administrative overhead that it charges to the Vashon clinic is about $750,000. All told, that plus the island clinic’s $319,000 operating deficit bring the total clinic shortfall to about $1.07 million.

That’s much more money than was initially understood, said one commissioner.

“This $1.07 million dollar figure, as I think most people know, is much larger than the deficit estimates that Neighborcare shared with the island in 2018 and 2019,” said commissioner Eric Pryne during a Zoom video conference last week.

Commissioners are waiting on further detail before they proceed, including budget to actuals for the last four months and what Neighborcare’s budget shows in February and March.

“I’m thinking that they need to have something for us that suggests they’re trying to do something about their losses, that it’s not just [that] they’re in this inner-tube floating down the river and just taking it as it comes without them trying to do something about it,” commissioner Don Wolczko said.

Neighborcare intends to submit a second request later in the year for additional funding to cover their anticipated deficits. In a statement, Director of Marketing Communications Mary Schilder said that Neighborcare is grateful the Vashon Health Care District will provide financial support to Neighborcare Health “as we have been managing budget shortfalls at our Vashon clinic.”

“We will continue to work with the commissioners to give them the additional information they have requested,” she wrote in an email.

For some idea, they won’t have to go far. In a recent NPR article, Erikson noted that Neighborcare’s continued viability is more precarious than ever because of COVID-19.

The novel coronavirus outbreak has been hard on community health centers currently gearing up to treat patients exhibiting COVID-19 symptoms as the pandemic worsens. But in the meantime, waiting rooms are nearly empty.

Last week, Eriksen told NPR that having fewer patients through the door weighs heavily on the organization’s bottom line. Clinics switched to telemedicine before Washington’s Medicaid program was able to catch up and pay for it.

“You take [those factors] and you have already started to lose revenue before you’re gearing up for new ways of providing care,” he said, adding that Neighborcare is “on a pathway to losing $3 million a month.”

As the island sees its first COVID-19 cases, commissioners also asked Neighborcare to notify the district in advance of any potential plans to reduce services at the clinic so any resulting shortfall in health-care services on Vashon can be addressed with state and local government officials.

A good faith commitment for staying on the island, commissioner Wendy Noble said at the meeting, should be required for as long as the district begins compensating Neighborcare for its losses at the island clinic.

“I think there are a lot of reasons why they’re losing money,” she said, adding that the district would like a more detailed breakdown of Neighborcare’s expenses and a better picture of the drastic changes in line items on their budget from 2019 to anticipated 2020. “I think once we get into the details of where the expenses are, where they’re coming from, and why we’re seeing such significant changes, I think that’ll be important for us for the whys and wherefores of how to fix it,” she said.

The commissioners were also in agreement about wanting predictability in terms of how much to reimburse Neighborcare per quarter.

The district has retained a consultant to assist commissioners in developing a request for proposal as part of a bid to find a potential new provider to take over at Sunrise Ridge. The district also established a committee to work on a longer-term solution for the island’s main health clinic sustainability. The district will soon release a document soliciting proposals from a number of regional health-care providers who might serve the Vashon community.

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