SOS for Neighborhood Clinics

Medical Merger Looming on the Horizon

OPEN HONESTY: Can Santa Barbara’s four Neighborhood Clinics be saved? New CEO Mark Palmer is hoping by admitting problems and asking for $1.5 million in help, they can be.
Paul Wellman

Mark Palmer may not be the Lone Ranger after all, but given the number of times he refers to silver bullets, he could easily be mistaken for the masked avenger of TV Western fame. But unlike the Lone Ranger, Palmer is quick to point out, “There is no silver bullet.”

In Palmer’s case, he’s talking about Santa Barbara’s network of Neighborhood Clinics, which for the past 40 years have provided low-cost medical service to about 16,000 South Coast patients a year who overwhelmingly are low income and predominantly Latino. Last week, Palmer — a longtime boardmember of the Santa Barbara Neighborhood Clinics — sprung a last-minute press conference to abruptly announce that without a sudden infusion of $1.5 million he would have to pull the plug on the clinics this July.

It was a bold, if jarring, play, and Palmer wasn’t bluffing. The clinics, he said, have not been remotely sustainable for the past five years and lose $200,000 a month. There was no one wrong thing that got the clinics in their current hole, he pointed out, and there’s no single “silver bullet” that will fix them. To keep the clinics afloat, he said, many changes need to be made all at once. But to devise a workable business plan, Palmer said, will take time.

When Palmer assumed the reins of the Neighborhood Clinics a little more than a month ago, he did so almost by default. The clinics’ CEO had just resigned after only a few months at the helm, and the CEO before him had resigned shortly before. Much of what remained of the clinics’ upper-middle management had been let go in layoffs last fall. If anyone was going to save the clinics, it would have to be Palmer, who for 40 years has worked as corporate MacGyver, taking over underperforming high tech companies and figuring out ways to save their bacon. “I love fixing broken things,” he said. Palmer said he was just 27 when he was named CEO for the first time. “I said, ‘I’m in over my head and we’re in trouble, but if you help me we can do it.’ And we did it.”

He’s hoping the same formula will work for the clinics. If not, a whole lot of underserved people could find themselves without any service at all. South Coast emergency rooms — already pinched — would feel the crunch most immediately, and county clinics would have to scramble to accommodate the surge in demand. As Cottage Hospital’s CEO Ron Werft said, “This is a really important safety net,” referring to the clinics. “These people need a place to get care.” Werft estimated that without the clinics, as many as 10,000 patients might seek medical care at emergency rooms. The clinics, Werft said, are not just cheaper, “They’re a better place to provide care.”

Over the years, the Neighborhood Clinics have gotten way behind the financial curve. In 2008, the clinics sold their Isla Vista clinic property — which they spent $750,000 in federal grants fixing up — to the county and have spent the $2.6 million the deal generated. (Since then, they’ve rented the same space back from the county.) They bought an expensive software system to comply with the new federal requirements mandating electronic record keeping, incorrectly predicting that generous philanthropists eager to have their name associated with a software system would cover the costs. In anticipation of the Affordable Care Act, the clinics hired more doctors than could be paid for, let alone that warranted by an increase in patient demand. And the number of clinic patients reporting no health insurance increased by 10 percent — to fully one-third of the clinics’ caseload — just when philanthropic donations plunged. As Palmer noted, “It’s not a sustainable business model.”

Palmer set out to study the secrets of successful clinic operations elsewhere in the state and concluded that Santa Barbara’s fell short in the five ingredients that mattered most. One of the big problems, he claimed, is that the clinics operate under a federal permit held by the Public Health Department. Because of this, he said, the clinics are precluded from applying for federal grants. The successful clinics, he said, derive 10-20 percent of their revenues from such grants. Also because of this obscure legal arrangement, he claimed, the clinics were limited in what they could receive in reimbursement per patient visit from the federal government. Other clinics in the area, he said, receive far more.

The American Indian Medical Clinic, for example, receives $100 more per patient visit. In years past, the clinics paid consultants handsomely to change this legal designation but were rebuffed by the federal health authorities. Palmer is hoping the second time might prove the charm. But if it takes merging with the American Indian Health & Services — or perhaps the Community Health Centers of San Luis Obispo — Palmer said he would be open to that as well. In fact, Palmer said the director of the American Indian Medical Clinic gave him a letter of intent indicating an interest in pursuing such a merger. At issue was the cost of underwriting the due diligence.

While county health officials have expressed some skepticism about Palmer’s legal analysis — and whether they think such a change would actually open the door to higher visit reimbursement rates — it’s clear that many of Santa Barbara’s movers and shakers in the nonprofit world strongly suspect such a merger is necessary. Ron Gallo of the Santa Barbara Foundation said it was more important that the clinic services survive than it was that the clinics do in their current manifestation. Privately, some in the nonprofit were harsher, speaking about “throwing good money after bad.” Palmer made it plain that organizational change was the first, second, and third choice on the menu. Some programs would have to be cut or trimmed at the same time the clinics increase the number of people they serve. And much more would have to be done to get the word out in the community about what good the clinics do. “We’re definitely not saying, ‘Give me food every month and we’re not going to do anything,’” he exclaimed.

What exactly the clinics can — and are willing to — do will become more apparent June 10 when the private consultant, paid for by Cottage Hospital, releases his report on possible options for the clinics to become more financially sustainable. The report will also detail the likely impacts closure of the clinics would have on the South Coast medical community. Figuring all this out, Palmer said, should take six months. And that will cost just a few dollars below $1.5 million.


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