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Monterey County/ Salinas Valley Memorial Healthcare System Affiliation Proposal

March 7, 2012

Overview
On behalf of the County of Monterey and Natividad Medical Center we are pleased to submit the Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal. The proposed Transaction is for the creation of a new independent Public Hospital Authority that will consolidate into a single Health System Monterey Countys Natividad Medical Center Enterprise and the designated hospital assets of the SVMHS. This Transaction is an asset merger of two public hospitals, not an outright purchase. This local affiliation will honor the legacies and incorporate the strengths of both SVMH and NMC. These two public healthcare systems are approximately 4 miles apart and offer a wide variety of complementary services, creating significant positive synergies that we believe can not be accomplished with any external healthcare system affiliation. This is a unique time in healthcare. It is clear that healthcare reform will favor larger systems, as opposed to smaller ones. Working together, we believe, will offer the brightest and strongest long term future for SVMH and for NMC as each seeks to innovate and to improve their healthcare delivery systems, particularly in light of coming changes. With all the uncertainties on the horizon, the opportunity to affiliate with a known and respected local partner would be a further positive for our two institutions and the general public. When the wide variety of strategic affiliation options are fully understood, we anticipate that the residents of the region will be most excited about the two public organizations affiliating. We believe that creating the appropriate legal structure for the proposed affiliation is achievable and that the affiliation will pass state and federal agency review for possible competitive effects. Further, we believe the financial marketplace will view the proposed heathcare system in a very positive light in terms of future financing needs.

Table of Contents
Overview Description of Proposed Transaction Affiliation Objectives Approval Process and Timelines Due Diligence Process Sources and Uses of Funds for Affiliation p. 2

p. 3 p. 14

p. 24 p. 26

p. 29 p. 30 p. 30

Harry Weis Chief Executive Officer Natividad Medical Center

Lew Bauman Ph.D. County Administrative Officer County of Monterey

Third Party Capital Sources Strategic Plan Development Contingencies, Caveats, and Approvals Attachments

p. 34 p. 35

Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal

Description of Proposed Transaction


Unique Positive Local Opportunity
A unique opportunity exists for the creation of a new independent Public Hospital Authority that will consolidate into a single Health System Monterey Countys (County) Natividad Medical Center Enterprise (NMC) and the designated hospital assets of the Salinas Valley Memorial Healthcare System (SVMHS). This affiliation will result in a high quality, primary and tertiary healthcare delivery system for the region realizing the dual strengths of Salinas Valley Memorial Hospital (SVMH) and its associated subsidiaries and joint ventures outlined as part of the Offering Memorandum (OM), and NMC, the Designated Public Safety Net Hospital within Monterey County. This new Health System promises business synergies that are not duplicated in any other affiliation and honors the legacy and traditions of each local organization. Other profit driven nonlocal healthcare organizations under consideration for affiliation with SVMHS cannot guarantee, over the long term, the same degree of local control and commitment to innovation and optimal healthcare at the lowest possible cost for our community.

Formation of Health System


New state legislation would form the Health System through the creation of a single, independent government entity a Public Hospital Authority (for purposes of this proposal, Health System and Public Hospital Authority are synonymous and shall be referred to as the Health System). The governing body of this new Health System will be separate and apart from both Monterey County and SVMHS. A professional, skill-based Board of Trustees would govern the Health System with appointees from both SVMHS Board of Directors and the Monterey County Board of Supervisors. The SVMHS Board would retain its non-hospital real estate assets and would continue to collect existing property tax revenue to support healthcare within its district boundaries. The new legislation will provide that the Health System assume and honor the existing Memorandum Of Understanding with each entitys respective labor units at the time of initial affiliation. Monterey County would convey its NMC Hospital Enterprise to the Health System but may negotiate agreements with the Health System for defined County Health Department services provided by or to the Health System. The legislation will set forth the powers and obligations of the new Health System, which will be created upon signature by the Governor but become operational only upon successful execution, approval, and completion of the following agreements and triggering actions by the County and SVMHS:

Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal

Agreement for the transfer of negotiated real, personal, and intangible property interests from SVMHS and NMC to the Health System, including negotiated lease with option to purchase agreements between the County and the Health System for NMC Campus facilities; Agreement between the County and SVMHS transferring risk management, workers compensation, retirement liabilities, and other obligations of each partys existing hospital operations to the Health System; Agreement regarding any necessary or appropriate interim management; Agreement between the Health System and County for FQHC Look-Alike clinics and mental health operations; Agreements and actions necessary for single hospital licensure in California; and Upon completion of above, appointment of the Health System Board of Trustees by SVMHS and the County.

Features of the Health System


The new separate and distinct Health System will operate separate and apart from Monterey County and SVMHS. Features of the Health System are intended to include: Being a Best in Class health care organization with high quality and patient satisfaction and efficient, effective operations; Maintaining its role as a designated public safety net healthcare system; Being equipped to fully and directly compete with the private sector in healthcare; Having a professional skill-based Board of Trustees, approved by the Board of Supervisors and the SVMHS Board of Directors, whose sole function is to focus on hospital governance with the goal of Best Practice governance; Streamlined decision making; Structurally having all operational functions reporting directly to one Chief Executive Officer; Being afforded private sector solutions to funding capital; and The ability to enter into new business partnerships and contracting arrangements that are pragmatic and non-political implemented to strengthen the healthcare delivery system and have increased philanthropic support as a trusted community partner.

Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal

Health System Organizational Overview


Upon formation, the Health System will operate with 441 inpatient licensed beds, approximately 2000 hospital FTEs, and a combined medical staff of over 400 physicians representing a broad spectrum of specialties.

Health System Organizational Chart


HEALTH SYSTEM

100% Owned Subsidiaries

Salinas Valley Memorial Hospital

Natividad Medical Center

PMCCC

Consolidated Joint Ventures

Doctors on Duty

Level III NICU

Urgent Care Centers Non-Controlled Joint Ventures

Salinas Surgery Center

Salinas Valley Imaging

Vantage Surgery Center

Central Coast VNA & Hospice

Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal

Hospital System Financial Overview


This proposed Transaction is an asset merger of two public hospitals, not an outright purchase. Based on preliminary information contained in the OM, prior to separating out assets and liabilities remaining with the District and the County of Monterey, the Hospital System would have more than $650 M in Total Assets with $83 M in Cash, and less than $183 M in liabilities and an estimated Net Worth of over $467 M. The following balance sheet provides a rough estimate of the combined assets and liabilities of the new entity. The combined total includes an estimate for SVMHS and Natividad Medical Center Hospital Enterprise. In reviewing the balance sheet it should be noted: SVMH December 31, 2011 information is based on the financial data contained in the OM. In the OM the balance sheet data is reported on a consolidated basis and includes assets and liabilities that will be retained by SVMHS and remain with the Hospital District; NMC December 31, 2011 information is based on the interim financial statements prepared by NMC, an Enterprise of the County of Monterey. The Enterprise data reflects encumbered assets of the County of Monterey and debt associated with those assets. It is proposed that the Health System make negotiated lease payments to the County for use of the encumbered assets. The Hospital System would have the option to purchase the debt encumbered assets. The options which have yet to be determined would include: an option premium, exercise price, an option term with an expiration date, and other terms; The financial statements for NMC and SVMH, do not include estimates of unfunded pension liability and other post retirement employee benefits. NMC is currently working with actuaries to extract the amount of the County of Montereys unfunded liability that pertains to employees of Natividad Medical Center.

Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal

Estimated Combined Health System Ending Balances as of December 31, 2011 (000s)
Natividad Medical Center, an Enterprise of the County of Monterey ASSETS ($) Cash Accounts Receivable Net Other Current Assets Total Current Assets Assets Whose Use is Limited Property, Plant and Equipment Other Assets Funds in Trust Total Assets Accrued Payroll, Payables and Other Accrued Expense Estimated Third Party Payor Settlements Capital Lease Current and Long Term Debt Other Long Term Debt Total Liabilities Minority Interest in Consolidated Affiliates Net Assets Total Net Assets Total Liabilities and Fund Balance 131,920 131,920 $242,098 110,178 117,626 7,307 4,737 $242,098 $408,538 74,147 22,203 16,078 $112,428 8,915 41,106 7,502 $57,523 26,188 307,991 16,836 83,062 63,309 23,580 $169,951 26,188 425,617 24,143 4,737 $650,636 Salinas Valley Memorial Healthcare System

Combined Health System

LIABILITIES AND FUND BALANCES ($) 26,499 5,242 9,190 69,247 20,797 73,061 231 335,246 335,246 $408,538 44,531 1,131 6,602 71,030 6,373 15,792 69,247 20,797 183,239 231 467,166 467,166 $650,636

Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal

The table listed below is a detailed schedule, from NMCs 2011 annual financial audit, listing liabilities outstanding as of June 30, 2011. The debt is the responsibility of the County and is reflected on the Countys Comprehensive Annual Financial Report (CAFR). Currently NMC makes a lease payment to the County that is equal to the full amount of the debt on encumbered hospital property and equipment.

Natividad Medical Center Liability Transactions (000s)


Balance June 30, 2011 LIABILITIES Certificates of Participation 2007 Series D 2009 Series E 2010 Series E Premiums (discount) Refunding gain (loss) Note Payable Compensated absences TOTAL $7,245 41,525 17,845 1,798 (5,140) 13,571 7,228 $84,072 2,905 6,505 $12,135 $260 2,400 65 Current Portion

Health System Facilities


The Health System hospital campus facilities are proposed to include the SVMH campus, the NMC core campus with room for growth and another approximately 19 contiguous acres as an option for healthcare system growth subject to agreements with the County (See Attachments 1 & 2). In addition are the joint venture facilities that are 100% owned or partially controlled by SVMHS.

Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal

Strengths of Health System


The unique synergies that exist with a new Health System include: The combination of all public and private revenue stream sources for healthcare that no other healthcare system can offer, including the sharing of NMCs designated public safety net Medicare reimbursement with SVMH (providing an estimated incremental $4 M per year or $40 M in additional reimbursement over the next 10 years) and NMCs designated public safety net MediCal and related reimbursement with SVMH (providing an estimated incremental $10 M per year or $100 M in additional reimbursement over the next 10 years); The preservation of SVMH at-risk MediCal reimbursements, which would be eliminated if purchased by an outside healthcare system; Elimination of costly duplication of clinical services resulting in the optimization of healthcare quality and business strength in a regional business model; Avoidance of the need to build more inpatient hospital beds in the near term, when shortages exist at one campus and excess beds exist at another campus, saving the payors/ residents of healthcare in the region more than $200 M in one time avoidable NMC hospital construction costs; Strong outpatient delivery platforms in each system with greater opportunities for growth when consolidated; Ability to employ physicians under the public hospital safety net designation and expand new contracting opportunities with area physician groups thereby maintaining and strengthening the shared medical staffs during challenging economic times and for implementation of healthcare reform objectives; Opportunities for future healthcare system facilities and program growth over time to meet present and future unmet healthcare needs of the residents of the region in collaboration with other outpatient and inpatient providers, keeping all of the positive net cash flow from these new services within the community. In healthcare, competition is inflationary, and collaboration among providers deflationary, a highly desired alternative; Efficiencies and economies of scale in eliminating redundant overhead expense allocation and savings as a result of combining two hospitals overhead department areas and leadership positions providing an estimated savings of $9 M per year or $90 M over the next 10 years; Ability to keep business operational cash flow success local vs. SVMH incurring management fees paid to an outside healthcare system, indirectly increasing the long term cost of capital estimated to total $7 M annually or $70 M over the next 10 years;

Monterey County/Salinas Valley Memorial Healthcare System Affiliation Proposal

Cost avoidance of new debt service issuance, which would occur if SVMH is allocated annual debt service associated with an outside healthcare systems issuing debt to fund the SVMH transaction. Estimated savings for every $100 M of purchase price, at 7 % tax exempt interest, would be $10.2 M annually or $102 M over the next 10 years; MEDITECH clinical and business Information Technology systems across both hospitals permit the integration of multiple systems into a new distinct healthcare information technology system, at a one time projected cost savings of $20M or more; Expansion of NMC teaching programs for physicians and other healthcare professionals together on the SVMH campus, with an estimated incremental benefit of $1.3 M per year or $13 M over the next 10 years from Graduate and Indirect Medical Education payments from Medicare; and Affiliation between the regions two public hospitals will draw the support of the local business community and residents of the county once fully informed about the unique synergy value of a local partnership between SVMH and NMC vs. a private sector affiliation options.

These affiliation synergies indicate there are one time savings or increased revenues of approximately $200 M over the next 10 years and $554 M in reoccurring bottom line cumulative savings or increased revenues over the next 10 years or an average of $55.4 M per year for 10 years. NMC, in consultation with expert counsel, believes regulatory agencies will look favorably upon the affiliation of two local public healthcare entities. The rating agencies will look favorably upon this affiliation improving the investment grade rating of the Health System, which will result in lower borrowing costs.

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Estimated Benefit of Proposed Health System Affiliation Model


Annual New Incremental Revenue Incremental Medicare - Inclusion of SVMH as Designated Public Hospital Incremental Medicare - Teaching hospital program expansion to SVMH Campus Incremental MediCal - Inclusion of SVMH as Designated Public Hospital Estimated Current Revenue Loss if SVMH is Purchased by Outside Healthcare System (Assumes SVMHS retains tax revenues) MediCal outpatient revenue supplemental payments - AB-915 Program Managed Care Intergovernmental Transfer Program Expense Savings Before Operational Improvements Estimated Cost Avoidance if SVMH is Purchased by Outside Healthcare System Annual overhead savings - NMC detaching from the County and combining two hospital overhead departments and leadership Annual Management Fees Paid to a remote location loss of revenue to Salinas area Estimated allocated annual debt service for acquisition financing net of financing cost - Assumes $200M at 7.5% for 18 years TOTAL $4,000,000 1,300,000 10 Years $40,000,000 13,000,000

10,000,000

100,000,000

1,163,000 2,500,000

11,630,000 25,000,000

9,000,000

90,000,000

7,000,000

70,000,000

20,428,000

204,280,000

$55,391,000

$553,910,000

One Time Cost Avoidance Benefit to Health System Estimated cost avoidance of building short term hospital beds at NMC $200,000,000

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Overview of NMC

Natividad Medical Center (NMC) is a 172-bed acute care hospital owned and operated by Monterey County. As a successful designated public safety net hospital providing health care to the residents of Monterey County for over 125 years, NMC provides health care access to all patients regardless of their ability to pay. NMC offers inpatient, outpatient, emergency, diagnostic and specialty medical care. With an annual operating budget of $175M, NMC provides more than 34,000 patient days each year and more than 44,000 emergency department visits per year. NMC is ranked No. 1 in newborn deliveries in Monterey County. The hospital has a medical staff of over 255 physicians. NMC operates a large hospital-based specialty clinic in: Bariatric Surgery Cardiology Colon and Rectal Surgery Gastroenterology General Surgery Nephrology Ob/Gyn Orthopedics Pediatrics Plastic Surgery Podiatry Urology Vascular Surgery

NMC has a primary care clinic and is the location of outpatient primary care clinics operated by the Monterey County Health Department. NMC is the only teaching hospital on the Central Coast, through its affiliation with the University of California, San Francisco (UCSF). Recognized nationally and internationally as a model program, NMCs Family Medicine Residency Program provides postgraduate training for physicians specializing in family medicine. About 1/3 of the graduates remain on the Central Coast to establish a practice. NMC is fully accredited by The Joint Commission and is governed by the Monterey County Board of Supervisors, under the guidance of a Board of Trustees. Over the past decade Monterey County was challenged in its ability to operate NMC within budget with NMC experiencing a financial loss of over $25 M in 2006. In 2006, the Monterey County Board of Supervisors explored the potential for the sale, lease, transfer, or restructuring of NMC. Through the review of alternative cooperative scenarios, a unique public/ private partnership was formed among Salinas Valley Memorial Healthcare System (SVMHS), a California local public healthcare district, Community Hospital of the Monterey Peninsula (CHOMP), a California nonprofit public benefit corporation, and NMC.

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In 2006, SVMHS and CHOMP entered in a cooperative arrangement with Monterey County which included the transfer of funds totaling $10M to NMC and the provision of healthcare executives from each hospital to serve on the NMC Interim Board of Trustees. Working closely with Wellspring/Huron Consulting Group, Inc., retained by Monterey County to manage the NMC turnaround, SVMHS and CHOMP representatives contributed their considerable time and expertise in guiding the operational improvement and revitalization of NMC as the regional public safety net hospital. Turnaround strategies deployed included: Delegations of authority to separate purchasing, human resources, and information technology from County to NMC recognizing the uniqueness of hospital operations from other County departments; Development of a strategic plan focusing on high quality health care, service excellence, and growth; Implementation of initiatives improving revenue cycle, labor productivity, clinical services redesign, and non-labor cost savings; Development and implementation of a permanent NMC Board of Trustees; Improved physician billing and accounts receivables management; Deployment of a physician recruitment and retention program; Recruitment of new permanent executive management team; Successful recruitment and retention of hospital staff through the implementation of a revised compensation policy; and Expansion of key clinical services enhancing NMC as a valuable community resource for inpatient, outpatient, diagnostic and specialty care.

Forecasted by Wellspring/Huron Consulting to lose $25 M in Fiscal Year 2006, NMCs financial performance improvement resulted in a net profit of $10.5 M Fiscal Year 2008, a $35 M turnaround in two years. Other financial results: Increases in monthly cash from $5.2 M in Fiscal Year 2006 to $9.3 M Fiscal Year 2009; Reduction in accounts receivable days from 94 days (Fiscal Year 2006) to 69 days (Fiscal Year 2008); and Monterey County General Fund subsidy was reduced from $21.5 M in Fiscal Year 2006 to $0 in Fiscal Year 2009 and in all subsequent years.

Today NMC is a successful designated public safety net hospital. The favorable sustained turnaround results allow the hospital to move forward to achieve its goals as a desired resource for
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healthcare services for Monterey County. NMC has not received any County General Fund support since 2008 and further has not received any local property or sales tax revenues. NMC has a cumulative net income of approximately $64 M in just the last 4 fiscal years and its days of cash on hand have gone from 40 in Fiscal Year 2007 to 165 at present. NMC executive leadership experience and track record will be an important asset in continuing the rapid operational recovery to financial health of SVMHS, which is priority one over the next three years. Financial recovery will facilitate procuring tax-exempt borrowings to build upon the healthcare system.

Affiliation Objectives
Can ensure that SVMH will be a high quality, full service, cost effective healthcare provider for the residents of Salinas and Monterey County and will preserve significant local involvement in hospital governance
The new Health System will be established with a solid commitment to maintaining the quality clinical reputation of SVMH while building on the synergy of combining two quality hospital programs. SVMH is recognized in the community for its high quality service. NMC also brings a high quality organization with a culture of patient safety. The goal is to grow Health System to a Best in Class high quality healthcare organization for the residents of Monterey County. NMC has embarked on a quality journey which began with key participation in the Institute for Healthcare Improvement (IHI) Patient Safety Executive Development Program. A program was refined and incorporated into the NMC Leadership Academy curriculum. Upon affiliation, this academy, with SVMHs guidance, will be one of many vehicles which can drive the execution of Health Systems quality vision throughout the combined delivery system. As the federal Centers for Medicare and Medicaid (CMS) moves toward healthcare reform, implementing quality-driven cost containment measures and high quality performance is key to maintaining current governmental revenues. NMC highly values and respects any accreditation audit findings. With these surveys, deficiencies are sometimes found which serve as opportunities for improvement. NMC has undergone three surveys recently. As NMC focuses its efforts on becoming a model public safety net hospital, these audit results will accelerate NMCs quality improvement initiatives.

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NMC completed a very successful survey conducted by The Joint Commission in November 2011. Separately, CMS randomly selects at least 10% of the hospitals surveyed for a validation survey. NMC recently participated in such a survey. CMS identified that the Hospital was out of compliance with the Conditions of Participation for Quality Assessment and Performance Improvement Program and Food and Dietetic Services and specified standard level deficiencies. As a result of the conditional-level deficiencies, CMS removed the Hospitals deemed status through the Joint Commission and initiated steps to terminate the Hospitals Medicare provider agreement, effective April 25, 2012. In order to avoid termination, CMS afforded the hospital the opportunity to submit a plan of correction and to receive a resurvey to demonstrate compliance. The Hospital submitted its plan of correction to CMS on February 6, 2012 and is awaiting a resurvey to demonstrate compliance. NMC, as a designated public safety net hospital, brings to the new entity financial incentive opportunities under the five-year California Section 1115 Waiver Program, effective November, 2010. NMC has begun to receive additional governmental funding for developing quality initiatives and will receive additional funding for meeting quality targets over the life of the five year waiver program. The addition of SVMH into the newly created entity has upside potential for increased quality incentive funding which can be invested back into the Health System, insuring preparedness for healthcare reform. Wellspring/Huron Consulting, as part of the NMC turnaround, designed a labor productivity system, with customized departmental benchmarks, allowing NMC to closely monitor productivity after project completion. NMC has continued to utilize this system, recently validating and refining the original benchmarks against internal and industry performance. NMCs process is to work collaboratively with labor partners who are a critical component in the achievement of sustainable productivity results. NMCs performance on a departmental basis is in the first or second quartile in most departments compared to other California hospitals. NMC has set a goal for all departments to achieve the top quartile performance. Expert consultants have been engaged to assist managers in achieving this goal. Controlling productivity since 2007 has allowed NMC to achieve strong financial results, generating needed cash to embark on an ambitious building renovation project. This productivity system will be modified to include SVMH and will serve as the foundation for achieving cost effective health care in the Health System. NMC also closely monitors non-labor expenses to ensure costs remain low allowing NMC to provide quality health care at an affordable price. The benefit of these efforts will be increased with the additional economies of scale realized by consolidating with a second hospital and the combined use of a group purchasing organization. The local business community and residents value the quality health care provided by SVMH and NMC. We believe that the Health System, as a local business enterprise, will be embraced and supported by the business community and residents over private affiliation options. The Health System will establish a communication plan to work with the residents and the business
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community to establish key partnerships essential to growing the Health System network into a high quality regional healthcare system, responsive to the public and positioned to thrive under healthcare reform. The Health System will combine a tertiary care hospital with a primary care hospital as the cornerstone of the system. Layered on this cornerstone will be a diverse and qualified medical staff, a robust network of outpatient services, complimentary inpatient services, a physician teaching program associated with the University of California, San Francisco, and dedicated staff. A systemwide strategic plan will be developed after careful analytical assessment is made of all current services. The plan will identify opportunities for collaboration on additional new clinical services which would benefit the residents and will keep all of the positive net cash flow from these new services reinvested within the community. In contrast, an affiliation with other non-profit or for profit entities could result in management fees paid to a distant outside healthcare system estimate to total $7 M annually or $70 M over the next 10 years. There has been a long collaborative history between the healthcare providers serving Monterey County. NMCs turnaround performance was supported by the local community providers, utilizing management of SVMHS and CHOMP as guiding board members. SVMHS and CHOMP generously provided financial assistance to fund the external consultants critical to NMCs dramatic turnaround in FY 2007. This collaboration was recognized as the subject of a well-received national presentation at the Healthcare Financial Management Associations Annual National Institute - June 2010. A Health System which combines the two hospitals, clinics and physicians, will grow this foundation into a solid network positioning Monterey County to achieve success under healthcare reform. NMC has benefited from the governance of a strong skillbased Board of Trustees and a transparent management style of conducting hospital business in a public environment. This leadership, with additional membership proposed by SVMHS, will help to guide the Health System to work successfully with local businesses, community action groups, labor partners and local politicians to be responsive to community needs.

Has a strong cultural compatibility with SVMH


SVMH and NMC, created with similar visions, have served patients in the same geographic area since the mid-1950s. These two institutions have a strong history of dedication to the improvement of the health status of the residents through access to affordable, high-quality healthcare services. Joining the two hospitals into a more formal comprehensive Health System will serve to: Minimize duplication of clinical services;

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Enhance case management between the two facilities to improve patient care, and reduce length of inpatient stay; Create a network of community providers who provide medical homes for Health System patients; Avoid or defer the need to build more inpatient hospital beds at NMC over the near term; Utilize technology to provide shared access to patient treatment data throughout the network; and Share rather than duplicate services; Realize economies of scale allowing needed capital for new and expansionary programs. In healthcare, competition is inflationary, and collaboration amongst providers deflationary, a highly desired alternative.

There are many quality improvements than can be quickly implemented yielding immediate results. For example, currently there are two separate hospital case management departments coordinating patient care, transferring patients from one facility to the other based on the clinical needs of the patient. SVMH, a regional tertiary hospital, treats NMC patients with complex medical needs requiring specialty services not provided at NMC, such as cardiac and neurological services. In turn, NMC treats SVMH patients needing psychiatric and rehabilitation services not available at SVMH. One example of the synergy that exists is the opportunity for the coordination of care between the hospitals under a single case management system. Better coordination of care would help reduce the cost of inpatient stay, increase net patient revenue, and produce better health outcomes. Local businesses in Monterey County have a long history of generously participating in hospital governance and contributing to the Foundations of the two hospitals. Combining both hospitals into a Health System will allow the facilities to better serve the business community by providing a strong local network of hospitals and providers for employees and their dependents. This network would contract directly with local businesses, where possible, to provide health coverage custom tailored to meet their particular needs. NMC has already begun to contract directly with local businesses. An enhanced system with a tertiary hospital will greatly expand this benefit to the local employers.

Will enhance SVMHs ability to recruit and retain high quality medical staff and to adapt to evolving physician practice models
The Health System as a public safety net hospital in California will have a stronger ability to recruit private practice physicians to the community or to hire physicians. NMC has created a flexible contracting model, working with leading healthcare law firms, to structure agreements that benefit both the hospital and the physician partner. Physicians are able to elect to be hired as an

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employee or hired through a contractual arrangement. These strategies have resulted in significant growth in NMCs medical staff membership with a 50% increase over the past four years. 89% of the medical staff is board certified and of this group 20% are either double or triple board certified. The average age of the medical staff is 49 years. NMC bills for physicians and is currently in the process of selecting a computer system to enhance the current physician billing capabilities. The two hospital medical staffs working together and centralizing physician billing, where applicable, will be an important component in developing an Accountable Care Organization. NMC administers a family medicine residency program in affiliation with University of California, San Francisco. NMC has also recently established a program with Touro University Medical School in which third year medical students participate in a core service rotation at NMC. These highly successful programs for primary care physician training, resources sorely needed in our County today, result in 30% of the residency program graduates remaining in Monterey, San Benito and Santa Cruz Counties with 90% remaining in California. NMC is currently expanding its teaching programs for physicians and other healthcare professionals. Affiliation with SVMH as part of a teaching facility would provide an incremental benefit of $1.3 M per year or $13 M over the next 10 years from Medicare for Graduate and Indirect Medical Education payments.

Will enhance SVMHs access to capital to fund needed medical technology, equipment, healthcare information systems and a longterm capital plan for a new hospital facility
The new entity will be comprised of two hospitals located four miles apart from each other. This proximity allows for the sharing of inpatient facilities and medical equipment saving valuable capital dollars for system expansion and new programs. Both hospitals have capital plans contemplating significant investments in equipment and facilities in the next few years. At the beginning of the management phase of the affiliation a master facility plan will be commenced to maximize the short and long term facility needs of SVMH and NMC. NMC has short term capacity issues which can be alleviated initially with reallocating services to SVMH during the planning phase. The Health System can avoid the need to build more inpatient hospital beds, especially at NMC when shortages exist at one campus and excess beds exist at another campus, saving the payors/ residents of healthcare in the region more than $200 M dollars in one time avoidable NMC hospital construction costs. A combined Health System Master Facility Plan will allow for strategic long term expenditures as funding opportunities are identified. The Health System will be a public entity and will have access to tax exempt debt as well as debt instruments that are designed to assist public entities fund capital needs.
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In the long-term plan maximum use can be made of NMCs campus plot which has room for growth and another 19 contiguous acres as an option for healthcare system growth subject to agreements with the County. NMC and SVMH use the same IT vendor, MEDITECH for clinical and business computer systems. There is at least a onetime cost avoidance of $20 M which would be needed to convert to another vendor for clinical and business computer support in a distant healthcare system. MEDITECH can be used as the common platform to connect community MDs into one central system allowing for the availability of patients data in all treatment locations in the expanded network.

Can achieve cost efficiencies via overhead savings, group purchasing contracts, improved clinical efficiencies and improved labor utilization
The unique combination of SVMH and NMC will have a greater likelihood of rapid, stronger and more sustainable profitable operations than an outside healthcare system because of the already existing designated public safety net revenue cycle programs of NMC which are unavailable via any other healthcare system. On the expense side, efficiencies will be easier as well, due to the close proximity of the two hospitals working together in a very collaborative manner. This new local Health System will be more successful in optimal labor management results than an outside healthcare system could achieve because of the unique local synergies that only exist between NMC and SVMH in the areas of senior management, departmental management, and line staff. Non labor product costs can also be more easily streamlined and optimized in contrast to an outside healthcare system as product standardization occurs across the two local hospital campuses. Service contracts will be standardized with improved terms. Using the MEDITECH electronic health record as the platform, in a standardized work flow manner, clinical service lines can be optimized as these two campuses begin to work closely together delivering improved sustainable levels of quality, patient satisfaction and economic performance.

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Will provide SVMH with contracting capability and capital to successfully participate in risk sharing vehicles (such as ACOs for managing the health care of patient groups)
The Health System brings to the affiliation an in-depth knowledge of local market contracting opportunities and challenges. Continuing on the improved contracting platform, NMC is working currently with local businesses to establish direct contracting arrangements for healthcare coverage of employees and their dependents. The Health System brings value added knowledge in contracting for government and public programs. An analysis would be done of the governmental programs that SVMH participates in to ensure SVMH receives all available revenues. NMC via its contracting techniques has maintained and strengthened the very challenging physician private practice of medicine during tough economic times with many area physician groups and it has the ability to employ physicians under its safety net designation. NMC has created a flexible physician contracting model, working with leading healthcare law firms that takes advantage of the ability to contract directly with physicians or to employ them. This physician strategy allows for optimal performance of the strategic goals of any private practice physician groups. The County of Monterey as part of its requirements under California Welfare & Institutions Code Section 17000 operates the Monterey County Medical Service Program for medically indigent adults (MIA). NMC administers the program for the County providing: eligibility screening, in-network services and case managing and adjudicating claims for out of network providers. In April, 2012, provided approval by the County Board of Supervisors is obtained in March 2012, the County departments of NMC, Health, and Social & Employment Services will create a Low Income Health Plan (LIHP) named ViaCare in Monterey County. The California Section 1115 Waiver allows for creation of LIHPs in California Counties with the opportunity to leverage local public funds to receive new federal matching funds and begin implementing elements of healthcare reform prior to 2014. These transition programs are allowed in the Federal Patient Protection and Affordable Care Act. The LIHP is a Medicaid coverage expansion program which will provide enriched physical medicine benefits and new mental health inpatient and outpatient coverage. The Via Care program will transition individuals currently without insurance or enrolled in the Monterey County Medical Service Program to Via Care with its enhanced services. In establishing ViaCare the County would be contracting with a third party administrator for member services, negotiating and managing provider contracts, utilization management, claims processing, quality assurance, pharmacy benefits management,

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as well as other administrative functions. ViaCare would establish a robust delivery network with each enrollee assigned to a medical home in one of the network FQHC sites. Upon affiliation, SVMH will continue to be a LIHP provider and retain its ability to claim additional uncompensated care reimbursement as part of the Health System.

Will bring improved accounting and decision support tools to evaluate new and existing service lines to achieve clinical and financial efficiencies
The Health System brings the knowledge, best practice analytics and management tools developed during the turnaround of NMC to this new entity. Strategically using custom tools and reports, NMC has restructured its operations to: Maximize supplemental governmental payments; Improve third party contracting; Improve physician recruiting and contracting; Implement a productivity system; Improved non-labor cost savings; Redesign clinical services; Improve the cash flow to the hospital from public and private reimbursement programs; and Successfully recruit and retain hospital staff.

The Health System will use the NMC executive management team along with key financial reimbursement consultants to work with SVMH leadership to evaluate new and existing programs to develop short and long term strategic plans. The Health System brings the depth of financial analytic skills needed to evaluate potential governmental revenue streams and new or existing service lines. NMC financial management has staff with extensive experience in both governmental and non-governmental financial accounting that is needed to coordinate the consolidation of financial information into a single financial MEDITECH platform reporting system. NMC leadership has created a MEDITECH based data repository system with dedicated programming staff that creates customized decision support and productivity reports.

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Will provide resources to improve employee and union relations


NMC brings to the Health System a strong team of administrators and managers who have developed excellent skills in working with union leaders to improve patient care and employee relations. NMC administration has regular meetings with union staff where collaboratively the two groups openly discuss and problem solve issues. The union leaders have been supportive of the creation of a public hospital authority as a vehicle to position NMC for success in the new healthcare reform environment. NMC values its employees and strives to have excellent staff relations. NMC contracts with an outside human relations consultant firm to conduct semiannual employee satisfaction surveys. After each survey, the results of the surveys are tabulated, analyzed and an action plan developed to address identified areas of improvement. NMC has a series of employee recognition events such as: luncheons, holiday events, celebrations, retirement and recognition of national nursing and hospital week. NMC provides health and wellness events, on-campus health fairs, and a farmers market for employees and the community.

Will provide enhanced board, management, medical staff, and employee continuing education and career development
NMCs skill based Board of Trustees is comprised of local wellrespected healthcare business leaders who value continuing education and development. In each monthly meeting, time has been set aside for education on critical healthcare issues. In addition, NMC has periodic education sessions where national speakers have been brought in to provide healthcare trend information for the Board of Supervisors, Board of Trustees, medical staff and hospital leadership. NMC videotapes these events and provides access for all staff and the public on the hospital website. As the Health System is established education and outreach will be critical to ensure the Health System strategic plan is crafted with strong knowledge and commitment to community education regarding the changing healthcare environment. The Health System will utilize technology to educate and communicate with the board. NMC currently uses a shared Board network and provides individual computer access during Board Meetings. The Health System will expand on this shared access to ensure Board members, management, medical staff and employees have access to information needed to do their respective jobs well. Medical staff education is critical in a teaching facility. Staff physicians serve as professors for the Family Practice Residency Program and need to be current on advances in medical care 22

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treatment. The expansion of the residency program to SVMH education will be a key factor in developing a Best in Class residency program. The Health System will review the current educational programs in place at the two hospitals and select the best elements of each program to develop a comprehensive staff education program which will include: Annual Staff Education Training Leadership Training Quality Education Training Compliance Training Customer Service Training Computer System Training Mandatory Staff Training Human Resource Training

The combining of the two hospitals will provide many opportunities for employees to grow into new and expanded roles. Employees will have improved career paths in the Health System as centralized administrative and business functions will be within Monterey County keeping jobs as well as non labor expenses as local as possible. The close proximity between the two hospitals allows for efficiencies and economies of scale in overhead department areas and leadership positions resulting in an estimated savings of at least $2 Million per year.

Will maintain continuity of existing charity care policies


The Health System, as a California designated public safety net hospital, will continue the 125 year tradition of Natividad Medical Center to serve all residents of Monterey County irrespective of ability to pay for medically necessary services. NMC currently complies with State law (AB 774) relative to charity care, self pay, high cost medical discounts and debt collection policies. Additionally SVMHS has a long history of generous charity contributions to the community. The joining together of these two great local hospitals will fully meet past and future charity care policies envisioned at each hospital. Natividads Medical Center currently has four discount programs. The hospital offers: Self Pay Discount Applicants must be at or below 350% of the Federal Poverty Limit with no third party coverage.

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High Medical Cost Patients Option A Family income is at or below 350% of the current Federal Poverty Limit and all out of pocket medical expenses in the prior year exceed 10% of Family Income High Medical Cost Patients Option B If the patient does not otherwise receive discount as a result of third part coverage assets will be given the same consideration as the MIA Program, and discount will vary based on assets, income and billed charges. Charity Care Policy Patient is self pay or under insured who are at or below 100% of Federal Poverty Limit and has limited assets. Patients may be assessed a co-payment based on income level and/or the nature of services received.

The affiliation of SVMH into the Health System will allow the new entity to receive additional public safety net funding by leveraging the charity care provided at SVMH into the California 1115 Waiver claiming process. Natividad Medical Center has developed a bi-lingual financial counseling department that is highly skilled in screening applicants for third party coverage, Medicaid, governmental programs, Monterey County specific programs, and for charity care. This financial counseling program will be expanded to include SVMH at the start of Health System.

Approval Process and Timelines


Late May/June 2012
SVMHS selects the Monterey County proposal and signs an initial letter of affiliation with the County for the development of a new Health System that will consolidate NMC Enterprise and SVMHS designated hospital assets into a single independent governmental entity as a Designated Public Safety Net Hospital. Monterey County/SVMHS Transition Team formed to develop enabling legislative language for the creation of the Health System and the execution, approval, and completion of transfer agreements.

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July 2012
SVMHS and County sign agreement for management services subject to constraints of law, to include the following goals: Implementation of shared executive management structure across both hospitals; Develop and implement executive, departmental and staff level staffing plans to optimize quality and business strengths; Implementation of additional operational improvements at SVMH while keeping NMC financially strong; Creation of Executive Council, the actual governance name to be defined, by the two systems, constituted from the Boards of NMC and SVMHS; Development of the Health System strategic plan including service line analyses, master site plans for each campus, staffing plans, and operational improvement initiatives; and Begin migration planning for a single fiscal, accounting and reporting system based on same MEDITECH information system.

November 2012
District election for voter confirmation of SVMHSs Board of Directors decision to form the Health System.

January 2013
Enabling legislation of the Health System becomes effective. Selection of the Board of Trustees for the Health System will be initiated by the Monterey County Board of Supervisors and by the Board of Directors of the SVMHS. Apply for Health System Tax ID. Begin credentialing NMC and SVMH MDs, a six month process.

July 2013
Move both hospitals under a single hospital license which is recognized as being a designated safety net hospital by the State Department of Health Care Services and the Centers for Medicare and Medicaid Services (CMS) and under common Medicare/Medicaid provider agreements.

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Obligated group is created to facilitate tax exempt borrowing options and for the Health System to aggressively pursue and maintain an investment rating of single A or higher. Following full affiliation, find and execute on all opportunities for improving the business and clinical delivery model along with a focus on growth regarding unmet health care needs by a strategic collaboration with all providers across the region.

Due Diligence Process


County of Monterey Due Diligence Process
The County of Monterey will conduct a comprehensive due diligence review of the proposed transaction prior to making a final proposal. The County will establish a due diligence review team comprised of County of Monterey staff and external advisors, to perform a detailed due diligence review. It is anticipated that the due diligence review will focus in the following areas: Hospital assets and liabilities; Labor agreements; Employee benefit and liabilities; Financial performance review; Government reimbursement, third party settlement agreements and pending audit findings; Debt and capital structure review; Review of legal contracts, outstanding litigation, and governance issues; Utilization statistics review; Review of all feasibility projections provided; Review of SVMHS Joint Ventures; and Other documents provided by SVMHS or their consultants.

The County of Monterey is retaining the services of Armanino McKenna LLP, Certified Public Accountants & Consultants, a firm specializing in healthcare, internal auditing and transaction advisory support, to serve as financial transaction advisors as well as provide financial due diligence services. Armanino

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McKenna LLP will conduct financial due diligence, the scope of which will be determined by the County of Monterey, in accordance with applicable standards set forth by the American Institute of Certified Public Accountants. The County of Montereys internal legal review team, led by County Counsel, will use the services of current external legal advisors including Foley and Lardner LLP, Ropes & Gray LLP, and Nixon Peabody LLP to complete a comprehensive legal due diligence review. Upon notification of selection as a finalist the County team will: Perform a comprehensive review of all data made available either in the Offering Memorandum or in an electronic data room; The County team, with its external advisors, will develop an internal due diligence review checklist; The due diligence checklist will be cross-referenced against the information that has been made available to the team and a list of additional requests for documents and information needs will be prepared and provided to Cain Brothers in writing; The County team will coordinate its request through a single individual who will work with Cain Brothers to obtain needed information with the least disruption to SVMH operations; It is anticipated that it will be necessary for one or more of the due diligence team members to visit SVMH to verify financial data or interview members of the management team. These visits will be coordinated through Cain Brothers and every effort will be made to minimize the amount of on-site review relying on electronic data room data as much as possible; During the review period it may be necessary for external consultants to review auditor work papers; and At the completion of the due diligence review a representative(s) of the County team will meet with Cain Brothers to clarify any outstanding items and issues prior to the County finalizing the review.

The County realizes, if selected as a finalist, SVMHS will be conducting a parallel due diligence process which the County will support through the due diligence team. This team will facilitate quick turnaround on SVMHS requests for documents and information and interview scheduling.

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County of Monterey Due Diligence Review Team


Internal Team Members Harry Weis Lew Bauman, PhD Charles McKee Les Girard Stacy Saetta Mike Miller Mary Zeeb Carol Adams Daniel Leon Dewayne Woods Janine Ray-Bouyea External Team Members Bill Brause, CPA John Dunican, CPA Liz Marek, CPA Robert Egnew Nancy Arata Jim Fenstermaker Diane Ung Larry Gage Rick Jones Department Natividad Medical Center County Administration County Counsel County Counsel County Counsel Auditor-Controller Treasurer-Tax Collector Natividad Medical Center Natividad Medical Center County Administration Natividad Medical Center Title Chief Executive Officer Chief Administrative Officer County Counsel Assistant County Counsel Deputy County Counsel Auditor-Controller Treasurer-Tax Collector Assistant Administrator Chief Financial Officer County Budget Director HR Administrator Role Co-lead County due diligence review Co-lead County due diligence review Due diligence legal review Due diligence legal review Due diligence legal review Due diligence financial review Due diligence financial review Project lead Due diligence financial review Due diligence financial review Due diligence HR review

Firm Armanino McKenna, LLP Armanino McKenna, LLP Armanino McKenna, LLP Independent Contractor HFS Consultants eCareManage, Inc Foley and Lardner, LLP Ropes and Gray, LLP Nixon Peabody, LLP Manager President Partner Partner Partner

Title Audit Partner, Healthcare Practice Lead Director, Transaction Advisory Services Audit Senior Manager

Role AM engagement partner AM project lead AM on-site oversight Due diligence review Due diligence financial review Due diligence IT review External legal advisor External legal advisor External legal advisor

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Sources and Uses of Funds for Affiliation


The Health System will be comprised of contributed assets and liabilities of SVMHS and the County of Monterey. For the preliminary proposal, based on available information and prior to any negotiations, it is not possible to prepare a sources and uses of fund statement for the Health System.

Sources
Based on preliminary information the combined entity would be established with an approximated cash balance of $83 M. The NMC cash balance includes $14,200,000 which has been transferred by the Board of Supervisors to a sub-fund of the Countys Strategic Reserve Fund for future strategic needs of NMC. The County proposal, prior to operational improvements which are believed to be substantial, has estimated over the first ten years of operation there will be additional cash to the Health System of $243 M.

Estimated Incremental Cash Flows Prior to Operational Improvement


Annual Incremental Public Safety Net (PSN) Medicare Revenue Incremental PSN MediCal Revenue Incremental Medicare Teaching Program Annual overhead savings - NMC detaching from the County and combining two hospital overhead departments and leadership Estimated Incremental Cash Flows 4,000,000 10,000,000 1,300,000 10 Year 40,000,000 100,000,000 13,000,000

9,000,000

90,000,000

24,300,000

243,000,000

Uses
The combined entity will retain all excess revenues over expenses in the Health System to be used initially to achieve financial stability of SVMH and solely for new program expansion and improving capital infrastructure to provide quality healthcare
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delivery to the residents of Monterey County. One of the first tasks in the establishment of the Health System will be a combined strategic plan with a detailed master facility plan. As mentioned previously NMC has a short term need to build additional hospital beds and SVMH needs to have a seismically sound replacement facility by 2030 which will be key components of the joint master plan. In addition to building expansion and replacement, both NMC and SVMH have identified many new programs that are critical to helping the residents to achieve improved health status. The incremental cash flows and excess cash from improved operations will allow the Healthcare System to support expanded services at the two facilities in parallel with master facility upgrading and replacement. One critical high priority need identified by NMC and SVMH is the establishment of a trauma service for the region. As a combined entity, the development of a trauma service can be implemented far quicker as a combined entity working together rather than two separate hospital efforts.

Third Party Capital Sources


The County of Monterey and SVMHS would each contribute assets and liabilities to the Health System. If the County becomes a finalist, the due diligence and negotiation phase can begin. During this phase the capital contribution from the County and SVMHS can be discussed, quantified and a third party capital source schedule could be included in a second round submission.

Strategic Plan Development


Development of the Health System Strategic Plan
The Executive Council appointed upon execution of the Definitive Agreement will oversee the development of the Health System strategic plan following in depth review of the SVMHS and NMC strategic plans to identify common mission, vision, goals, and strategic initiatives. Elements of the Health System strategic plan will include service line analyses, master facility plans for each campus, staffing plans, physician recruitment, and operational improvement initiatives. Provider and community stakeholders will be engaged in plan development.

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Overview of NMC Strategic Plan: Vision 2012


The NMC Strategic Plan: VISION 2012 was developed through a planning process which included the formation of a strategic planning steering committee consisting of many internal and external stakeholders. Market data was collected, service trends of NMC and other local health care providers were analyzed, and interviews with key provider and community stakeholders were conducted. At a planning retreat, the many ideas were translated into a mission, vision, and the strategic direction, critical keys to success categories and the strategic goals that align with the keys to success. The NMC Strategic Plan: VISION 2012 was approved by the Board of Trustees and Board of Supervisors. The NMC Strategic Plan: VISION 2012 is scheduled to be revised in 2012 beginning a new three year cycle. On initial review, the SVMHS mission and strategies outlined in the Offering Memorandum are congruent with the key elements of NMC Strategic Plan: VISION 2012.

Strategic Direction
Based on changing community demographics, increasing chronic diseases reflecting health disparities by income and ethnicity, and the enactment of comprehensive health care reform that stabilizes and strengthens the local health care safety net, Natividad Medical Center will be responsive by partnering with other health care providers in the provision of integrated, comprehensive, coordinated health care that aligns health and delivery system responsibilities for all populations, extends across the continuum of care, and effectively addresses the rapidly changing business rules for the payment of healthcare services. Natividad Medical Center will achieve unprecedented quality and growth targets across key clinical service lines focusing on core clinical strengths and utilizing available hospital capacity.

Mission
To continually improve the health status of the people of Monterey County through access to affordable, high-quality healthcare services.

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Future State Vision


By 2012, NMC will be recognized: Nationally and statewide as an evolving model public safety net hospital By the community as an accessible and desired resource for primary care, general medical/surgical, emergency, and womens and childrens services By both consumers and providers as a System associated with best practices, stellar outcomes, and high patient and caregiver satisfaction levels

Natividad Medical Center Strategic Plan: Vision 2012


KEYS TO SUCCESS STRATEGIC GOALS

Delivery System Realignment

To Partner with others in the provision of integrated, comprehensive, coordinated health care

Quality

To excel in providing safe, reliable, quality care to our patients

Service

To improve the patient experience: Excellent results = Loyal patients

Growth

To expand the number of patients served through the growth of targeted service lines

People

To create an environment of commitment: Happy staff = Happy patients

Stewardship

To assure that resources are available to meet the hospitals mission over time

Technology

To develop an Electronic Health Record for the exchange of patient data between NMC and all County health services

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Highlights of NMC Strategic Initiatives


Creating a quality vision and culture of safety Adopting a new performance improvement framework for patient safety initiatives Improving the safety of medication administration and management Implementing the Section 1115 Waiver Delivery System Reform Incentive Pool five-year plan that defines future quality and patient satisfaction goals Elevating patient satisfaction/customer service as a top priority Rolling out Standards of Performance for all staff Developing curriculum for leadership academy: management, physicians, and staff Creating an inviting and friendly health care facility environment that promotes healing Completing the facility and campus master plans Aggressively pursuing physician recruitment initiatives in targeted specialties Developing new relationships with community provider(s) across Monterey County for primary and specialty care Implementing the Low Income Health Plan, Via Care, a coverage expansion demonstration as part of the California Section 1115 Waiver Developing bariatric center of excellence Assessing feasibility for Level II Trauma Center Building out of on-site ambulatory care space Achievement of electronic medical record meaningful use Reinforcing IT network infrastructure Implementing new clinic IT systems Meeting profitability goals through the achievement of business growth, improved management of productivity, strengthened physician business functions, and bending of the healthcare cost curve Increasing days of cash on hand Funding capital investment plans

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Contingencies, Caveats, and Approvals


Contingencies and Caveats
As part of the formation of the Health System the following agreements would have to be reached: Agreement for the transfer of negotiated real, personal, and intangible property interests from SVMHS and NMC to the Health System, including negotiated lease with option to purchase agreements between the County and the Health System for NMC Campus facilities; Agreement between the County and SVMHS transferring risk management, workers compensation, retirement liabilities, and other obligations of each partys existing hospital operations to the Health System; Agreement regarding any necessary or appropriate interim management; Agreement between the Health System and County for FQHC look-alike clinics and mental health operations; Agreements and actions necessary for single hospital licensure in California; and Upon completion of above, appointment of the Health System, Board of Trustees by SVMHS and the County.

Approvals
To fully operate the Health System the following approvals would need to occur: The enactment and signature by the Governor of the Health System enabling legislation; Health System fully recognized as a designated safety net hospital through enacted legislation; State and federal regulatory approvals; Approval by the SVMHS District voters of the affiliation of SVMHS designated hospital assets into the newly created Health System.

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Attachments
Attachment 1: NMC Hospital Campus Attachment 2: SVMH Campus

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Attachment 1: NMC Hospital Campus

Natividad Medical Center Campus

EXISTING CAMPUS 31.37 Acres POTENTIAL GROWTH AREA 18.53 Acres


0 200 FEET 400

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Attachment 2: SVMH Campus

Salinas Valley Memorial Hospital Campus

EXISTING CAMPUS

100 FEET

200

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