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Alameda Health System Finances on Shaky Ground

Alameda Health System's finances as shaky as Alameda Hospital's. (Google Street View)

Alameda Health System’s finances as shaky as Alameda Hospital’s. (Google Street View)

Last year, Alameda Hospital officials approved a plan to join the publicly-funded Alameda Health System as a way to shore up the Hospital’s finances. It turns out that Alameda Health System is in poor financial health too.

Late last week, in response to a request for a comment on a story about the integration, an Alameda Health System Spokesperson told Action Alameda News, “Alameda Hospital recognized the need for a partner in order to continue providing access to quality health services for the community of Alameda. After much deliberation and evaluation by the district board, a partner was found in Alameda Health System, an organization that shares the mission and core values of Alameda Hospital.”

The partnership was deemed necessary for Alameda Hospital to survive financially.

But on Monday, Alameda Health System CFO David Cox told an Alameda County Supervisor’s Health Committee that the system’s cash flow is weak, and that it will need to restructure some $200 million in debt it owes the county.

Cox would have the debt repayment schedule extended to 2034 to coincide with the planned sunset of Measure AA, the healthcare services tax that Alameda County voters approved in June.

According to a presentation delivered by Cox, and obtained by Action Alameda News through a public records request, Alameda Health System needs to increase annual cash flow to roughly $50 million per year to meet its repayment obligations to the county and support operations; the system currently loses about $36 million per year, and operating cash has dwindled to $5 million, reducing cash available to pay some $66 million owed to vendors.

Part of the problem is that the system has become less effective at capturing accounts receivables, which have grown to $149 million.

Cox hopes that revenue cycle improvement and efficiency gains by contribute $48 million to offsetting the current annual loss and turning red to black.

“We need to dramatically increase the performance of the organization,” he said.

Revenue growth ($12 million) and philanthropy ($10 million) may generate another $22 million.

His presentation also lists un-named “Other sources?” as potential revenue sources to hit the $50 million free cash flow mark.

Cox said that he thinks the system can get debt reduced to $190 million or lower by June of 2015, but he expects it to as high as $220 million in the interim.

According to a deal struck with the county in 2004 that originated $160 million in debt, the hospital system was expecting to get the debt down to $110 million by June 30th of this year.

“It needs to be said on the record, that Alameda Health System did not meet its obligation,” said Alex Briscoe, director, Alameda County Health Care Services Agency.

Alameda County Supervisor Wilma Chan said that the county, as a major funder of Alameda Health System, and owner of the system’s buildings, plans to bring in an outside agency to review Cox’s recovery plan and forecasts.

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