LAKE COUNTY, Calif. — The Board of Supervisors on Tuesday took action to approve the formation of the Lake County Hospital Improvement District, reported to be the first district of its kind in California.

The board voted 4-1, with Supervisor Michael Green voting no, to approve the district’s resolution of formation.

After the vote Board Chair Bruno Sabatier said it was “a first in the state of California,” adding, “Let’s see how this works out for the benefit of the community.”

Deputy County Administrative Officer Benjamin Rickelman’s written report to the board for the meeting explained that the district will be a “business-based assessment of general acute care hospitals in Lake County” — Adventist Health Clear Lake and Sutter Lakeside.

Rickelman said the hospitals petitioned the county to form the district by utilizing the Property and Business Improvement Law of 1994.

The district’s purpose is to utilize the assessment to increase the non-federal share of Medi-Cal reimbursement, which Rickelman said will then increase the federal share of Medi-Cal reimbursement at an anticipated 2:1 ratio.

Rickelman and hospital officials who presented to the board emphasized that the assessment will not be added to the cost of care for patients, but will be borne directly by the hospitals, who will assess themselves.

He said the assessment will be 6% of the hospitals’ net patient revenue, which is projected to raise $16.9 million on average per year for its initial five-year term, which will run from Jan. 1, 2025, to Dec. 31, 2029. It can then have 10-year renewals.

The district is similar in form and function to the Lake County Tourism Improvement District, which also had an initial five-year term and now is in a 10-year renewal period.

“The Hospitals plan to utilize the increase in federal Medi-Cal payment for an increase in services, which will also provide financial stability to the Hospitals. Medi-Cal reimbursement is generally lower than Medicare and private insurance. Approximately 53% of Lake County residents utilize Medi-Cal in some capacity,” Rickelman wrote.

Rickelman said the county would retain a 1% of the collected assessment to cover the district’s administration costs.

The district “will also submit an annual plan to the Board of Supervisors outlining how the increase in Medi-Cal reimbursement was utilized, a comparison of Medi-Cal charges from the Hospitals versus Sutter and Adventist hospitals systemswide, and volume of Medi-Cal services for inpatient and outpatient services,” Rickelman said.

“This is a four-step process and thankfully we are at the last step,” Rickelman told the board on Tuesday.

Those four steps included the initial resolution of intention, presented Sept. 10, at which point the board majority voted to advance it; a public meeting on Oct. 22; a public hearing on Nov. 5; and the Dec. 10 resolution of formation.

Rickelman said that, after the board approved the resolution of formation, the matter would go to the California Department of Public Health for consideration. It also will need to be reviewed by the Centers for Medicare & Medicaid Services.

Supervisor Jessica Pyska offered the resolution, with the board voting 4-1. The lone dissenter was Supervisor Michael Green, who said his no vote was to be consistent with prior votes on the issue.

The initial presentation

Hospital executives and the legal counsel for their efforts to form the district spoke to the board first on Sept. 10.

At that time, Sutter Lakeside Chief Administrative Officer Tim Stephens said forming the district was a joint action of the two hospitals, with the idea based on building sustainability in the challenging environment of rural health care.

He said they were looking at “how do we create the next 70 years of health care in the community,” Stephens said.

Chuck Kassis, Adventist Health Clear Lake’s administrator, said the two hospitals run at a deficit annually and so they need other revenue streams, which aren’t going to come from the government or a large source of commercial patients.

“We have to be creative in how we look at things and this is one way that we can do it without impacting the community,” said Kassis.

He said they will pursue dollars the state could access but doesn’t in the hopes of getting to a break even point.

Among the priorities the funding would be used for are seismic retrofits, which have to be completed by 2030, otherwise, the state could shut them down, Kassis said. In the case of Sutter Lakeside, which is in its third phase of the project, Stephens said the cost is expected to be $15 million.

In addition to seismic upgrades, both hospitals plan to work on projects such as upgrades for imaging services and community investments.

Stephens said when the hospitals are losing money and having to be supplemented by the parent company, they can’t make investments in the community.

In 2022, Sutter Lakeside lost $5.5 million in operations, said Stephens, noting that being able to sustain operations means the hospital can go into growth mode and do more for the community.

“We’re currently restricted on capital investments,” Stephens said.

Supervisor Green gave them an “A-plus for creativity” but opposed the plan because he didn’t believe the proposed district met the state guidelines. He also faulted the hospitals’ business model for lack of sustainability, and cited a lack of tangible assets and a plan for the district.

James Gjerset, a Texas-based health care attorney who appeared along with Kassis and Stephens, said that he had done many such programs across the United States, and some already are 25 years old, so he didn’t believe they would go away.

Critical access hospitals such as Adventist Health Clear Lake and Sutter Lakeside are operating “on shoestrings and mousetraps,” so the district will generate additional revenue to serve the community, Gjerset said.

Supervisor EJ Crandell, mentioning the tourism improvement district, said he saw the hospital district as similar. “I think it’s a good idea.”

“The impact to the patient will be zero. Just say that a lot,” said Supervisor Pyska, adding that with these expansions and investments, there will be a lot of benefits for patients.

Stephens noted during that conversation that the community benefit dollars Sutter spent across its system in 2023 was about $800 million.

“The amount of care that Sutter is providing that's not compensated for is enormous,” he said.

Kassis said their mission would not change, with or without the new district assessment. “These are dollars that are already there that we will be able to get back without a cost to the community.”

That’s compared to a bond — an alternative that Green had favored in his comments — in which something needs to be leveraged, Kassis said.

Pyska said she appreciated the collaboration between the hospitals. Stephens said the two hospitals have been discussing how to address other issues.

“It’s true and genuine for what we’re trying to do for the community,” Stephens said.

At that point, Kassis said he planned to return to the city of Clearlake to get its final resolution. Stephens also planned to seek a resolution from the city of Lakeport, although it’s not needed because it doesn’t have a hospital within its boundaries.

At that meeting, Green voted against the plan, which was why he chose to continue to vote against it this week.

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