AN OPEN LETTER FROM TAHOE FOREST HEALTH SYSTEM CEO BOB SCHAPPER

Mark Twain observed long ago, “Never pick a fight with people who buy ink by the barrel.” I am about to ignore Mr. Twain’s wise advice. Last week, Moonshine Ink published two stories calling into question the credibility, value of services, hiring practices and fiscal responsibility of Tahoe Forest Health System (TFHS). There are material inaccuracies and misleading statements in these stories. I’d like to set the record straight and share some important information with you. Health care is a complex and important topic, and one that affects all of us. TFHS is a small facility with a big vision: to be the best mountain community health system in the nation. We strive for this goal with the active engagement and support of many people who live and work here. More than fifty years ago, Tahoe Forest Hospital was founded by a group of progressive and concerned community members. They did it to ensure every single one of us has access to health care locally. I take this stewardship responsibility very seriously, as do our outstanding employees and physicians. We are an institution that serves everyone. We’re very transparent, and we’re proud to offer health services that are at the highest level of value, safety and consistency.

Hiring of Marsha Schapper, Potential Conflict of Interest Inquiry
As a small, rural health system, it’s often difficult to recruit and retain essential positions. Marsha Schapper worked on our behalf to implement our MultiSpecialty Clinics, an integrated hospital/medical provider network. Our hospital board of directors voted to create the MultiSpecialty Clinics model, which has allowed us to retain important primary and specialty care in our community. The MultiSpecialty Clinics model follows a national and regional trend. Without these infrastructures, physicians are often forced to move to larger areas to support themselves. In addition to these challenges, physicians are also faced with negotiating complex insurance contracts. This creates an access issue. Many of you may recall the Blue Cross Blue Shield situation in 2007, where these companies notified us of their intent to change our reimbursement contracts, with multi-million dollar impacts to our community. TFHS did not have the internal expertise in managed care contract negotiation and health clinic administration prior to the hiring of Marsha Schapper. Marsha Schapper possesses extensive experience in both of these professional areas, and served in these roles for ten years. With the oversight and repeated approvals of our publicly elected board of directors, Marsha’s firm, Medical Practice Solutions, was first hired as a consultant, and eventually, on advice of human resource counsel, she was brought on as an employee. During her tenure she independently reported to the Chief Financial Officer, and later to the Chief Operating Officer. All of the results of Marsha’s work were routinely reported to the board of directors. This decade-long relationship was approved by the board of directors on multiple occasions, both the consulting contract and her employment agreement.

Marsha provided a unique service, generating value for the health system, our patients and consumers, and helped TFHS be on a firm footing with key MultiSpecialty Clinics hires and providing strong negotiating tactics with insurance companies. Her role as the spouse of an executive working for a hospital is not unique in rural communities where specialized talent is often scarce. It is, however, worth evaluating. Even though Marsha is no longer employed by the hospital, the board of directors is examining its “conflict of interest policies.” We hope they will complete their thorough effort quickly to help guide our future employee selection efforts. However, I believe the innuendo and pretense of Mr. Bunker’s piece is unjustified and provides no context for the board’s historical decisions to continually contract or employ my wife. I played no role in the hospital's decision to hire Marsha, or control her employment.

A Very Personal Story
I recognize that as the leader of one of the finest community health systems in America, my work will continually be under scrutiny. I welcome that, and I ask the same of all of our employees. Every day we approach our jobs with great transparency. However, the recent Moonshine Ink story chose to make public my painful personal bankruptcy. I must confess immense personal outrage. This information is 20 years old, and is not linked in any way to my job performance or my position leading this health system, or the recent closure of Palm Drive Hospital. Unfortunately bankruptcy is a challenge that many families face, and I’d like to share with you my story. My family lived through a severe natural disaster, the Northridge earthquake of 1994. Lives were lost, thousands of people were injured, and earthquake-caused property damage was estimated to be more than 20 billion dollars, making it one of the costliest natural disasters in U.S. history. The earthquake gained worldwide attention because of lives lost and injured and the massive damage to freeways and buildings. Our home was within blocks of the epicenter of that massive earthquake, and the physical damage to our property was substantial. Unfortunately, this was not the worst of it. In the swarm of earthquake aftershocks that occurred several days later, my elderly father suffered a fatal stress-induced cardiac arrest and died. As anyone reading this can imagine, the devastation of these events were horrific both financially and emotionally. Like any family so greatly impacted by disaster and loss, we struggled. Through the years, my children were sheltered from the stress of our family’s financial condition—at least until Moonshine Ink chose to publish this information in an effort to discredit me and my ability to lead an organization such as Tahoe Forest Health System.

The personal attacks didn’t stop there. The tabloid chose to attack my record as a hospital administrator by linking current difficulties faced by my former employer Palm Drive Hospital today to my work there decades ago. I stand behind my records serving those communities—and this one. Given my 11-year track record as steward of this hospital district and our successful partnerships with the employees of the district and the community, I trust you would agree that revealing this painful personal matter, attacking the work of my spouse, and making outrageous claims about other communities couldn’t possibly shed light on the health care that our district provides to the community. Whether you are an employee, a volunteer, or a physician, I know you would agree with me that our collective commitment to excellence and the health of our community has played a key role in continuing to evolve one of the best health systems of our type. We have been uniquely progressive in our partnerships and I believe our community directly benefits from our spirit of innovation. As CEO, I have served this community with a sense of stewardship and passion for excellence that is well known among the hospitals management, staff, most physicians and numerous community leaders. Some will say that our health system is too big for our community. Those issues are the decisions of policy makers, not administrators.

The Issue of Compensation
Much has been said in Moonshine Ink about hospital employee compensation. All salaries of the health system are based on California Hospital Association surveys for these positions. Salary ranges are benchmarked with hospitals of comparable size and operating expenses. Health care positions are highly specialized, and TFHS’s compensation practice has been very transparent to the press, with a detailed and benchmarked rationale of best practice methodology many times.

TFHS is Stable and Financially Strong
Tahoe Forest Health System has a very conservative fiscal management practice. The community should understand that hospitals are perhaps the most complex businesses in the world, and the most regulated. Hospitals must, without exception, care for everyone who comes through our doors, regardless of their ability to pay. Everyone must be served, yet no one is “forced” to pay. No other business in the world is required by law to operate in this fashion. Hospitals have no reliable revenue sources, are expected to employ highly skilled workers, and care for thousands of patients with less and less resources. These are national issues. There is no denying the cost of health care is high. Standard & Poor’s Rating Services report (October 2012) states “Tahoe Forest Health System continues to have a sound business position, solid tax support, solid unrestricted reserves, good revenue-debt metrics. For fiscal year 2013, revenues were relatively stable, while expenses grew due to costs associated with increased cancer volumes and depreciation expense. Bad debt in 2012 was considerably higher, an increase in receivables also impacted unrestricted reserves, and TFHD has a substantial $99 million master facility plan underway. The stable outlook reflects our view of TFHD’s good revenue bond related metrics, continued progress in its master plan, sound business position, and our expectation that these strengths will continue.” Mr. Bunker’s article references that Tahoe Forest has lost money over the last two years. This is correct. However, the article fails to provide the reader with a necessary context.

A more balanced commentary would point out that the hospital’s bond rating did not change; the outlook was recently modified to stable from positive. According to Standard & Poor’s Rating Services, “This outlook reflects TFHD’s good revenue bond related metrics, continued progress in its master planning facility, sound business position, and our expectation that these strengths will continue.” As an industry, health care is experiencing changes in bond ratings due in part to large information technology, major capital construction investments, changes in national health care policy and impacts on future hospital reimbursements. This is an industry-wide phenomenon, especially in California where hospitals are working to comply with state seismic regulations. Tahoe Forest has not yet completed its Measure C projects, and quite often major construction projects go over budget, creating greater debt service requirements. Although this is not the case with our Measure C projects, rating agencies take a more conservative position until major building projects are actually completed. The district’s cash reserves are very strong. Accounts receivable days, a measure of our collection cycle, are returning to levels more consistent with pre-information system installations. The health system is projected to meet budget in 2013/14, despite the unusual winter season, and operating expenses were also below budget. Most important for the public to understand is that our depreciation expense is the largest single contributor to the change in net earnings. The board of directors has long been educated on this condition, which is a non-cash expense that occurs when we began to modernize hospital facilities. Given all of this, the health system is targeting about a 2% surplus from operations, which in normal years allows us to fund and purchase capital equipment throughout the year.

The Pricing Question
I’d like to share some important information with you: TFHS is well below the median pricing compared to other hospitals in our regional “cohort.” The facts are, that, compared to our peers, we average a 38% percentile ranking for all 25 of the most common outpatient procedures performed in a hospital per the Office of Statewide Planning and Development annual financial data for hospital chargemasters. When you consider what a very high-quality hospital TFHS is, evidenced by very low to non-existent infection rates, high patient satisfaction, robust surgical care improvement program, low pneumonia rates and excellence and innovation awards, TFHS is perhaps the highest value health care provider in the region. Frankly, these indicators should be the highest priority when assessing the value of any health care system. In a recent study done by a 3rd party firm, early results show TFHS is equal to or below cost in almost every diagnostic imaging procedure we offer compared to hospital facilities in Reno. We are taking the study one step further to demonstrate to the community that we are comparable in our pricing. These are real and important issues. Moonshine Ink didn’t address or research the pricing issue objectively to present in context the very complex issue of hospital pricing. A final note: Our health system is taking the pricing issue seriously and working diligently to improve pricing transparency. No hospital in the region, including Reno hospitals, can price services comparable to freestanding outpatient centers such as Reno Diagnostic Center. Reno Diagnostic Center is not a hospital, and is not required to provide services to everyone who comes through their door. They accept insured and cash paying patients. Period.

Health Care Reform and Use of Consultants
Health care reform is impacting hospitals and health systems everywhere. Our board of directors is very aware of these changes and everyone in the health system is working diligently to find ways to improve efficiencies and redesign access and delivery of services. As for the ongoing commentary about the use of consultants or third party contractors, sometimes we need to use outside resources to assist us in areas where we either do not have the depth of talent or expertise to solve a problem or innovate a solution. Sometimes we use consultants to fill a void where we need very specific project work done or we cannot find specific skill or talent to fill positions. Sometimes we use consultants to validate our work, in our forecasting and planning, or to provide limited services or assessments. We are small. It is not cost effective to have an oversized staff of experts on staff all of the time like large hospitals might. We have used consultants to guide our electronic medical records projects and help us migrate to new information systems, and guide work process redesign. This is normal in our industry given the high level of complexity associated with these systems and the associated changes in hospital operating procedures. Health reform will continue to force the Tahoe Forest board to reshape our service offerings and balance responsible programming with the needs of our community.

A Final Thought
Our fine health system is very different today than when I arrived 11 years ago. A patient diagnosed today with a serious health condition can be treated right here by world-class health care professionals. As CEO, I have served this community with a sense of stewardship that is well known and respected among the hospital’s management, staff, most physicians, and numerous community leaders. It is the beginning of a new political season. In my job I understand the nature of politics and political rhetoric. I hope this letter provides you with a more balanced perspective on the truth. Perhaps you, the reader, will demand more of the local journalistic community in the months to come. To our valued employees, physicians and dedicated volunteers, I hope you will continue to stand tall with us as we seek to provide the very best health care possible. Your support is important, and is essential to our shared stewardship of local health care.

Sincerely,


Robert A. Schapper
Chief Executive Officer
Tahoe Forest Health System
Tahoe Forest Hospital District, 10121 Pine Avenue, PO Box 759, Truckee, CA 96160, (530) 587-6011, information@tfhd.com

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