As SVMH mulls the future of health care, business leaders ponder how to stay afloat.

Patients are already starting to take advantage of the new benefits provided under President Obama’s signature law, the Affordable Care Act. But the health care industry is looking a little bit like a deer caught in the headlights.


Before Obamacare kicks into full effect in 2014, health care experts are tabulating the many unknowns in the complicated financial world of health insurance. What they know is that having more insured patients doesn’t necessarily benefit providers. 


At Salinas Valley Memorial Healthcare System, a group of 42 health care and business leaders have gathered to brainstorm about how to adapt. The short answer: They’re not sure. But the financials that make SVMH look good today are unlikely to last. 


The advisory committee, which has had three of its six scheduled meetings so far, is moderated by George Pillari, a managing director for business consulting firm Alvarez and Marsal, under contract for $150,000. He sees SVMH headed for some big changes. 


In the first quarter of the 2012-13 fiscal year, SVMH reported $9.3 million in profits. “When you’re at the top, there’s only one place to go. This is very, very good, but it’s also very, very bad,” Pillari said at the committee’s Dec. 6 meeting. 


“We’re driving the profitability of this place off of this,” he said, pointing to a chart showing that the quarter of SVMH patients covered by private insurance plans like Blue Shield provide 61 percent of the hospital’s revenue. 


Today, insurance companies pay SVMH about $200 million a year. One certainty in the uncertain landscape, Pillari said: “That number will go down.”


That projection holds up even if more patients get coverage, because the increase will come largely from expanded Medi-Cal and state-run health care exchanges, which won’t pay back hospitals as much as private “Cadillac” plans. 


“You’re going to be unhappy about it,” Pillari said, “because that increase [in the number of insured patients] is going to be with people who used to pay us more.”


SVMH also spends more per patient than neighboring Natividad Medical Center, the county-run, public safety-net hospital. (The two considered a merger earlier this year, but SVMH’s board voted to stay independent.)


That’s partly because uninsured patients who put off care tend to go to Natividad for more routine procedures. “We’re doing more sophisticated stuff,” Pillari said. “We’re doing heart procedures. They’re clipping toenails.” 


It’s also due to SVMH’s above-average salaries and benefits, which account for more than 60 percent of the hospital’s operating expenses. But George Ross, a nurse and shop steward for the National Union of Healthcare Workers, says cutting costs is misguided: “If you’re in a business selling washers and nuts, that’s great, but this is a business dealing with people.”


Ross worries the numbers sound a lot like those presented in 2010, before SVMH laid off 415 workers. (The hospital has since hired five back and is planning to hire 20 more.) 


“The conversation they’re having now is a repeat,” Ross says. “The only difference is, now we’ve got Taylor Farms and representatives from businesses.” 


As the last advisory board meeting ended, Taylor Farms CEO Bruce Taylor offered this recommendation to SVMH: Acquire Natividad.