The John C. Fremont Healthcare District signed a letter of intent last week to enter into a partnership with the Oak Valley Healthcare District that could touch almost every aspect of healthcare at the Mariposa County hospital and its clinics.
But don’t call it a merger or a takeover.
In an interview with the Mariposa Gazette, JCF CEO Stacey Kuzak and Oak Valley Healthcare District CEO Matthew Heyn, both insisted each district will maintain its independence.
“Oak Valley has no intention of taking over John C. Fremont,” Heyn said. “We want to partner. It makes a lot of sense in a lot of ways to do that.”
Oak Valley Hospital is located in Oakdale, in the Central Valley northwest of Modesto, about 90 minutes away from the town of Mariposa.
The partnership came together quickly in the last few weeks, motivated largely by a looming deadline for a pool of $233 million in federal money given to California this year for its Rural Healthcare Transformation (RHT) Program.
The initial grant application is due tomorrow, Aug. 14, with follow-up paperwork due Aug. 21. Oak Valley Healthcare District (OVHD) and JCF are submitting separate applications, but their partnership is the centerpiece of both proposals.
“It’s been a very compressed process,” Heyn said.
What exactly that partnership will look like — for patients and employees of JCF — is not altogether clear. An eight page letter of intent lays out in broad brushstrokes opportunities for consulting, coordination and collaboration.
The letter, approved unanimously last week by both district’s boards, says OVHD and JCF agree to negotiate and enter a support services agreement “under which OVHD will provide executive, clinical, operational and administrative support services to JCFHD.”
That covers a lot of healthcare territory. In interviews and public meetings last week some concrete ideas have emerged.
What’s in it for JCF?
The most immediate goal for the partnership is acquiring a new electronic health record (EHR) system, called Cerner, for both districts.
Both hospitals are currently using systems described as clunky and outdated. Up to $2 million is available for each organization through the RHT grant.
The systems would operate independently, but Cerner would allow the hospitals to communicate with each other more efficiently.
Cerner, which is owned by Oracle Health, is considered a more cost effective alternative to Epic, which is the industry standard for larger hospitals and healthcare systems.
OVHD is offering consulting services for JCF’s administrators and could even assume some tasks JCF has had chronic difficulties executing, like provider credentialing, chart reviews, coding and some billing functions.
How that relationship would effect JCF’s existing employees and its current contracts for revenue cycle consultants and billing services is unclear.
The partnership would give JCF patients access to a variety of services and specialists found at OVHD like general surgery, orthopedics, urology, gastroenterology, cardiology and women’s health.
Hospital administrators describe it as a “hub and spoke” model, and collaboration is one of the goals of the RHT grant, along with expanding telehealth.
Up to $8 million is available for each district that implements a “hub and spoke” model that targets measurable gains in primary, maternity and virtual care.
Dr. Adam Leight, an emergency physician at JCF, said “my heart has been singing,” about the new relationship.
He was encouraged that he would have a specialist he could consult with if he had a question. “Other hospitals won’t talk to you unless they’re prepared to take a patient,” Dr. Leight said.
JCF’s most critical patients could be transferred more easily to Oak Valley Hospital, which has 40 beds, including five beds in its Intensive Care Unit (ICU).
JCF does not have an ICU.
Dr. Leight said that kind of relationship with an ICU with surgical services “can make the difference between life and death in one of our patients.”
“I can think of so many cases where it is hours upon hours, and no one is interested in our patient,” Dr. Leight said.
Kuzak admitted the current transfer process with other hospitals can be challenging. And while she does not anticipate a formal transfer agreement with OVHD, she believes the partnership will be a game changer.
“When we need to get the patient there immediately, we are not going to have to wait. We can put them on a helicopter and fly them up to Oak Valley and get them into the ICU,” Kuzak said.
Patients, she said, could then return to one of JCF’s “swing beds” for their recovery. A swing bed is a unique feature of Critical Access Hospitals like JCF, that allows the hospital to seamlessly switch a bed from acute care to skilled nursing care.
Road to Oak Valley
Whether JCF’s patients and their families will want referrals or transfers to Oak Valley, a hospital many may be unfamiliar with, will be a key test for the partnership.
Oak Valley Hospital is located 70 to 80 miles away from JCF depending on the route, farther away than bigger hospitals in Merced, Modesto and Fresno.
If patients search online, they might have reasonable questions about the care they would receive at Oak Valley Hospital.
Medicare.gov gives the hospital a one star rating out of five.
Heyn said the data used by the Center for Medicare & Medicaid Services (CMS) for that rating was two to three years old. He said the hospital also didn’t have the volume to make the threshold for some of the ratings.
JCF, for example, doesn’t have the patient volume to have any star rating.
Doctors Medical Center in Modesto also has one star. Memorial Medical Center in Modesto has three stars.
Heyn said Oak Valley Hospital is poised to make strides over the next 18 months. He expects the star rating will improve as new data is reported to CMS.
What’s in it for Oak Valley?
It would not be a partnership of equals.
OVHD is the larger, more financially healthy partner in the relationship.
But Oak Valley would likely not be eligible for an RHT grant without a partnership with a critical access hospital like JCF.
OVHD was already pursuing a full replacement for its electronic health system. A $2 million grant would help launch that effort.
OVHD will benefit from referrals to its specialists, or what Dr. Joseph Rogers, a former JCF board member, described last week as “heads in beds.”
“If we do get some referrals for ICU care, that’s not going to hurt our feelings. If our urologist gets busy, it won’t hurt my feelings,” Heyn joked.
On the administrative side, the partnership could have OVHD performing a wide variety of functions — like physician credentialing and coding — that Heyn described as “hard costs” that would be billed monthly on a “feefor service” basis.
Heyn said this would be a way to achieve some economies of scale.
“If we have the resources already at Oak Valley, we might have to add a couple of coders,” Heyn explained.
Heyn described another “bucket” of support services that would be more consultative in nature.
“There’s the support of our entire senior leadership team,” he said, “that comes down here and spends a lot of time helping out.”
Heyn described that as an accrued expense that would be added to JCF’s cost report and could be reconciled at the end of the year after JCF is reimbursed.
It would take advantage of an accounting strategy, unique to critical access hospitals, like JCF, known as cost-based reimbursement, which is typically higher than OVHD’s fixed fee-for-service rate.
“The only financial benefit that Oak Valley would gain outside of some referrals heading our way would be to put some of our overhead administrative costs on your cost base reimbursement cost report, because we don’t have that luxury,” Heyn summarized.
Knocking on the door
That $233 million in RHT funding has apparently made JCF attractive to other suitors.
“We do have bigger hospitals knocking on our door quite a bit right now, asking lots of questions,” said JCF’s Chief Administrative Officer Rachel Key.
Key and Kuzak said Dignity Health in Merced, which is where both women worked previously, had reached out.
“We do talk with them (Dignity) a lot,” Key said.
“But at some point, they’re going to want more, right? And we don’t want that,” she said.
Heyn said he too is suspicious of large hospital systems.
“It’s a way for the big hospitals to tap into the CalRHT money, absolutely,” he said.
“It’s really their agenda, because they’re not in a rural environment, but they’re like if we go partner with a rural hospital, maybe we can tap into this $233 million.”
“It’s not very altruistic,” Heyn said.
Survival of the fittest
Whether the JCF Board of Directors knew about other potential suitors is unclear. California’s open meetings law, the Brown Act, can limit those kinds of discussions with a governing board even in a closed session.
Board Chair Rose Fluharty said she became aware of the potential Oak Valley partnership just before a special meeting was called for Aug. 4.
The Oak Valley board was first briefed about a potential partnership July 2. Their Aug. 6 meeting included a detailed presentation on the proposed partnership from two OVHD senior leaders.
The CEOs, Kuzak and Heyn, bristle at any suggestion the partnership is a kind of shotgun wedding to pursue federal dollars.
They said they have been discussing, at least in general terms, some kind of collaboration for several months, since Heyn became president-elect of the District Hospital Leadership Forum, a statewide organization.
This type of partnership between hospitals, especially small rural district hospitals, may be a matter of survival.
A report last month from the Center for Healthcare Quality and Payment Reform said 16 rural hospitals in California are at risk of closure, with five at risk of closing immediately.
The group did not provide the names of the hospitals.
More than two million people live in rural communities in California.
There are 37 critical access hospitals, those that provide care to communities at least 35 miles away from another medical facility. Those hospital saw their operating margins drop 8 percent between 2019 and 2023, according to the California Hospital Association.
Heyn and Kuzak seem to believe a hospital partnership could change that trajectory — and become a model for others.
“District hospitals in the state of California have dug down a dark deep hole, and they have lost many healthcare districts and we can’t afford that anymore,” Heyn said.
But Heyn said for the relationship to work over the long haul, they will need “community trust and buy in.”
“That will be our job to build and earn that trust with the community,” he said.
“But we also need the community to give us some grace along the way too.”
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