Guest Opinion | Health Care District temporary levy lid lift — A financial perspective

||| FROM TREY HOLLAND |||

Prior to 2018, it was difficult, if not impossible, to operate a profitable medical office on Orcas Island because of the high percentage of Medicare and Medicaid patients and the low reimbursement rates paid to healthcare providers who treated those patients. Orcas Island Health Care District (OIHCD, the District) was created in 2018, and it is directly responsible for a paradigm shift that now provides the most stable healthcare access that island residents and visitors have had in years. Island Health (IH), which is based in Anacortes, has been an invaluable partner in achieving that stability. The contractural arrangement that governs the relationship between these two entities expires in November, 2025. That contract contained no provisions for cost escalation, which has been wonderful for the District and island residents.

But, since the pandemic, healthcare costs have increased 30%, and they are predicted to continue increasing. IH cannot continue to fund this deficit. Consequently, the proposed contract to continue the District’s partnership with IH calls for an annual increase of either 5% or the regional consumer price index (CPI), whichever is greater, over each of the next ten years. The District’s cash reserves are not sufficient to cover this cost escalation, which is the reason for the proposed 10-year temporary levy lid lift from $0.415 to $0.70 per $1,000 assessed value.

The intent of this article is to summarize OICHD’s long-range financial plan as it relates specifically to this levy lid lift, which has been unanimously endorsed by the District’s five Commissioners.

OIHCD currently receives approximately 2 million dollars per year in tax revenue. While it has benefited from some grants and philanthropic gifts, those sources of income are expected to remain relatively small. The District has nearly 1.8 million dollars in cash and investments. However, 650,000 of those dollars reside in a contingency fund for managing major service disruptions or other unforeseen financial catastrophes (e.g., if IH were to suddenly terminate the contract with OIHCD), and, without a Board resolution, they are not available to fund routine operations.

Current annual expenses also approximate 2 million dollars per year. Those expenses will increase by $200,000 to $300,000 in the first year of the proposed contract with IH and then by 5% or the CPI in each of the following nine years. Those increases will result in a base rate that is approximately $800,000 greater than the current base rate by the final year of the contract. In order to fund those annual increases in the base rate and maintain healthcare access on Orcas Island, the temporary levy lid lift is a necessity. Otherwise, the District’s cash reserves will have to fund the deficit, a solution that is not sustainable.

How long could OIHCD fund such a deficit without a levy lid lift? That is a difficult question to answer precisely because of the rapidly escalating costs in today’s healthcare environment and the uncertainty surrounding evolving Medicaid and Medicare reimbursement policies to the District which are currently being contemplated by the federal and state legislatures. If those policies do not materially change, the District can sustain itself for 8 years. If reimbursement rates were to drop, cash reserves could be depleted in as few as 3 to 5 years. Both of these estimates assume that Island Primary Care (the clinic) maintains its current level of service. It is not at all likely that the Commissioners would sit idly by and watch the cash reserves completely evaporate. Instead, the inevitable solution would be to cut services.

What would a cut in services entail? At the very least, it would necessitate operating the clinic on a reduced schedule, e.g., three days per week or mornings only. That situation would clearly reduce access to healthcare for island residents which is exactly the opposite of the district’s mission: “To ensure that quality primary, acute, and after-hours medical care is available to all community members in a financially sustainable and cost-effective manner, tailored to the needs of the island.” Service cuts may also result in the resignations of providers and staff who require full-time employment to support their families, diminishing the delivery of necessary healthcare services even further.

In creating a long-range financial plan for OIHCD, the Commissioners have been and continue to be unanimous in their intent to expand healthcare services on the island in a fiscally responsible manner — not to simply maintain the status quo. What might that expansion entail and how would it benefit island residents? To answer that question, it is important to understand that “primary care” — especially rural primary care — has changed significantly in the past seven years and now incorporates new services which can save time and lives and which should be differentiated from “mission creep.” We are fortunate that IH is willing to innovate with the District in providing some of those additional services, which include:

• Transitioning the current and very successful on-island Medicaid dental clinic to a sustainable entity. Why is this important? Many dental providers do not accept Medicaid and Medicare, and many of the individuals who are covered by those programs cannot pay for dental services out-of-pocket. Numerous studies have shown that poor dental care is associated with a significantly increased risk of coronary artery disease (pubmed.ncbi.nlm.nih.gov/29461088/) and Alzheimer’s disease (pubmed.ncbi.nlm.nih.gov/32280099/ ).
• Piloting and, if successful, sustaining specialty clinics, such as pain management, cardiology, and non-complex obstetrical services for pregnant women. Why is this important? Eliminating a day’s travel to the mainland for residents who require a service that can be provided in less than 15 minutes is more convenient, lessens cost, and may encourage more individuals to take advantage of those valuable services.
• Piloting and, if successful, sustaining new approaches to after-hours care, such as additional clinic hours one evening per week or one Saturday per month. Why is this important? Providing more hours of service increases access to care for those whose job makes it difficult to be seen during regular business hours. Expanded hours would also improve access to care during summer months, when the healthcare needs of island visitors reduce the number of available appointments for island residents.
• Improving healthcare through collaborative partnerships with organizations such as the Orcas Senior Center and the Orcas Island Community Foundation, just to name a few. Why is this important? Partnering with one another is a way of life on Orcas. The Medicaid dental clinic is a sterling example of such a collaboration.

The Commissioners have carefully considered the potential cost of providing these types of additional healthcare services for Orcas Island. In its long-range financial plan, the district has allocated $200,000 per year for 3 to 5 years, provided that all other basic services have been adequately funded.

At some point during the course of the proposed contract with IH, it will be necessary to address the clinic structure itself, which is now over 30 years old. The Commissioners have recently launched a detailed facilities planning process to ensure that the building is capable of handling the projected long-term growth of our aging population and the future industry-wide advancements in primary care. Based on an analysis of the clinic that was conducted in 2023 and 2024, there will be a need for more exam rooms, rooms designed specifically for tele-medicine visits, a small dental clinic, and additional space for the administrative staff and care providers to meet and work. Preliminary estimates for a renovation of this magnitude range from 3 to 5 million dollars; building a brand new facility that is capable of meeting the needs of five primary care providers and one dentist would cost a minimum of 7 to 8 million dollars. The District expects to have a finalized financial projection for this project that can be incorporated into the 2026 OIHCD budget this summer.

The lack of available and affordable housing continues to hamper the District’s ability to recruit new care providers and to hire new staff. There is sufficient room on the parcel of land where the clinic is currently located to situate a small housing unit for primary care providers and visiting specialists. Projected costs for such a unit vary significantly — from less than $500,000 for a recreational vehicle up to 1 to 2 million dollars for studio units. The district plans to finalize a projection for the long-term budget once the facility plan for the clinic has been completed. Why is this important? It would eliminate the hurdle of securing temporary affordable housing when recruiting new healthcare providers, which is currently a significant concern for one physician who is considering a relocation to Orcas Island.

Whatever the final cost for renovating and expanding the clinic building turns out to be, the District understands the necessity of saving a significant amount of money in preparation for that project. Otherwise, Orcas Island will find itself with an out-of-date and undersized facility with higher annual maintenance and operating expenses and no viable short-term solutions, a predicament that may make it more difficult to recruit the best healthcare providers and staff. The district’s current long-range plan allocates a total of 3.5 million dollars raised from the temporary levy lid lift to be placed in a capital reserve fund by the end of 2029. A philanthropic initiative would be initiated to eliminate any shortfall in fully funding the project.

It should be noted that the District did evaluate long-term debt as an option for funding a renovation of the clinic. However, after careful analysis, the Commissioners have determined that levying the capital upfront and investing it in the municipal money market fund to which all state healthcare districts have access would be less costly to taxpayers.

Further illustrating the Commissioner’s commitment to best financial practices are the facts that they successfully negotiated a 20% reduction in the cost of the first year of the proposed contract with IH, and the District has drawn down its legal maximum levy only once in the last six years.

What happens after year ten? One thing is certain; unless a new levy lid lift is proposed in the interim, the temporary levy will reset to $0.415 per $1,000 assessed value. As of today, little else is certain. No one knows how much the cost of healthcare will inflate over the next ten years, or which healthcare models will provide the most cost effective care along with the best possible outcomes. That is the primary reason the Commissioners have proposed a temporary levy lid lift, as opposed to a perpetual one. As innovations in healthcare evolve over the course of the proposed contract with IH, the District will continue to evaluate all potential healthcare delivery options for Orcas Island. Perhaps a continued partnership with IH would be in our best interest. And maybe not. We’ll just have to see what the future brings.

But, for now, the task at hand is clear. While balancing fiduciary responsibility with improved services, we must appropriate funding through the proposed temporary levy lid lift if we are going to “protect and improve the health of islanders now and over the long term.”