Lone Star Circle of Care plots course to sustainability after layoffs
By Joe Olivieri
Health care provider Lone Star Circle of Care is in the middle of a massive restructuring in an attempt to stay solvent.
In response to funding shortfalls resulting from failed strategic gambles, the Georgetown-based nonprofit in May laid off 185 of its roughly 660 employees, closed clinics in Austin, consolidated services in Round Rock, closed school-engaged clinics throughout Central Texas, shrunk dental services and stopped offering optometry.
In the same month CEO Pete Perialas announced his retirement after 12 years with LSCC.
LSCC's partners are asking what the restructuring means for health care in Williamson and Travis counties, especially as it relates to the uninsured and underinsured patients the organization seeks to assist.
Interim CEO Rhonda Mundhenk said LSCC invested in projects outside of the scope of its core mission, and expenses came due before those projects started generating revenue.
Mundhenk said she hopes no further layoffs will take place, and affected patients have been referred to other LSCC clinics.
Role in local health care
LSCC is Williamson County's largest medical home system for the uninsured, underinsured and Medicaid patients, said Marcus Cooper, marketing and communications director for the Williamson County & Cities Health District.
LSCC is also a major health care provider for Williamson County's Indigent Health Care Program and works with school districts, hospitals and health care systems throughout the county, he said.
The nonprofit is a Federally Qualified Health Center (see sidebar). LSCC plays a similar role in delivering health care in Travis County.
In the past 12 months, LSCC served about 24,000 patients in Travis County—roughly 28 percent of the total number of patients LSCC saw throughout its clinic system during that timeframe, Central Health Communications Director Sarah Malm said.
Throughout its entire system, LSCC had 339,319 patient visits and saw 84,211 patients in 2012, according to its 2012 annual report.
LSCC grew out of Georgetown Community Clinic, a volunteer-driven, pay-what-you-can health center formed in 2002.
"There were a group of people in Georgetown who were getting inadequate medical care," founding doctor Doug Benold said. "They couldn't afford to go to the doctor, and a lot of the local doctors did not take Medicaid patients in their practices."
Former Georgetown ISD Principal Jo Ann Ford formed a board of concerned citizens to address the issue, Benold said.
In the early years, founding doctors Benold and James Shepherd worked part-time. Nurses volunteered, and Perialas received no pay as a board member or when he became CEO.
"We started seeing a thousand [patients] a month," said board of trustees Chairman Jack Hunnicutt in a 2012 video commemorating the clinic's 10-year anniversary. "We realized it was a far bigger task than we imagined. We started looking for more sustainable funding."
In 2004 the clinic was named a Federally Qualified Health Center and became part of the nationwide safety net of health care providers for vulnerable populations.
In October 2005 the clinic changed its name to Lone Star Circle of Care.
The following years were heady ones for LSCC as it grew from a clinic operating in Williamson County to a major player in health care delivery in Central Texas.
LSCC expanded to Round Rock and added integrated behavioral health and OB/GYN services in 2006 and psychiatry services in 2007, according to LSCC.
In 2008 LSCC moved to electronic record-keeping and partnered with Texas A&M Health Science Center–College of Medicine in Round Rock.
Ben White Health Clinic opened in 2009. It offers behavorial health services and adult and pediatric primary care, according to LSCC. Medical services include chronic disease management, family planning, wellness visits, immunizations and acute care.
In 2010 LSCC received a Joint Commission Accreditation and was named a Patient-Centered Medical Home, a designation awarded to less than 1 percent of primary care practices. Being named a PCMH signifies that LSCC offers coordinated care that can lower costs.
Construction is underway on a multiservice clinic in Bastrop. Mundhenk said the Bastrop clinic was delayed but is scheduled to open in spring 2015.
Nonprofits can have many sources of income, such as contributions and grants, said LeAnn Powers, chief professional officer of United Way of Williamson County.
United Way recommends nonprofits diversify their income sources to ensure that services continue if a source dries up.
"For FQHCs, because you are providing care to a large number of uninsured patients in [patient] markets where normal health care providers won't go, there's never a break-even assumption," Mundhenk said.
"You are always looking for additional operating revenue outside of your patient revenue to support your core operations. You have to have nonoperating revenue in addition to your patient revenue to make the bottom line."
Financial crisis and layoffs
Medicaid reimbursements made up the largest percentage of LSCC's revenue, according to recent financial data.
Roughly a year and a half ago, LSCC began investing in systems outside of the clinical reimbursement system that were intended to bring in more money.
Relationships with other entities were pursued, and it was assumed the systems would come online soon, Mundhenk said.
"[The relationships] were supposed to be imminent, but [they were] not imminent enough," she said.
Capital and related expenses added up, and there were no payments to support all of the "ambitious" plans, Mundhenk said.
Then LSCC had to start cutting.
The first things to go were the new projects outside of LSCC's original scope.
On May 1 and 2 LSCC laid off 65 employees, mostly in its administrative and technology departments. During the month, LSCC gutted its electronic medical records division, Centex Systems Support Services. CSSS began May with 56 employees and ended the month with 13.
The second round of cuts focused on the pieces of LSCC's network that were not part of the FQHC services, Mundhenk said.
LSCC closed Carousel Pediatrics clinics in Southwest and Central Austin. A third clinic in Capital Plaza in Central Austin will close at the end of June.
For the third round of cuts, LSCC looked at what services the nonprofit could do without until it could get back on its feet.
It laid off another 92 employees—46 of whom worked directly with patients. It consolidated its Round Rock clinical hub, significantly reduced its dental services and stopped offering optometry services.
"While extremely difficult, these reductions were necessary to protect and preserve the majority of services for our patients," Mundhenk wrote in a May 31 news statement after the third round of cuts.
Mundhenk said LSCC had roughly 345,000 annual patient visits before the cuts and may log about 300,000 after them.
Help from partner organizations
Throughout May, LSCC met privately with partner organizations.
LSCC announced June 5 that St. David's Foundation, a longtime financial backer and grant provider, had given the organization $1 million to stabilize its operations. Additional grants are also being considered.
St. David's has asked LSCC to provide a sustainability plan in the coming weeks.
St. David's CEO Earl Maxwell said that the two groups share the goal of returning LSCC to a sustainable clinical model.
"It's all about the low-income people in the region, especially those in Williamson County," he said. "Apart from Lone Star, there isn't a [significant] safety net for them. Lone Star is the safety net, and we want to preserve that."
St. David's has given LSCC $23.5 million since 2006, Maxwell said, adding that the foundation's annual contributions to LSCC are about $5 million–$5.5 million.
On June 12 Georgetown Health Foundation announced it added $1.1 million on top of the $524,000 in annual contributions it gives LSCC.
"We believe in the mission of Lone Star Circle of Care and their ability to reach financial stability, or we would not commit to such funding," Georgetown Health Foundation board chairman Doak Fling said.
Seton Healthcare Family has awarded grants to LSCC in the past. Greg Hartman, Seton president of academic medicine, research and external affairs, said Seton is helping LSCC with technical support and has provided other assistance—such as paying LSCC to maintain school-engaged health home services in the short term—to minimize the effects on patient services.
Mundhenk said LSCC has already done the majority of the work it will need to do to survive its financial crisis.
The nonprofit will know its efforts have been successful if the result is more cash flow and greater sustainability, she said.
"We still have excellent staff. We still have excellent services. We look forward to continuing to be your health care home because we know that many of you rely on us. We intend to be there," she said.