Lone Star Circle of Care plots course after layoffs

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.

LSCCs partners are asking what the restructuring means for health care in Williamson and Travis counties, especially as it relates to 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 Countys largest medical home system for the uninsured, underinsured and Medicaid patients, said Marcus Cooper, marketing and communications director for Williamson County & Cities Health District.

LSCC is also a major health care provider for Williamson Countys 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, which means it can receive additional reimbursements from Medicare and Medicaid as well as grant funding.

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 Countyroughly 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.

Georgetown roots

LSCC grew out of the 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 couldnt 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.

All of us pitched in cash, and we got together about a half a million dollars just to get the thing going, he said.

In the early years, founding doctors Benold and Dr. 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 clinics 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, 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 small 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 the nonprofit.

In 2008 LSCC moved to electronic record-keeping and partnered with Texas A&M Health Science CenterCollege of Medicine in Round Rock.

Lone Star then expanded into Travis and Bell counties. It built clinical hubs and developed patient navigation services.

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 LSCC offers coordinated care that can lower costs and improve patient outcomes.

LSCC also expanded pediatric services and introduced senior care. New clinics in South Austin and Taylor, as well as optometry services, opened in 2011. LSCC opened a clinic inside Seton Northwest Hospital in April 2013.

Construction is underway on a multi-service clinic in Bastrop. Mundhenk said the Bastrop clinic was delayed but is scheduled to open in spring 2015.

Georgetown incentives

In 2011 the Georgetown Economic Development Corp. provided Lone Star with a loan not to exceed $387,000 for site improvements to its 205 E. University Ave. headquarters, according to GEDCO.

LSCC was part of the citys overall strategy to secure large employers near its downtown, said Mark Thomas, the city of Georgetowns economic development director.

Under the terms of the agreement, LSCC needs to maintain 129 full-time positions in Georgetown until 2017.

LSCC was in full compliance with the agreement as of May 28, according to GEDCO. Its next reporting requirement is in September.

Mundhenk said that despite the cuts, LSCC remains in good standing with its arrangement with the city.


Nonprofits can have many sources of income, including 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 one 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 wont go, theres 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 LSCCs revenue, according to the most recent available financial data.

Roughly a year and a half ago, LSCC began investing in health care delivery systems outside of the clinical reimbursement system that were intended to bring in more money (see sidebar).

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 expansions and projects that fell outside of LSCCs 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 its network that were not part of the FQHC services, according to Mundhenk.

LSCC closed former Carousel Pediatrics clinics in Southwest and Central Austin. A third clinic at 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 employees46 of whom worked directly with patients. It consolidated its Round Rock clinical hub, significantly reduced its dental services and stopped offering optometry services.

Lone Star Circle of Cares patients are and will continue to be our highest priority, Mundhenk wrote in a May 31 news statement after the third round of cuts. While extremely difficult, these reductions were necessary to protect and preserve the majority of services for our patients.

LSCC had roughly 345,000 annual patient visits prior to the cuts. Mundhenk predicted it will log about 300,000 after the cuts.

St. Davids Foundation

Throughout May, LSCC met privately with its partner organizations.

LSCC announced June 5 that St. Davids Foundation, a longtime financial backer and grant provider, had given the organization $1 million to stabilize its operations. Additional grants are being considered.

We are very grateful to St. Davids Foundation, Mundhenk said. They have been a critical partner in helping to underwrite health carefor the uninsured and underinsured. We appreciate their generosity.

St. Davids has asked LSCC to provide a sustainability plan in the coming weeks.

St. Davids CEO Earl Maxwell said that the two organizations share the goal of returning LSCC to a sustainable clinical model.

Its all about the low-income people in the region, especially those in Williamson County, he said. Apart from Lone Star, there isnt a [significant] safety net for them. Lone Star is the safety net, and we want to preserve that.

St. Davids has given LSCC $23.5 million since 2006, Maxwell said, adding that the foundations annual contributions to LSCC are about $5 million$5.5 million.

Looking ahead

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 if its efforts have been successful if the result is more cash flow and a more sustainable clinical model, 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, Mundhenk said.

Q&A with Rhonda Mundhenk

Interim CEO, Lone Star Circle of Care

How did we get here?

I think for about a year and a half, Lone Star [Circle of Care] had made a series of investments in population health strategiesthose involved information technology, clinical expansion and navigation services.

They were all built and designed toward new types of health care arrangements and payment reform.

Unfortunately none of the things that those were intended to do came to fruition in a timely manner.

Can you tell me about the change in the reimbursements?

... [Being a Federally Qualified Health Center] already has a set reimbursement path. Theres really no room to do any experimenting within that design.

So, if you are interested in developing a new payment reform model, you almost need to develop a parallel system if you are a FQHC.

This was the attempt to develop the parallel system which could then do things like contract for risk ... or pay-for-performance.

Once the numbers didnt add up, there had to be some difficult decisions to get back to balance. How do you make those choices?

You have to assess the overall financial state of the organization from a short-term standpoint and in the long term.

We had to [look at] the required services that the Bureau of Primary Health Care and [the Health Resources and Services Administration], the federal organizations that govern federally qualified health centers [to] stay in compliance with those.

Then we simply starting going through and looking at [what] we needed to do to reduce our size.

Are you going to merge with another organization?

We have no plans to do that at this time.

How do you respond to [rumors of financial mismanagement or misuse of funds]?

I have seen nothing in my tenure of working at LSCC that would suggest that.

What does this mean for health care in Williamson County?

The survival of Lone Star Circle of Care as a system essential for uninsured and underinsured people in Williamson County. There is not another large ambulatory care provider that provides care on a sliding scale basis to these individuals. This is where they have come to rely upon, receiving high quality care. This is their health care home.

Read the full interview with Rhonda Mundhenk at www.impactnews.com.