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.

LSCC's 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 County's 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 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, 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 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.

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 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.

"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 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 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 Center–College of Medicine in Round Rock.

LSCC then expanded into Travis and Bell counties in 2009. 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 that LSCC offers coordinated care that can lower costs and improve patient outcomes.

LSCC also expanded pediatric services and introduced senior care in 2010. New clinics in South Austin and Taylor, as well as optometry services, opened in 2011.

LSCC opened clinics at Seton Northwest Hospital in 2013. The clinics offer adult and pediatric primary care, behavioral health and ob/gyn services, according to the nonprofit. Medical services consist of chronic disease management, including a specialized diabetes clinic, as well as family planning, wellness visits, immunizations and acute care.

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.


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 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 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 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 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 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.

"Lone Star Circle of Care's 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.

Help from partner organizations

Throughout May, LSCC met with its partner organizations such as Seton Healthcare Family, St. David's Foundation and Central Health to discuss financial strategies, said Greg Hartman, Seton president of academic medicine, research and external affairs.

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 being considered. St. David's has asked LSCC to provide a sustainability plan in the coming weeks.

St. David's CEO Earl Maxwell said the two organizations 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. "They are working hard and are being as transparent as possible, given a greatly reduced staff, in their efforts to reach that goal."

Seton has also awarded grants to LSCC in the past. Hartman said that lately, Seton has focused on helping LSCC with technical support and has provided other assistance —such as paying LSCC to maintain some school-engaged health home services in Austin ISD in the short term—to minimize the effects on patients.

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.