Daunted by inadequate reimbursements, impending state-mandated seismic renovations, and out-of-control losses, Adventist Health announced a deal last fall to sell 102-year-old Paradise Valley Hospital in National City, Calif.
The proposed $30 million sale of the 301-bed not-for-profit safety net hospital to for-profit Prime Healthcare Services, a privately held company owned by an unconventional cardiologist, pulled the rug out from under the impoverished community, which lies 10 miles north of the Mexico border. It unleashed a maelstrom of protests from a bevy of factions, demonized the faith-based Adventist, provoked the usual final hour community counteroffer, and culminated in a nine-hour public hearing in January.
Yet despite the overwrought public process, on March 1, with only a few details of the original deal changed, Prem Reddy, chairman of the board of Victorville, Calif.-based Prime, took title to the hospital after agreeing to a list of 15 conditions. Although the stipulations might sound breathtaking in scope and appear to signal yet another intrusion by state regulators on the embattled hospital industry, none is particularly onerous and in fact most, such as a provision for charity care, “serve essential community needs,” Reddy said.
If anything, the community meltdown over the conversion of Paradise Valley may be merely another symptom of a fragile not-for-profit hospital system in imminent danger of collapse. And—if the response in National City is any indication—as helpless and frustrated as local groups are in controlling the destinies of community hospitals addicted to state and federal funding, those watchdogs will not be stopped from demanding that a bright light be shined on the merger and acquisition process, even at the most sensitive times of dealmaking.
“Everybody is interested in the best thing for their community and yet because of the difficult economics of healthcare, there are no solutions agreeable to all parties,” said Phil Dalton, president of consulting firm Medical Development Specialists, which prepared an impact report on Prime’s proposed acquisition for the state attorney general’s office. “It creates the idea that there are villains when everybody is just trying to work toward the best healthcare solution.”
The public implosion in National City also upset the traditional lines of demarcation between healthcare providers, this time pitting doctor against doctors, signaling that in the future loyalties may be upended in a free-for-all competition for stakes in the nation’s distressed healthcare system.
When the deal closed last week with Prime in possession of Paradise Valley and the various interest groups licking their wounds, Prime announced plans to acquire its ninth hospital: the not-for-profit 224-bed Anaheim (Calif.) Memorial Medical Center for approximately $50 million. Meanwhile, as the community steeled itself for another possible round of protests over the conversion of a not-for-profit hospital, Democratic state Sen. Denise Moreno Ducheny introduced legislation that would amend the state’s not-for-profit public benefit corporation law to require a minimum 60-day “public offering and exposure in the open market” before any not-for-profit hospital could be sold.
In a news release, Ducheny reserved her deepest disappointment for Roseville, Calif.-based Adventist, which “has shown little concern or respect for our community and their own employees throughout the process,” she said. The bill aimed to “close the loopholes” exposed by the system when it “manipulated this process in a way not seen before,” she said.
‘A paper tiger’ Like Ducheny, the political, community and physician le aders who prot ested the sale also had their biggest beef with 19-hospital Adventist, said Mark Van Druff, a consultant who worked with the medical staff at Paradise Valley during the approval process. “Behind the cloak of a religious, nonprofit, charitable trust, it seems they can thumb their noses at the very community that donated to and supported the hospital through its history and flout the concerns of the medical staff,” he said. “Just as troubling, the local hospital governing board is apparently a paper tiger.”
From a national perspective, if the experience at Paradise Valley results in more scrutiny of not-for-profit conversions, “that would be healthy,” Van Druff said. “What would be even better is if this incident results in legislation shifting the authority over the sale of local hospitals held by a hospital system toward the local level so that governing boards, medical staff leaders, and the community cannot be so readily bypassed.”
Adventist officials said the decision to sell to Prime came after months of strategic planning in the face of mounting losses. Paradise Valley’s fragile role as a crucial safety net hospital is evidenced by some schizophrenic outcomes: Last August it was in jeopardy of losing its Medicare funding after failing a CMS inspection. But in January, for its “exemplary efforts” to improve the health of populations in need, the hospital’s asthma advocacy program won a $70,000 national award sponsored by the Premier hospital alliance.
“We were trying to structure something early on that would ensure that (Paradise Valley) could continue to operate in a community that badly needed it,” said Rita Waterman, an Adventist spokeswoman. Adventist just could not sustain the losses a minute longer than March 1, she said. “The problem is we have 20 other hospitals that are subsidizing this hospital,” said Gerald Peters, a partner at Latham & Watkins and Adventist’s attorney. Losses were “so out of control because of the payer mix in that community, and it had been going on for years. At some point you have to stop,” he said. Peters said the conditions put on the deal by the attorney general, including a stipulation that Prime must operate the hospital at least until 2012, were fairly typical for California. Adventist only took exception to a condition requiring it to deposit $3 million into a restricted fund to be administered by a not-for-profit community foundation. “These are religious assets,” Peters said. “The attorney general doesn’t have the authority to tell a religious organization what to do with its assets. … But when you look at the big picture, if we don’t do it, that hospital is going to close.”
No input from staff John Videen, a nephrologist in private practice who also is the chairman of medicine at Paradise Valley, said his main objection was that the deal was “pretty much negotiated by the hospital without the medical staff.” A member of the ad hoc physician-organized Paradise Preservation Group, which submitted a competing offer after the Prime deal was announced, Videen said Adventist’s arbitrary deadline meant the “community-based (group) had to scramble” to structure an offer and put together the financing. The state attorney general’s conditions on the deal, including the commitment from Reddy to keep the hospital open and key services status quo for at least five years, do not assuage his worries, he said.
“This hospital just passed its centennial. A five-year commitment is nothing,” Videen said. “I’m not worried about the next five years; I’m worried about then.