SEBASTOPOL -- The Palm Drive Healthcare District unanimously approved the transition of medical clinic operations across from the 37-bed hospital to the Prima Medical Foundation, a move that could help bolster finances for the cash-strapped hospital.

The district's board of directors recently voted 5-0 in favor of the proposed contract, which will allow Novato-based Prima to lease the Palm Drive Medical Clinic and its hard assets from the health care district beginning Feb. 1.

"We are very excited about Prima coming in to stabilize operations at the clinic, and we're looking forward to regrowing the patient base and increasing the clinic's service to West County," said board member Nancy Dobbs.

Under the proposed contract, Prima would lease the physical assets of the clinic for $2,000 a month, while the actual space would be subleased to Prima for roughly $7,900 per month.  The health care district would foot the bill for operations for the first year at a cost of $424,000. After Prima's planned takeover of operations in February, the district would have no other financial obligations related to running the clinic except the initial first-year funding.

Terms of the contract are expected to be finalized by the end of this month.

The transition to Prima would also include four physicians currently working in the clinic joining the Prima Medical Group. The clinic averages about 6,500 patient visits a year, a number that Palm Drive expects will increase if new services are offered through Prima's specialty physicians.

"We will be proud to be part of this regional, clinically integrated care system, which is dedicated to improving patient access and quality," Palm Drive CEO Thomas Harlan said. "Their professional management will provide high-quality and cost-effective patient care and outreach to new patients in the West County."

The transition of operations to Prima could help the hospital attract new physicians amid a shortage of doctors throughout the region, the district has said. It could also help boost revenues by way of new services and increased patient volume, according to the board.

Finances have improved at the district hospital, but the overall situation remains challenging, according to Mr. Harlan.

Between 2010 and 2011, patient revenues at the hospital hovered around $27 million, according to Rick Reid, chief financial officer at Palm Drive. In fiscal 2013, however, patient revenues slightly improved to a little more than $29 million. In 2007, Palm Drive sought Chapter 9 bankruptcy protection after hemorrhaging nearly  $7 million in operating losses. It emerged from Chapter 9 in May 2010 after selling off $11 million in bonds.

About a year ago, the hospital entered into an alliance with Marin General and Sonoma Valley hospitals, designed to share back-end  resources and to achieve economies of scale. Since then, the financial picture has improved but remains tepid -- patient volume is up by about 4 percent since September and net revenue is up slightly. And inpatient revenue is up by 36 percent.

"These aren't huge numbers but they're positive numbers, and I think that's what people are looking for," Mr. Harlan said.

The hospital is planning additional service expansions that could help generate new revenues, including an occupational health program and launching an orthopedic "center of excellence." The hospital also expects to me "meaningful use" standards for having electronic health records installed by February, which will grant the hospital about $1.2 million in reimbursements and bonuses from the Centers for Medicare and Medicaid.

"Basically, finances are inching better, patient census is up and we're looking forward to Prima," Mr. Harlan said.