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After years hemorrhaging millions of dollars, even closing for a year and a half, Sonoma West Medical Center in Sebastopol remains stuck in a financial ICU.

In October 2015 “when we reopened the hospital — this is my own mistake — the assumption was that we were reopening and doing business,” said Gail Thomas, treasurer of the district board and former president and board member of the Sonoma West Medical Foundation for a decade. “That was wrong,” she said. “We were reopening a startup” as if it were a new hospital. “All startups have financial challenges initially.”

In January, 25-bed Sonoma West lost $200,000, but in recent months bled at rates of nearly half a million dollars. In a letter of intent dated Feb. 15, Sonoma West opened the door to selling itself to a Florida-based investment startup that changed its name to Americore Health in September after initial creation as White Diamond Holdings nine months earlier.

Weeks later in early March, the hospital’s five-member board shifted its position from selling the hospital toward an operating period under lease before further consideration of sale. That new proposal under study was presented to the community in a special meeting March 9.

“In this new model with Americore,” Thomas said, a management contract could move toward a lease, “We frankly don’t want to do the sale until we see success.”

Sonoma West Medical Center is owned by Palm Drive Health Care District. Eight months ago, the district turned over management of the hospital to another outside firm — Pipeline Health, based in Los Angeles. Under the Pipeline deal, it continued losing money. Now, transition from Pipeline could occur within the next month or so, Thomas said.

One “reason for the Sonoma West financial crisis is that it no longer receives public compensation for charity care,” Thomas said. “That amounts to about $1 million a year,” Thomas said.

She talked with leaders of small hospitals throughout the U.S. and found that most face monthly deficits from $200,000 to $600,000. One rural hospital near Pittsburg lost $500,000 a month; another in Kentucky, $400,000.

Sonoma West seeks new, creative ways to stay afloat, Thomas said. “We are vastly under-reimbursed,” she said. Small hospitals have scant leverage in negotiating reimbursement from insurance companies, she said. “We don’t get reimbursement at the same rate as larger hospitals. You can’t do that very long without having a problem. Is there another paradigm?”

Sonoma County has just over 800 beds in all its hospitals combined, including Memorial, Sutter and Kaiser, plus four smaller hospitals. That amounts to 1.6 beds per 1,000 residents, compared to 2.6 beds per 1,000 residents in the Bay Area. “We are significantly under-bedded,” Thomas said, and Sonoma West’s 25 beds are “absolutely essential. We relieve pressure” on larger hospitals. “It is in the interest of the county to make sure all four small, rural hospitals are alive and well,” she said.

Sonoma West has more laboratory facilities than it uses, Thomas said, and Americore could expand the facility’s lab business to draw new revenue. “We have one of the best chemical-analyzer machines north of the Golden Gate Bridge. We are looking at marketing our laboratory services” as well as radiology imaging services, she said, while maintaining high-quality acute care in the hospital.

“What different things can we do to bring in income streams to support the hospital,” she said. “It’s an entrepreneurial concept.”

New revenue might be drawn from a detox center, Thomas said, or from specialized genetic testing, perhaps modeled after 23andMe, a San Francisco-based company that sells DNA ancestry reports for $99 to $199, based on saliva analysis.

“We are more than willing to offer services that are appropriate,” Thomas said. “It could be more than” $100,000 a month, she said of lab revenue. “So show me.”

Grant White, founder of Americore Health and previously an investment banker, aims to show her and some 40,000 west-county residents who might become customers of Sonoma West.

White, 46, did mergers and acquisitions, and financing, for “banks in New York, San Francisco, London and Canada,” he said in an interview with North Bay Business Journal. “The last five or six years I focused on entrepreneurial ventures. I just started the company (Americore Health) about eight months ago. We’re about to acquire six hospitals. We have a business model that I know will help,” he said.

“I have access to as much as I need” of investment capital, White said, tens of millions of dollars if necessary. “I’m not going to put a specific number on it”, whether it’s “over $50 million or under $50 million. The people that are behind it with the money have significant dollars behind them. We’re not set up like a fund, but I can draw from a pool that’s very large. We’re not a private-equity or venture-capital fund, we’re an operating company.” There are half a dozen members of Americore Health, he said, “all high-net-worth individuals” except one company.

The first letter of intent with Americore Health and Sonoma West covered four pages of non-binding provisions, led by the group’s aim to acquire “any and all real property that is owned, leased, subleased or licensed by” the district, including “all buildings and surrounding parking areas, driveways, power station and other improvements,” the letter said.

White is leaving valuation of the assets to other experts, noting his business aim is acquiring and running small rural hospitals across the U.S. “We see a distressed market out there that doesn’t need to be distressed. The old model is broken. Anyone operating under the old model is going to struggle. We will bring new advances to the table, new technologies and new business lines that most people don’t.”

Lab services is one component of the new model, he said. “Who knows,” he said, how long it would take to make Sonoma West profitable, “but very quickly,” within a year. “There’s tremendous value that can be unlocked if you know how to do it.”

Dan Smith, a technology entrepreneur, glimpsed another kind of value to unlock in Sonoma West. He co-founded Sebastopol-based E Health Records International in 2014. The company makes HarmoniMD medical-records software and used Sonoma West to test it. Smith donated some $14 million to reopen Sonoma West and keep it running.

Smith voiced confidence in White’s startup. “He has a team of people who have a lot of depth in hospital management,” Smith said. “The hospital needed to be part of a bigger system. These guys are pretty innovative. They’re going to build up lab capacities a bunch, bring in new equipment, genetic testing. They’re moving quickly down that road.”

Smith, who plans to conduct due-diligence investigation of Americore Health, had a similar vision years ago — a cluster of business lines inside Sonoma West, including specialty surgery. If Americore’s deal with Sonoma West goes forward, Smith’s medical-records software could be used by Americore in other rural hospitals it acquires. “They have indicated an interest in possibly doing that,” Smith said. “That’s very preliminary.”

HarmoniMD software is used in hospitals in Mexico, Paraguay, Argentina and Uruguay, Smith said, and a couple of hospitals in Africa, a total of six.

Sebastopol engineer Jim Horn joined the district board after winning the third open seat with 8,556 votes in the November election. “I wanted to either lease or sell the hospital,” Horn said. “My preference would be to sell. I didn’t want to close it. I’m not sure it can stay open. History has shown that it is extremely difficult.”

Americore Health is “more interested in buying than leasing,” Horn said. “They would do a lease as a bridge to eventually buying it. Both sides have a lot of due diligence, look into people’s backgrounds,” Horn said of Americore Health, which has partners who “appear to have extensive health-care experience.”

If it decides to sell, the district must obtain “at least fair-market value” for its assets, Horn said. “The appraisal would set the floor on whatever assets we end up selling. This is all completely negotiable. This idea is so new for a lot of people.”

Alanna Brogan, executive director of Palm Drive Health Care District since August 2015, said the district is obtaining an appraisal of the real estate it owns, including one large parcel and buildings on it, which total nearly 50,000 square feet including the hospital with 42,444. “We haven’t selected an appraiser yet,” she said. Appraisal could take a month or two.

Selling or leasing more than 50 percent of Sonoma West assets requires majority consent in a district that now contains about 40,000 voters, down from some 66,000 after residents of the Russian River area detach from the district. A special election to obtain that consent would cost about $30,000, Smith said.

When it reopened, the hospital’s “business plan wasn’t very realistic,” Horn said. “They never had the capital that they needed. The day they opened, they had essentially no reserves. It was a goodhearted effort, a lot of generosity by some people.”

“The hospital business is exceptionally complex,” Smith said, with changing regulations, lower reimbursement rates and difficulty collecting money from insurance companies. “Unless you are part of a bigger system, it’s pretty much impossible to keep expertise around,” the business minds that can lead Sonoma West to sustained financial stability in part by building “better billing and collection systems,” he said. “The game is not like it was 30 or 40 years ago. Everybody is struggling. Building efficient systems becomes the name of the game.”

“You have to know what game you’re playing,” said district treasurer Thomas about the hospital she now sees as a business startup. “If you think you’re playing basketball, but you’re really playing tennis, you might be doing it wrong.”

James Dunn covers technology, biotech, law, the food industry, and banking and finance. Reach him at james.dunn@busjrnl.com or 707-521-4257