Small California North Coast hospitals seek larger partners to survive
Financial pressures — always a factor in running small regional hospitals — are increasingly driving deals to sell or lease those hospitals to larger players. Lack of fiscal resources to make improvements, such as upgrading buildings to meet earthquake standards or installing electronic medical record systems, play a significant role in these decisions.
In the North Bay, two deals to sell public independent hospitals to join multifacility health care systems await voter approval this fall. A third deal has already gotten the green light.
Acquisitions and partnerships in the hospital industry aren’t new, but have become more vital as COVID-19 threatens the viability of existing hospitals.
The California Hospital Association is currently fighting Senate Bill 977, which would widen the scope of the state Attorney General’s power to approve or nix proposed deals to ensure compliance with antitrust laws.
“(Health care) partnerships today are under the rigorous scrutiny of the Federal Trade Commission, and the Attorney General already has the authority to review sales of not-for-profit hospitals,” Carla Coyle, CEO of the California Hospital Association, said on the Sacramento-based advocacy group’s website. “This legislation would go well beyond federal regulation and existing state law, and expand the scope of the state Attorney General’s authority over the affiliation or sale of hospitals, physician practices, ambulatory surgery centers, imaging centers, diagnostic centers, labs, and more.”
The bill passed the Senate Appropriations Committee in late June, and is now in the hands of the state Assembly. If it becomes law, it will go into effect Jan. 1.
Making moves in the North Bay
On July 1, Adventist Health and Mendocino Coast District Hospital signed a 30-year lease to bring the flailing community hospital into the mix with Adventist’s two existing hospitals in the county: Adventist Health Ukiah Valley and Adventist Health Howard Memorial in Willits. The partnership infuses the newly renamed facility, Adventist Health Mendocino Coast, with greater access to care and shared resources.
Also last month, Providence St. Joseph Health, one of the largest Catholic health care systems, agreed to terms on prospective deals with two North Bay community hospitals — Healdsburg District Hospital and Petaluma Valley Hospital — under its nonreligious affiliate, NorCal HealthConnect. A memorandum of understanding for both hospitals were signed in March. The sales of the two hospitals are contingent on voter approval of the district-owned facilities on the November ballot. If passed, transfer of ownership for both facilities would take effect by year’s end.
Kevin Klockenga, regional chief executive for St. Joseph Health Northern California, said in an email that NorCal HealthConnect is committed to investing in both hospitals’ viability.
“NorCal HealthConnect will update the hospitals’ infrastructure, as needed, maintain and operate emergency services, and provide other capital investments that will improve care for all patients,” Klockenga said. “Because of NorCal HealthConnect’s affiliation with Providence St. Joseph Health, it will offer continuity in a time when hospitals across the country face considerable financial strain.”
For the past decade, both hospitals have been affiliated with St. Joseph Health, which in 2016 merged with Renton, Washington-headquartered Providence Health. Providence St. Joseph Health also operates Santa Rosa Memorial Hospital and Queen of the Valley Medical Center in Napa.
Healdsburg District Hospital
When state Attorney General Xavier Becerra on Oct. 31, 2019, rejected the proposed joint operating company between St. Joseph Health and Adventist Health, the decision also ended talks for the proposed entity to take over Healdsburg District Hospital. But the hospital wasn’t abandoned for long.
On July 31, North Sonoma County Healthcare District, which has oversight for Healdsburg District Hospital, and Providence St. Joseph Health announced they had agreed to terms with NorCal HealthConnect to purchase the hospital, pending voter approval in November.
The Healdsburg hospital has been financially hurting for years, exacerbated by the COVID-19 crisis that put nonessential surgeries — a significant source of income for the hospital — on ice for several months during shelter-in-place.
The purchase price is still being finalized, but the financial investment will be significant, said Jim Schuessler, who took the reins as CEO in May following the retirement of Joe Harrington.
“It will be a very substantial financial investment, and that's really the reason that the discussions transitioned from a lease to a purchase,” Schuessler said. “When you start adding up the cost of just the technical improvements and seismic (requirements), you have a very, very large investment by the new partner. If that investment is going to be made on the basis of a lease, somebody is going to come in and inherit the benefits of all of that capital investment.”