Small Hospitals on California’s North Coast Seek Larger Partners to Survive

Financial pressures – always a factor in the management of small regional hospitals – increasingly lead to agreements to sell or lease these hospitals to larger players. Lack of fiscal resources to make improvements, such as upgrading buildings to meet earthquake-resistant standards or installing electronic medical record systems, plays an important role in these decisions.

In North Bay, two agreements to sell independent public hospitals to join multi-facility health care systems await voter approval this fall. A third agreement has already been given the green light.

Acquisitions and partnerships in the hospital sector are not 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 expand the power of the state attorney general to approve or rescind proposed agreements to ensure compliance with antitrust laws.

“Partnerships (of health care) are subject to rigorous scrutiny by the Federal Trade Commission today, and the attorney general already has the authority to review sales of nonprofit hospitals,” said Carla Coyle, CEO of the California Hospital Association, the website for the Sacramento-based advocacy group. “This legislation would go well beyond federal regulation and existing state law, and would expand the scope of the state attorney general’s authority over the affiliation or sale of hospitals, practices doctors, outpatient surgery centers, imaging centers, diagnostic centers, laboratories, etc. “

The bill was passed by the Senate Appropriations Committee at the end of June and is now in the hands of the State Assembly. If it becomes law, it will come into force on January 1.

Make movements in the North Bay

On July 1, Adventist Health and the Mendocino Coast District Hospital signed a 30-year lease to partner the struggling community hospital with the two existing Adventist hospitals in the county: Adventist Health Ukiah Valley and Adventist Health Howard Memorial in Willits . The partnership gives the newly renamed Adventist Health Mendocino Coast greater access to care and shared resources.

Also last month, Providence St. Joseph Health, one of the largest Catholic health care systems, agreed to the terms of potential deals with two North Bay community hospitals – the Healdsburg District Hospital and the Petaluma Valley Hospital – as part of its non-religious affiliate, NorCal HealthConnect. A memorandum of understanding for the two hospitals was signed in March. Sales from both hospitals are contingent on voter approval of the district-owned facilities in the November ballot. If passed, the transfer of ownership of the two facilities would take effect by the end of the year.

Kevin Klockenga, regional general manager of St. Joseph Health Northern California, said in an email that NorCal HealthConnect is committed to investing in the viability of the two hospitals.

“NorCal HealthConnect will update hospital infrastructure as needed, maintain and operate emergency services, and provide other capital investments that will improve care for all patients,” said Klockenga. “As a result of NorCal HealthConnect’s affiliation with Providence St. Joseph Health, it will provide continuity at a time when hospitals across the country face significant financial hardship. “

Over the past decade, both hospitals have been affiliated with St. Joseph Health, which merged in 2016 with Providence Health, headquartered in Renton, Wash. Providence St. Joseph Health also operates the Santa Rosa Memorial Hospital and the Queen of the Valley Medical Center in Napa.

Healdsburg District Hospital

When State Attorney General Xavier Becerra on October 31, 2019, rejected the proposed joint operation company between St. Joseph Health and Adventist Health, the decision also ended talks for the proposed entity to resume. Healdsburg District Hospital. But the hospital was not abandoned for long.

On July 31, the North Sonoma County Health Care District, which oversees the Healdsburg District Hospital, and Providence St. Joseph Health announced that they had agreed to terms with NorCal HealthConnect to purchase the hospital, pending voter approval in November.

Healdsburg hospital has suffered financially for years, exacerbated by the COVID-19 crisis that put non-essential surgeries – a major source of revenue for the hospital – on ice for several months while in shelter in place.

The purchase price is still being finalized, but the financial investment will be significant, said Jim Schuessler, who took over as CEO in May following the retirement of Joe Harrington.

“It’s going to be a very substantial financial investment, and that’s really why the talks have gone from a lease to a purchase,” said Schuessler. “When you start adding the cost of just engineering and seismic improvements (requirements), you have a very, very large investment from the new partner. If this investment is to be made on a lease basis, someone is going to come in and inherit the benefits of all this capital investment.