West County Times
Posted
on Tue, Feb. 17, 2004
By
Matt Krupnick and Judy Silber
It will take a special kind of company to love Doctors Medical Center in San
Pablo.
The hospital, in need of an operator to replace outgoing Tenet Healthcare
Corp., needs up to $50 million in seismic upgrades, one of several factors that
could dampen the enthusiasm of potential suitors.
It's also uncertain whether the hospital can turn a profit without Tenet,
likely making the quest for a replacement grueling - and potentially
unrewarding.
"The bottom line to me (is) this hospital can't close," said Jim
Beaver, executive director of the West Contra Costa Healthcare District.
"The impact on emergency services would be too devastating. I'm thinking a
solution will be found that can make it work for the long term."
Hospital officials say the 232-bed facility has plenty of strengths: It boasts
the East Bay's only burn center, has a respected cardiac lab and underwent
significant capital improvements under Tenet.
Marketing those strengths falls mainly on the shoulders of the taxpayer-financed
West Contra Costa Healthcare District, which owns the hospital and leases it to
Tenet and went through the same process before Tenet took over in 1997.
Tenet announced last month it would leave San Pablo on Aug. 1, part of a
statewide shedding of 19 hospitals.
Finding a new operator may well hinge on how many concessions the district is
willing to make. That's because the hospital skirts the line of profitability.
Tenet's lease in San Pablo - signed as the hospital was on the brink of
bankruptcy -- was laden with incentives, including an agreement that the
district would foot the bill for most seismic upgrades. That tab could range
from $5 million to $50 million.
The company was also allowed to break its 30-year lease with only six months'
notice, a provision that worried district officials at the time.
But district leaders say they're willing to do whatever it takes to keep the
hospital open this time, too. They're carefully examining the operation,
analyzing all options, including cutting or adding services.
The facility includes one of Contra Costa's busiest emergency rooms, and county
health officials worry the hospital's closure would squeeze other East Bay
facilities.
While district officials come to the battle armed with the experience of their
previous search for a tenant, their past management of the hospital tumbled
into a financial disaster after more than 40 years. Under the district's
direction, the hospital lost about $20 million from 1992 to 1996.
Tenet reversed that trend, turning the operation into a profitable one. Even
so, it's unclear what the hospital's finances will look like after Tenet
leaves.
A year-long nursing strike and Tenet's practice of artificially inflating
hospital charges make it difficult to gauge the hospital's financial condition.
State records show the San Pablo facility reported annual profits ranging from
$5 million to $8.5 million from 1998 through 2001. State records are not always
accurate but can serve as a barometer for hospital finances.
The successful run started falling apart in 2002, when a long-running and
costly registered-nurse strike considerably reduced the hospital's profits.
The following year, the hospital's financial bottom line moved from black to
red when it paid an extra $20 million to hire temporary nurses during the
strike. District officials say the hospital lost $23 million that year.
The medical center's fiscal outlook has also been clouded by Tenet's corporate
troubles. To increase profit margins, the company raised charges at its 38
California facilities. Tenet has since decreased charges, but district
officials say they'll carefully assess those at Doctors Medical Center.
If they need adjusting, that could further shrink the hospital's bottom line.
While the nursing strike ended in December, district officials said they're
still not sure how much money the hospital can bring in. Operating expenses
will have increased. Tenet's settlement with the nurses included a 30-percent
rise in salaries.
The medical center is also challenged by its relatively high numbers of
Medi-Cal and uninsured patients. Hospitals often lose money on Medi-Cal
patients because the state's reimbursement rates are low, and uninsured
patients often pay little to none of their bills.
To offset the losses, the hospital needs privately insured patients because
they bring in the most money, said Garrick Hyde, a hospital consultant based in
Utah.
But at Doctors Medical Center, only 22 percent of patients have private
insurance.
"Such a negative financial picture would be a strong deterrent to
potential investors/buyers in the hospital," he said.
Health officials said they don't think the mix of patients will dissuade
companies from taking over.
"Yes, it's a difficult payer mix," Beaver said. "But it can be
managed if you're good at it."
Some hospital companies appear reluctant to take over Doctors Medical Center.
The hospital doesn't fit the strategy of HCA Inc., the country's largest health
care company, said HCA spokesman Jeff Prescott. The company is being
"selective" and "opportunistic" about its acquisitions, he
said.
Spokespeople for Catholic Healthcare West and Triad Hospitals Inc., which both
operate California hospitals, said the companies had yet to consider San Pablo.
Sutter Health, one of Northern California's largest hospital operators, also
has yet to decide on Doctors Medical Center, but the company already has a
strong East Bay presence, said Sutter spokesman Bill Gleeson.
Health officials, who had planned for Tenet's possible departure for a year
before last month's announcement, admit that they worry about the frantic
process ahead of them.
Analysts said the key to the search is how many sacrifices the health-care
district is willing to make.
The seismic retrofitting is expected to cost anywhere from $5 million to $50
million and could become a sticking point in finding a new tenant.
"Nobody's going to want to come in and immediately pay (millions) for
this," said Dr. Jay Bhattacharya, a professor at the Stanford University
medical school. "That's a good way to lose money."
If no companies are willing to pay for the retrofitting, the district will have
to add those costs to the indeterminate period when the public almost certainly
will be responsible for hospital operations.
Bonds and taxes are among the possibilities, and district officials are eyeing
a finance-measure election as early as June.
When it comes to finding a tenant, however, concessions could be the solution
to the hospital's predicament, Bhattacharya said.
"If the district puts enough bells and whistles in (the lease), they'll
find someone," he said. "It's just a matter of how much it will cost
the taxpayers."
Reach Matt Krupnick at 925-943-8246 or mkrupnick@cctimes.com.
Reach Judy Silber at 925-977-8507 or jsilber@cctimes.com.
In 2002:
€ Doctors Medical Center earned $3 million.
€ Net profit margin was 2.24 percent.
€ The hospital ranked sixth out of 16 in treating uninsured patients in
Alameda and Contra Costa counties for inpatient care. It has fewer beds than
some of the hospitals ranked below it.
€ The hospital ranked fifth out of 16 in treating the uninsured for
outpatient care.
€ For inpatient care, 53 percent of patients had Medicare, 22 percent had
Medi-Cal and 22 percent had private insurance.
€ Comparatively, at the East Bay's most profitable hospital -- John Muir
Medical Center -- 35 percent of patients had Medicare, 3 percent had Medi-Cal
and 61 percent had private insurance.
Source: Office of Statewide Health Planning and Development for year ending
Dec. 31, 2002.