Scripps Takes Control of Chula Vista’s Bay Hospital

Scripps Memorial Hospitals took control Friday of financially strapped Bay Hospital Medical Center in Chula Vista in a move that includes a 90-day evaluation of the institution’s financial status to determine if Scripps should assume permanent operational control of the hospital.

If Bay Hospital is added to Scripps’s long list of hospitals and medical centers after the three-month study, Scripps will also assume responsibility for the South Bay institution’s $17-million long-term indebtedness.

Ames S. Early, president and chief executive officer of Scripps hospitals, announced the takeover following an agreement reached with Bay Hospital’s board of directors on Thursday.

Ruth Blank, acting president and chief executive officer at Bay Hospital, said the board on June 14 authorized her and the hospital’s attorney to begin negotiations with Scripps. The takeover by Scripps assured Bay Hospital’s 900 employees that paychecks issued Friday totaling $400,000 would be honored.

About 220 employee checks bounced last week when Pacific Commerce Bank seized the hospital’s account, Blank said. She said the account was seized after National Medical Enterprises (NME), a Los Angeles-based corporation that operates for-profit medical facilities, reneged on a promise to guarantee a $750,000 line of credit.

Bay Hospital, a nonprofit institution, had negotiated a complex agreement with NME that would have resulted in NME pumping about $15 million into the hospital. But the agreement fell apart in March, Blank said, and NME failed to meet a June 1 deadline that would have guaranteed Bay Hospital a $750,000 line of credit. When the deadline was not met, Pacific Commerce Bank moved to seize the hospital’s assets, Blank said.

NME officials could not be reached for comment Friday.

If Scripps, whose hospitals and medical centers are also nonprofit, ends up taking control of Bay Hospital, Scripps’ bed total would increase to 703. Bay Hospital has 159 beds and the third-highest occupancy rate in the county, Blank said.

Although Early said that he expects Scripps to assume full control of Bay Hospital, he said that Scripps officials will await the results of the study before making their next move.

“At the end of 90 days, we will decide if we wish to become permanent owners. But if we decide to withdraw, we will remain for another six months until another operator can be obtained,” Early said.

Scripps will not assume permanent control of Bay Hospital unless the hospital’s $17-million debt can be refinanced, Early said. Blank said that $8.4 million in notes is due in November and $8.6 million in tax-exempt bonds will be payable in the year 2010.

The bonds and notes are sponsored by the City of Chula Vista, giving the city title to the hospital once they are paid off. In the event that Scripps chooses to assume the indebtedness and operate Bay Hospital, “it is important for us that title be passed to us,” Early said.

He said that he does not see that as a problem, because Chula Vista officials are anxious to keep the hospital operating.