Physicians & Surgeons Hospital Accord Designed to Keep Emergency Room Open

The city of San Diego and the prospective owners of San Diego Physicians & Surgeons Hospital have reached agreement on a pact intended to ensure that the Southeast San Diego facility remains an acute care hospital with a 24-hour emergency room for at least the next five years, Councilman Wes Pratt announced Tuesday.

Agreement on a “restrictive covenant” that will govern operation of the ailing hospital paves the way for the long-awaited sale of Physicians & Surgeons to Nationwide Medical Systems of Perris, Calif., and a group of local physicians.

Nationwide plans to buy Southeast San Diego’s only full-scale hospital from a nonprofit community board and current operators National Medical Enterprises (NME) for $6.5 million as early as next week, officials from both companies said Monday.

The covenant offers Southeast residents no guarantee that the facility--soon to be known as Christian Hospital of San Diego--will remain open more than a year after Nationwide acquires it, but it is written to maximize the chances that the firm and local governments will work together to keep the hospital and its emergency room operating.

‘Carte Blanche Covenant’

“There is a carte blanche covenant for a term of five years to keep the (emergency room) open and the acute care facility open,” said Don Davis, Nationwide’s attorney.

“That’s the commitment, subject to the economic fact that if it becomes such a huge hole in the ground that it’s not practical for anyone to continue to dump their own capital into it,” changes could be made, Davis added.

NME has lost about $20 million during the seven years it has operated the hospital, primarily because the facility serves a disproportionate number of uninsured or underinsured patients from the impoverished area surrounding the hospital, an NME spokesman said. Many patients are first seen in the hospital’s emergency room, which, as a result, has been the source of most of the hospital’s losses.

NME has repeatedly threatened to close the emergency room, which would leave the Southeast community without emergency medical services.

Under the terms of the covenant, Christian Hospital will agree to keep the emergency room open until April 30, 1990, regardless of the size of its financial losses.

Notification of City, Panel

During the year after that, net emergency room losses of more than $750,000 would trigger a provision requiring Christian Hospital to notify the city and the nonprofit panel that will continue to monitor the hospital. The three entities would then “meet and confer” to review the size of the losses and work out “commercially reasonable” remedies to the emergency room’s financial problems.

According to the covenant, such remedies could include “reduction in the size or extent of facilities of the emergency room or the acute-care hospital facility and termination of the covenant with respect to the emergency room.”

In each succeeding year, the size of the net loss that would trigger a conference drops by $250,000.

In return for that agreement, the city would agree to give up its “reversionary interest” in the hospital and allow the sale to Nationwide. Under the terms of the bonds used to build the 187-bed hospital in 1972, the city was scheduled to take title in 2002.

Pratt, acknowledging that the covenant offers no guarantees about the hospital’s future, said that the city has little leverage over the long-term future of a privately owned facility.

Worried About Condo Project

“We were very much apprehensive that (Nationwide) would come in and buy the property and convert it to condos or something like that,” he said. “We’ve got our reasonable assurances.”

The city was in danger of losing the reversionary interest May 23, when NME was scheduled to sell the hospital’s defaulted bonds at foreclosure.

The entire agreement requires a vote of the council, which is expected to take up the matter next week. Upon approval, the sale would go through.

Nationwide’s acquisition plans include the involvement of 35 local physicians, who have put up $40,000 apiece that will be used as operating capital, Davis said. Nationwide, which owns a 36-bed hospital in Perris, is financing the purchase price without the physicians’ aid, he said.

Law’s Impact Downplayed

Davis downplayed the possible impact of legislation now being considered by the U.S. Congress that could prevent physicians from sending their patients to medical facilities in which they have a financial interest, saying that the agreement with the local physicians was completed before the March 1 target date of the legislation.

The hospital plans to bring in new equipment and introduce management changes to cut costs, Davis said. It is also negotiating for an increase in the reimbursement paid by the county for uninsured patients, he said.

Davis predicted that the hospital will be breaking even financially within a year.