Industry Giants Set Sights on County Hospital
It seems an odd alliance: two of the country’s largest, most profitable hospital chains talking about a partnership with Ventura County Medical Center, the hospital of last resort for the poor and uninsured.
But the willingness of both Tenet Health Care Corp. and Columbia/HCA to sit down with county officials in the past month underscores their eagerness to expand their empires and gain a foothold in a highly competitive health-care market, industry officials say.
Indeed, both Tenet and Columbia have been talking with dozens of nonprofit hospitals around the country, trying to strike merger deals, as the two go head-to-head in a turf war for patient insurance dollars.
Columbia owns Columbia Los Robles Hospital in Thousand Oaks and Tenet is based in neighboring Santa Barbara, so the two have a particular interest in Ventura County.
Now they have joined the county’s own bitter battle between public Ventura County Medical Center and private Community Memorial Hospital, located just two blocks apart in central Ventura and fighting for some of the same patients.
Both of the industry giants have accepted the invitation of county officials to discuss a partnership. And both have approached Community Memorial separately about a possible deal.
A merger with either hospital would enable Columbia or Tenet to increase their patient base in Ventura County and their leverage in the managed-care market.
“What they gain is market share,” said one industry source familiar with Ventura County hospitals. “If you have a hospital in Thousand Oaks, and now you have a hospital in Ventura, you can turn to an insurance company and say: ‘If you want our business in the Conejo Valley, then we want an exclusive agreement for our hospital in Ventura.’ ”
Community Memorial would offer the private hospital chains the kind of patient mix they find in most of their hospitals--the paying, privately insured kind.
But teaming with the county hospital has its own advantages.
For the county, a merger could provide the wherewithal to upgrade the hospital’s deteriorating kitchen and medical laboratory--structural flaws that threaten the facility’s license.
In return, the county system offers not only its own hospital but an entire health-care system, one that includes eight outlying clinics feeding patients into the medical center.
Another attraction is the roughly $21 million in “disproportionate share” money that the county receives each year from the state and federal government to offset its heavy Medi-Cal caseload.
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Finally, the county recently acquired a managed-care license that greatly increases its leverage in the health-care market. The so-called Knox Keene license allows the county to sell its insurance plan--now offered only to government employees--to the general public.
“If they had an aggressive partner, they could go after the private markets,” said Monty Clark, regional vice president of the Health Care Assn. of Southern California. “They could use a private organization like Columbia to help them do it.”
Community Memorial officials said this is exactly what they have been fearing. They have long argued that the county is positioning itself to compete more aggressively for privately insured patients, despite repeated denials by county officials.
As a result, Community Memorial officials demanded last week to be included in any future talks between the county and private hospital operators.
“Given our proximity to the county hospital, we should be included in any discussions,” said Community Memorial attorney Jim Prosser.
But Supervisor Frank Schillo said the county will continue to explore whatever options it chooses, without the involvement of Community Memorial. He said Community Memorial’s sole aim is to close down the county hospital.
“We will decide who we talk to,” Schillo said. “There are more desirable hospitals to work with than Community Memorial. A lot of other [hospital systems] have more to offer.”
Earlier this month, Columbia officials got a call from Pierre Durand, director of the county’s Health Care Agency, which oversees the county hospital. Durand had a problem and wanted to see if Columbia could help solve it.
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The Board of Supervisors were recently forced to abandon a $28.7-million county hospital improvement project after the threat of a voter referendum led by Community Memorial.
But county officials insisted that the public hospital’s kitchen and medical laboratory are so cramped and structurally unsound that its license could be revoked within the next 18 months if not replaced. They instructed Durand to develop financing and construction options for the panel to consider.
Durand wasted no time inviting both private and nonprofit hospital chains to discuss a possible partnership, one that would provide him with not simply the financial muscle to repair old buildings but to guarantee the future of the county’s health-care system.
A meeting was arranged with Jeffrey Winter, vice president of development for Tennessee-based Columbia, on Nov. 22.
“We got a call from Pierre Durand about coming up and spending part of the day to discuss his vision and the options he is considering,” Winter said. “And we said sure. We’ll sit and talk with anyone about their health-care program.”
Although he played down the significance of the meeting, Winter said that a partnership with the county was workable. He said the proposal presented obvious strategic advantages to Columbia, considering that it already owns a hospital in the east county.
“If there are opportunities to partner with a public hospital to do a better job of serving the community, then we want to explore it,” he said. “We think it makes sense to create those kinds of partnerships. It could lead to the best of both worlds, where you serve both interests.”
Tenet officials declined to comment on its discussions with either the county hospital or Community Memorial. Tenet owns one hospital in Santa Barbara County and three in San Luis Obispo County.
For either Tenet or Columbia to enter the west Ventura County market, they would either have to build a new hospital or more likely merge with an existing facility, industry officials say.
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Ojai Valley Community Hospital is already owned by a Portland-based health-care network, while St. John’s Regional Medical Center in Oxnard and St. John’s Pleasant Valley Hospital in Camarillo are owned by Catholic Healthcare West, the second largest Catholic-owned hospital chain in the country.
Although independently operated, Santa Paula Memorial Hospital, which is struggling to survive, has a management arrangement with Nashville-based Quorum Health Resources. But it does not have a large enough population base to be attractive to a private hospital chain looking to gain a foothold in the region, industry sources say.
That leaves Ventura County Medical Center and Community Memorial. Although it would be unique, a deal with the county could be more appealing.
For his part, Durand declined to disclose details of his discussion with Columbia or other hospital firms. He said his objective is to simply find a way to “protect the safety net.”
Meanwhile, Columbia representatives talked with Community Memorial about a possible sale or partnership earlier this year, but trustees of the nonprofit hospital resisted.
“This board is 25 members of the community and they see benefits in local control, and they want to keep it,” said a source close to Community Memorial.
One industry representative suggested that Columbia could be talking with the county in an attempt to force a buyout of Community Memorial, which has no debt and a similar patient mix as Columbia.
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“Posturing in negotiations with the county could boost that along quite a bit,” said Peter Boland, who operates a Berkeley-based managed-care consulting and publishing firm.
Others say that a partnership between the county and Community Memorial would be the ideal solution because it would preserve local control.
“But the bad blood between the two is so great that no one can rationally bring the peace,” said one industry source.
