Contenders Will Submit Takeover Proposals for Long Beach Hospital

Long Beach residents may have stopped the closure of their beloved Community Medical Center. But will they still recognize the hospital they have saved?

To give the 76-year-old hospital new life, investors and doctors from Termino Avenue to Tennessee will submit proposals this week to reinvent one of Southern California’s oldest health care facilities.

The result promises to be a leaner facility that is part hospital, part clinic and part school.

“It’s fair to say it won’t be exactly the same institution that we fought so hard to save,” said Betty Keller, a real estate agent who has led a coalition to keep the hospital open.

So far, 10 ownership groups have asked for applications from the city of Long Beach, which took over the hospital three months ago and is searching for a new operator. The papers are due Wednesday. City officials could pick a new owner as early as Sept. 27.

Already, interviews with the prospective applicants and their consultants suggest that some leading contenders have emerged--along with a vision of a new, downsized hospital, with a different financial setup. Although the hospital has been a locally managed nonprofit for its entire history, one possible buyer is an aggressive, commercial chain from Nashville.

The Long Beach Community Medical Center is now a smallish hospital, with 261 beds; the new operator will probably cut that number in half. The hospital has long accepted managed care, but the new hospital might avoid such patients--at least at first--in favor of the surer profits from Medicare and fee-for-service business.

Although the hospital now uses every room, a born-again facility may turn its tower into classrooms and lease the space to Cal State Long Beach or Long Beach City College.

“The hospital will almost certainly be smaller,” said Raymond N. Smith, chief executive of the Community Hospital of Gardena, which is among those preparing a bid. “But the good news is that there will be a hospital of some kind in some form. All the interest from potential operators shows that keeping this hospital alive is very doable.”

Such optimism represents rapid progress.

When the hospital’s owner, the Catholic Healthcare West chain, announced plans in June to close the facility, it insisted that the hospital was in no way viable. Jim Lott, executive vice president of the Healthcare Assn. of Southern California, a hospital trade group, said at the time: “Anything you try to put in there is a losing proposition.”

Almost immediately, a coalition of doctors and east Long Beach residents such as Keller changed the calculus.

Calling itself Save Our Neighborhood Hospital, the group used newspaper ads and threats of litigation to keep the hospital’s license alive. They also forced Catholic Healthcare to leave some of the equipment in place and turn the property over to the city to find another operator. In recent weeks, the coalition has been drawing up a business plan in hopes of taking over the hospital.

Instead, to the consternation of the coalition’s doctors and residents, the city has decided to have a wide-open competition to operate the hospital. Requests for proposals are available for anyone to download from the city’s Internet site.

The city is open to almost any proposal that does not require public funding. Bidders may propose to lease or buy the facility. In either case, a strong financing package is mandatory, city officials say; independent experts say it will cost $20 million to $30 million to get the hospital up and running, and the bill for seismic retrofitting could add about $20.3 million.

About services, the city offers only the barest of guidelines: Bidders must preserve enough basic hospital functions--such as maintaining emergency and operating rooms--to keep the state license.

“We’re certainly willing to consider a hospital that is different in structure and smaller in scope,” said Long Beach Deputy City Manager Christine Davis, who is helping lead the search for a new operator.

City officials and health care consultants say that hospital chains across the country are eyeing the facility for acquisition, but their level of interest is unknown.

Perhaps the most eager contender now is not a chain but another small entity: the Gardena-based KENKO Foundation. The year-old charity is run by Raymond Smith, the chief executive of that city’s 58-bed, physician-owned hospital. Smith said he wants to work with doctors in the Save Our Neighborhood Coalition on his plans for Long Beach.

“The dilemma for us is that the process is so open, and the nature of what the hospital will look like is so uncertain, that it’s hard to say exactly how much money we’ll need to come in and run it,” Smith said.

“We will definitely make a proposal, though we could step out of the way if a potential owner with more cash comes along,” he said.

That owner could be Nashville-based Vanguard Health Systems, a commercial company backed by the deep Wall Street pockets of Morgan Stanley Dean Witter Capital Partners.

Founded in 1997, Vanguard in the last three years has acquired seven hospitals, including three in Orange County, in a strategy of turning nonprofit facilities into investor-owned entities. Nonprofits covet Vanguard’s capital, but such acquisitions carry an extra burden of public scrutiny. California law generally requires public hearings and approval by the attorney general when a nonprofit facility is acquired by a commercial venture.

Vanguard is also well-known in the industry for its caution, having pursued--but not completed--high-profile deals in Ohio, Pennsylvania, New Jersey and Massachusetts.

In Long Beach’s case, Robert E. Galloway, Vanguard’s senior vice president for development, downplayed the company’s interest.

“It’s very early in the game for us,” he said. “We’re interested in anything we can do to expand our presence in Southern California . . . . But we haven’t been able to assess fully what our interest is in this facility at this point.”

Given the uncertainty, the Save Our Neighborhood Hospital coalition of doctors and patients remains the leading contender in the bidding process, its rivals concede.

Any potential owner will have to deal with the doctors, who are the coalition’s strongest supporters. And after the successful fight against the hospital’s closure, the coalition has strong political support and close ties to the hospital’s donors. As a show of force, the group is organizing a huge turnout for a public hearing on Catholic Healthcare West later this month.

But the coalition, only 2 months old, faces several challenges. For one, its financing is not in place.

“We need somebody with deep pockets to come along, and that hasn’t materialized yet,” said Keller, the real estate agent and coalition leader.

Time also weighs heavily on the coalition. Catholic Healthcare West will stop operating the hospital Oct. 2. Doctors fear that the facility could go dark for a few weeks if an operator isn’t in place.

“It’s likely there may be some temporary disruption in service at the hospital,” said Davis, the deputy city manager. “But we’re going to make sure the time the facility is down is as short as possible.”

Facing a time crunch, the coalition is prepared to make compromises. The coalition’s business plan probably will call for fewer than 150 beds. Space saved from that downsizing will be leased to Cal State Long Beach or Long Beach City College--both of which sent officials to tour the hospital last week.

Mary Callahan, dean of City College’s school of health, mathematics and science, said ultrasound and magnetic imaging programs could be set up at the hospital.

“We look at this as an opportunity,” said Callahan, who has worked as a clinical instructor at the hospital. “A lot of their space can be turned into classrooms.”

Dr. Robert Pugach, a urologist and one of the coalition’s leaders, says that doctors are prepared to team with other, deep-pocket bidders to get the new hospital off the ground, fast. Vanguard met with the coalition this week, a company official said, but both sides refused to discuss the talks.

“Right now, the city has a competitive process that pits the coalition against groups such as Vanguard,” he said. “But in reality, we should be working together. The goal is to have this hospital open.

“How we get there is the question.”