Prognosis Improves for 2 Hospitals

Bucking a trend toward larger and fewer hospitals in California, two rural Ventura County medical centers have taken different routes to survive as emergency lifelines for their communities.

While dozens of small California hospitals closed over the last decade, Ojai Valley Community Hospital and Santa Paula Memorial Hospital both signed deals in October that could ensure their existence for years to come.

The 100-bed Ojai hospital, cradled in a prosperous valley of oak and citrus trees, agreed to merge with a regional medical center 18 miles away in Ventura.

In another lush farming valley nearby, creditors of 41-bed Santa Paula hospital and the Ventura County public healthcare system have reached an agreement that would reopen the hilltop facility closed last December if a bankruptcy court approves.

“The Santa Paula hospital situation is very rare,” said Jim Lott, spokesman for the Hospital Assn. of Southern California. “I can’t recall a county hospital system expanding in the last 10 or 15 years.”

The trend, in fact, is just the opposite. Only 17 county hospitals remain in 12 counties in California, down from 66 county hospitals two decades ago, Lott said. In a sign of support, however, San Bernardino and Riverside counties are building new hospitals to replace old ones, he said.

The Ojai hospital merger is also unusual, Lott said, because the era of large hospitals consolidating with smaller neighbors has passed after peaking a decade ago. And some large chains are selling their satellites.

Tenet Healthcare Corp. is unloading 19 medical centers in California, including 14 in Los Angeles County, primarily because the company could not afford $1.6 billion in seismic retrofitting the state will require over the next decade.

“The hospital business is not a place to go if you’re concerned about solvency,” Lott said. “Hospitals are largely a black hole of expenditure, especially for governments, so this is really a unique situation to have both of these hospitals surviving. And it’s happening because of immense community support.”

In contrast, the number of acute-care hospitals in California has dropped from 520 in 1993 to 450 today as hospitals were hit by large numbers of uninsured patients, according to the California Healthcare Assn. And more than half of the remaining hospitals are losing money, state reports show. This year alone, four hospitals in Los Angeles County have closed and two more closures are expected by the end of the year.

Likewise, the number of emergency rooms in Los Angeles County has dwindled to 79 from 97 since the 1980s.

“The stand-alone, rural, small hospital is rapidly becoming a thing of the past, so we saw the handwriting on the wall,” said Dr. Martin Pops, chairman of the nonprofit foundation that owns the 45-year-old Ojai hospital.

The Ojai hospital, owned by four hospital chains since 1987, had turned a slight profit for three years, since community leaders borrowed $2.5 million to buy it in late 2000.

But the nonprofit medical center’s finances turned upside down this year.

“We’ve showed a substantial loss based on a perfect storm of what can go wrong to a hospital’s finances,” Pops said.

First, a new state law required more nurses per hospital patient, and a nursing shortage spiked costs. Revenue from the Ojai hospital’s successful out-patient operations dropped 10%, and on a typical day there were only about nine patients in its 35 acute-care beds. Only 90% occupancy of an adjacent skilled-care facility owned by the hospital propped up income.

At the same time Medi-Cal, Medicare and insurance company payments shrunk, Pops said. “So our income stayed the same, and our expenses went up about $1 million” for the fiscal year ending Oct. 1, he said. The hospital earned about $16 million, but spent about $17 million.

Then Gary Wilde, the new chief executive at Community Memorial Hospital in Ventura, came out to visit in May, and by the end of June the hospitals were talking publicly about a merger. Wilde had been chief operating officer of the Cottage Health System in Santa Barbara County, where he engineered deals that placed small, struggling Santa Ynez and Goleta Valley medical centers under the Cottage umbrella.

He saw the same potential at Ojai Valley. Using the Cottage model, Community Memorial would take over administrative functions, buy equipment and supplies through a bulk-purchasing consortium, and share laundry and billing costs.

In turn, the Ojai hospital would feed patients into Community Memorial. “But we already enjoy all but 8% of their referrals to larger hospitals, so financial benefit was not the real driver, here,” Wilde said. “It was preservation. If we can keep a hospital open, that makes sense for everybody.”

Dr. Gordon Clawson, chief of the Ojai Valley medical staff, said a benefit of the merger is that physicians would be able to better coordinate the movement of patients between hospitals, especially emergency rooms, while also coordinating treatment with specialists in Ventura.

“This should speed it all up,” Clawson said.

Perhaps the most important change, he said, is that local doctors can now see a future in tiny Ojai, instead of planning to move their practices to Ventura.

“It allows us to plan long-term for the viability of our medical community,” he said. “It assures stability, at least for a while. It’s stemming the tide.”

Once merged, Community Memorial and Ojai Valley would function as sister operations run by a new corporation, but own real estate separately. Seventeen of its directors would come from Community and three from Ojai Valley.

The merger, announced 10 days ago, requires approval by Atty Gen. Bill Lockyer, who must determine if the deal benefits the public. After a community hearing, Lockyer could make that decision by the end of the year, officials said.

One of the new corporation’s roles would be to determine how the two hospitals can afford earthquake improvements. Wilde said that it would cost $1 million to $5 million to meet requirements at Ojai, and perhaps $200 million to build a new tower at Community Memorial.

One of every three hospitals in the state needs major seismic repairs, industry studies show.

At Santa Paula hospital, officials aren’t talking about earthquake upgrades just yet.

Although Ventura County supervisors have agreed to buy Santa Paula Memorial Hospital and 13 surrounding acres for $2.75 million, the deal has not been approved by federal bankruptcy Judge Robin L. Riblet in Santa Barbara. She must weigh a competing proposal by the Santa Paula hospital’s board of trustees to reopen with a private operator.

County officials believe they will prevail because their purchase would both revive the only emergency room serving 50,000 residents between Santa Clarita and Ventura, and pay off creditors.

In a separate action, a creditors’ committee appointed by Riblet would broker the sale of 15 acres of the 28-acre hospital property to an as-yet unspecified homebuilder. The sale is expected to generate at least $12 million, which would be used to help pay off about $15 million in debt.

County Supervisor Kathy Long, whose district includes Santa Paula and the surrounding Santa Clara Valley, said she believed the hospital would reopen under county ownership by the end of June.

“We’re already working on the state licensing and doing parallel things so when the judge drops the gavel we’ll be ready to go,” she said.

The county operates Ventura County Medical Center in Ventura and a network of public health clinics across the region. It plans to open two new clinics in Santa Paula and Fillmore. As part of the county health system, Santa Paula hospital would receive favorable reimbursement rates from state and federal insurance plans.

It would also benefit from a strong mix of privately insured patients who prefer receiving treatment close to home, Long said. Officials have previously estimated the Santa Clara Valley’s healthcare market at $50 million a year.

Still, Dr. Samuel Edwards, a retired county hospital administrator who helped broker the agreement, said nothing about the deal has been easy and it will take more effort to complete it than to operate the hospital in the black.

“This thing is moving at glacial speed,” he said. “When this was announced my phone started ringing off the wall with people wondering if they could get their gizzard transplanted next week.”

The county’s chief healthcare officer, Pierre Durand, has pledged that the Santa Paula hospital will break even financially by using the county system’s size and higher payment schedule for serving mostly poor people. Durand rescued the main county hospital from enormous debt in the 1980s.

Edwards said Durand can make it work.

“That’s the miracle of the Ventura County safety net,” Edwards said. “Pierre has been able to make it viable.”