UCLA and the nation’s largest Catholic healthcare system are teaming up on a potential acquisition of St. John’s Health Center, a storied Santa Monica hospital up for sale after a recent management shake-up.
The partnership between UCLA Health System and Ascension Health Alliance in St. Louis is one proposal under consideration by St. John’s and its nonprofit Catholic owner, the Sisters of Charity Leavenworth Health System in Denver, according to people familiar with the matter.
“No decisions have been made” about a possible sale of the hospital, St. John’s interim Chief Executive Mike Wall told physicians this week in an internal memo. Wall told doctors that officials are “still reviewing proposals to find the best Catholic partner for Saint John’s to ensure its long term success in this changing marketplace.”
Providence Health & Services, a Catholic hospital chain that owns St. Joseph Medical Center in Burbank and four other Southern California hospitals, is seen as another strong contender to buy St. John’s. The timing of any deal is unclear and other bidders could emerge. These potential bidders were confirmed by people familiar with the situation but who asked to remain unnamed because the selection process is ongoing.
The next owner of St. John’s will take on a hospital rich in history but steadily losing ground in a market that increasingly favors bigger institutions. Roman Catholic nuns founded St. John’s during World War II and ran it until the late 1990s. Hollywood stars Jimmy Stewart and Julie Andrews helped raise money for the hospital while St. John’s tended to celebrity patients such as Michael Jackson and President Reagan.
The discussions about a sale come amid a wave of healthcare mergers in California and across the country as the federal Affordable Care Act pushes medical providers to collaborate more on patient care in hopes of reducing costs in a fragmented industry.
A purchase of St. John’s by UCLA would further strengthen its local market power, and that could draw extra scrutiny from government officials concerned about some healthcare deals reducing competition and boosting medical prices. The California attorney general’s office is already examining the effects of healthcare consolidation statewide.
A spokeswoman for UCLA said it “does not have a bid in alone or in partnership with any other party to purchase St. John’s.”
Ascension, UCLA’s potential partner, has been expanding in California. In December, it agreed to an affiliation with St. Vincent Medical Center in Los Angeles and five other California hospitals owned by another Catholic system. Ascension runs more than 70 hospitals in 21 states and it had revenue of $16.6 billion in the year that ended June 30.
In a statement, Ascension said that “at any given time, Ascension Health Alliance may be in conversations with healthcare systems in one or more communities. Out of respect for everyone involved, and as a matter of general policy, we do not comment on specific inquiries.”
In November, SCL Health System executives from the Denver headquarters flew into Santa Monica, abruptly ousted the top two executives and had them escorted off the premises one morning. Michael Slubowski, chief executive of the SCL Health System, also fired 15 of the hospital’s 17 board members in a terse email.
Friday, Slubowski declined to address any speculation about potential buyers. He said the “SCL Health System wants to be sure Saint John’s is strategically positioned so it can continue its faith-based mission as a Catholic health ministry to provide person-centered care in Santa Monica and surrounding communities.”
The involvement of Ascension in any UCLA bid appears to be one way to satisfy Slubowski’s desire to keep St. John’s in Catholic hands. Experts say that’s one reason other potential buyers, Cedars-Sinai Medical Center and USC, may not win out.
“St. John’s really wants a Catholic sponsor,” said Steve Valentine, president of Camden Group, an El Segundo healthcare consulting firm. “UCLA might have some antitrust problems because it would be pretty dominant in that Westside market with this deal. The health plans and Cedars-Sinai may express concerns.”
Providence, based in Renton, Wash., runs 31 hospitals in California and four other states. A Providence official said the chain has “no agreement to acquire St. John’s.”
Last year, Patrick Soon-Shiong, a Los Angeles billionaire and major St. John’s donor, and some hospital board members were working on a deal to purchase the hospital just before last fall’s management shake-up. The change in management scuttled that proposed deal for a new nonprofit group and local board to take the reins.
Under new management, St. John’s has sought to solidify its finances. The 266-bed hospital posted losses of $21.9 million in 2010 and $12.8 million in 2011, state records show. Slubowski has said that depreciation on new buildings accounted for most of those losses and that the hospital generates positive cash flow.
But the lingering uncertainty over a sale may complicate the hospital’s efforts to retain physicians and their patient referrals.
“A lot of changes have been happening at Saint John’s Health Center over the past few months, and I know it has put a lot of you on edge,” Wall, the hospital’s interim CEO, said in his message to hospital doctors. “I know that it can be unsettling to be unsure of the future direction of Saint John’s. Our health system CEO Mike Slubowski is determined to find a great home for us that will guarantee our future success and growth.”
UCLA has been both an ally and competitor of St. John’s over the years. The two sides have had an affiliation that enabled the smaller St. John’s to be part of UCLA’s negotiated hospital rates with health insurers. But St. John’s suffered a blow in 2010 when Santa Monica Bay Physicians, a large primary-care group that had been a major source of patient referrals for St. John’s, joined the UCLA Health System.