Voters to decide fate of Hemet, Menifee medical center

Voters living within Valley Health System’s service boundaries will decide Dec. 15 if they should approve or deny a deal that would sell most of the public district’s assets to a local group of 132 doctors called Physicians for Healthy Hospitals.

The district’s two hospitals – 343-bed Hemet Valley Medical Center and 84-bed Menifee Valley Medical Center – and its drug rehabilitation center in Hemet are part of the sale, which involves selling all operating assets. Valley Health’s two-story office building in Hemet and its 4.7-acre parcel near the Hemet hospital would also be sold.  The sale is estimated at about $169.8 million, which also includes settling the district’s debts.

Valley Health System, a public hospital district founded in 1946, filed for Chapter 9 bankruptcy about two years ago and has not been able to get rid of the label. In October, the district’s seven-member board voted 6-1 in favor of the sale to Physicians for Healthy Hospitals.

“The most compelling reason, in my opinion, was they (the board) felt a coalition of local physicians has the largest vested interest in the long term success of the hospitals,” said Joel Bergenfeld, Valley Health’s interim CEO since September.

Membership in Physicians for Healthy Hospitals is limited to doctors who have staff privileges at either the Hemet or Menifee hospitals. Members don’t have to contribute financially. A list of the doctors in the group is expected to be released on Friday, said Dr. Alex Denes, spokesman of the group. The list should be available online at www.pfhh.org.The group’s business plan and list of shareholders are also expected to be released on Friday, he said.

Because the district plans to sell more than 50 percent of its assets, the deal requires approval from a majority of voters. Valley Health serves 882 square miles, including the cities of Hemet and San Jacinto, and nearby unincorporated areas, such as Sun City, Menifee and Winchester.

The proposed sale would require Physicians for Healthy Hospitals to become responsible for a variety of debts and liabilities, including $44.7 million in bond debt; $55 million of disputed claims; $21 million owed to other creditors; and an $8.4 million payment to Select HealthCare for a loan it made to the district.

The deal would also require the doctors’ group to continue providing core services – such as emergency services, obstetrics, critical care – for five years. Five years is the average time it takes for a hospitals to become privatized, Bergenfeld said.

If the sale is approved by the public, Valley Health would continue to exist as a public district and would provide charitable community services. It would maintain certain restricted assets, estimated at more than $800,000. Following the sale, Valley Health would receive $400,000 a year for five years from Physicians for Healthy Hospitals, a deal offered by the doctors’ group.

The special election measure, Measure P, simply asks voters whether Valley Health should sell its hospitals and related assets to Physicians for Healthy Hospitals, “a coalition of local physicians with an association agreement with Catholic Healthcare West St. Bernardine Medical Center” to maintain medical services at Hemet Valley and Menifee Valley hospitals.

But there is nothing simple about the history and issues surrounding the proposed sale, and the ballot measure has both strong supporters and staunch critics.

One of the members of Physicians for Healthy Hospitals has been the subject of much discussion in the community.

Dr. Kali Chaudhuri, an orthopedic surgeon at Hemet Valley hospital, is also the founder and chief executive officer of the KPC Group, an international firm that provides services in industries such as healthcare, alternative energy and real estate. His firm provided management services to Valley Health from 1998 to 2007. The district board terminated the management contract with Chaudhuri because anticipated revenue targets were not met.

Measure P opponent Sheila Moss said she’s suspicious of Chaudhuri’s involvement with the physicians’ group. It’s not clear what his role is or how much financial control he would have, she said. Moss, a Hemet resident, said she blames him in part for the financial mess of the district.

“He is a wealthy man who can buy people off,” she said. “He can pull the purse strings.”

Denes said he has no idea how many shares Dr. Chaudhuri would buy. However, no one doctor can own controlling interest of the group, Denes said.

Patrick Searl, a former Valley Health board chairman who backs Measure P, said he is tired of hearing people connecting Chaudhuri and the 2007 contract cancellation to what is happening now.  The third-generation Hemet resident said critics are not focusing on the bigger picture.

“You ask people about the hospitals they respect and do they know who manages it or owns it? No. What’s important is about the quality of care,” Searl said.

Searl said he has faith in Physicians for Healthy Hospitals because of its local ties.

“They have a stake in the community,” Searl said. “They raise their children here, they shop here, they live here. They are very community oriented. It’s just a win-win for everyone. The hospital stays open. The access is here, the doctors are here. The economy is stimulated….Would you rather have someone local or some outsider? I rather have the docs I know.”

The physicians’ group formed this spring, Denes said, after it became fairly obvious that Valley Health would not be able to improve its finances.

Under Physicians for Healthy Hospitals, the hospitals would operate for profit.  Despite Valley Health’s financial problems, Denes said, his group has plans to improve the hospitals’ finances.

Currently, patients crowd the emergency department even if they don’t have real emergencies and utilize resources, Denes said. Some don’t have health insurance and the hospital does not get reimbursed for treating them, he said. The combination equals significant revenue losses, he said.

His group would build community urgent-care clinics that would be open after hours. Patients, with or without insurance, would get treated but the operating cost would be reduced, he said.

Another source of revenue would be reinstating HMO contracts, which were discontinued by Valley Health about two years ago, Denes said.

Denes said his group also plans to improve the services and reputation of the community hospitals to attract more local patients.

Voters should approve Measure P, Denes said.

“It’s the only way to assure that they have a hospital in the community,” he said. “VHS only has 15 days of operating capital in the bank. There are no other legitimate offers on the table….It’s really a win-only situation for the residents. Otherwise, the fate of these two hospitals are up in the air.”

Denes said if the Hemet hospital closes, the nearest facility would be about 30 minutes away.

Measure P has won support from the Hemet and San Jacinto city councils, Riverside County Board of Supervisors, and other local associations and community members.

There is no organized community group fighting Measure P but opposition exists.

Prime Healthcare Services, Inc., a healthcare system founded by Dr. Prem Reddy, recently submitted a purchase offer and has filed an argument against Measure P. The group owns 13 hospitals in California, including Paradise Valley Hospital in San Diego, Chino Valley Medical Center in Chino and Centinela Hospital Medical Center in Inglewood.

Prime Healthcare argues that the proposed sale to Physicians for Healthy Hospitals “was the result of an exclusive bidding process” between the district’s board and the physicians’ group and that the other prospective buyers’ offers were not considered. It also questions the maintenance of certain medical services for only five years.

Prime has also filed lawsuits against the district to thwart the district’s deal with Physicians for Healthy Hospitals.

Howard Tounget, a resident of Hemet for more than 50 years, has voiced his opposition of Measure P before the Hemet and San Jacinto city councils. He also opposed the sale of assets to Select HealthCare in 2007.

Tounget said he has deep concerns about the sale agreement, including the $8.4 million payment to Select and Valley Health receiving payments of $400,000 a year for five years.

“Why pay VHS $400,000 a year to do with at their whim after the sale,” Tounget said. “These are the same guys who have run VHS in the ground.”

Tounget said he still doesn’t understand how Valley Health got itself into such a financial bind because the district’s hospitals face no competition for the services they provide.  

“My recommendation is to flush P and wash your hands because P stinks,” Tounget said.

A few factors have contributed to the district’s financial woes over time, including lower reimbursement fees, unfunded state mandates and rapid expansion, Searl said.

“We had an empire building CEO and we went out and built two new hospitals, one outside the district in Moreno Valley,” Searl said. “We went from having money to owing money.”

Bergenfeld said the district incurred about $79 million of debt after the Moreno Valley and Menifee hospitals were built.  He said it didn’t help that the population in the area was slow to grow around the two hospitals. Because Moreno Valley is outside of the district’s boundaries, the district had to forgo tax revenues.

“The two hospitals were financial drains on the system,” Bergenfeld said.

The district also lost reimbursement money when it switched from a traditional fee-for-service system with its health insurance carriers to a managed care or HMO system, Bergenfeld said. The district opted out of the HMO plan in 2007.

Because of the district’s poor finances, it could not purchase cutting-edge equipment and had to refer patients to other medical facilities, which is a loss of income, Bergenfeld said. In some cases, the district was required to refer some patients because of how certain contracts work, he said.

In addition, the district does not receive any tax dollars, Searl said.

In 2006, the district tried to pass a $485 million bond to pay existing bond debt and build new hospital facilities that meet state seismic safety requirements.  Although 56 percent of voters approved it, the bond measure failed to gain a required two-thirds majority vote.

A year later, Valley Health tried to sell the district’s assets to Del Mar-based Select HealthCare for $135 million. The measure was defeated by voters, with about 54 percent voting no. Searl decided to resign from the board after the measure failed.

In December 2007, the district filed for Chapter 9 bankruptcy.

Kaiser bought the Moreno Valley hospital in mid 2008. Select HealthCare was involved in the financial transaction.

Should Measure P fail, Physicians for Healthy Hospitals has the option of acquiring Menifee Valley Medical Center and two adjacent parcels for $29 million.

Tounget said the vote boils down to whether the community would lose both hospitals or one.

Bergenfeld said Valley Health believes it can sustain operations at Hemet Valley hospital if the Menifee hospital is sold.  Proceeds from the Menifee sale will be used to reduce the district’s debt, Bergenfeld said. But the reality can get grim if the Menifee hospital is not purchased, he said.  The district would try to operate both hospitals but “it’s all about how much cash we could generate over a period of time” to pay creditors, Bergenfeld said.

If Measure P is successful, Physicians for Healthy Hospitals would take control of Valley Health’s assets 45 days after the vote is certified.  Bergenfeld said it’s possible that the doctors’ group could become the owner of the hospitals in the first quarter of 2010.

Tags: Catholic Healthcare West St. Bernardine Medical Center, Centinela Hospital Medical Center, Chino Valley Medical Center, Dr. Kali Chaudhuri, hemet, hemet valley medical center, Joel Bergenfeld, Measure P, Menifee, Menifee Valley Medical Center, Moeno Valley, Paradise Valley Hospital in San Diego, Physicians for Healthy Hospitals, San Jacinto, Select Healthcare, sun city, SWRNN, Valley Healthcare System, winchester

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