Alameda Hospital board okays affiliation deal with Alameda Health System

Alameda Hospital board okays affiliation deal with Alameda Health System

Michele Ellson

Alameda Hospital’s governing board approved a deal Thursday that will see a countywide health care provider assume operations of the financially ailing hospital, a move hospital managers have said will keep the its highly desired emergency room open and provide the cash needed to perform near-term seismic upgrades the special district set up to operate it can’t afford.

If the deal is approved by the Alameda Health System board, which discusses it next week, the takeover – which the contract bills as a joint powers agreement – could be complete in about 90 days. The agreement lists a closing date of February 28, 2014, and transfer of the hospital’s license to the countywide health system could be complete next March.

“I think this will work if the community of Alameda believes that with this new arrangement they are getting the same quality of care that they have known up to this point,” board member Robert Deutsch said. “I think we need to go into this with the hope and expectation that down the line, this will be regarded as a good move, because the quality of care will be equal if not enhanced.”

Under the terms of the deal, Alameda Health System will assume day-to-day management of and financial responsibility for the hospital, and its board will provide oversight. The hospital’s employees would become Alameda Health System employees within a year.

“This affiliation works for us because we want to make sure that every community in the East Bay has great health care,” Alameda Health System Chief Executive Officer Wright Lassiter III said Thursday. “The partnership for us is about doing just that and continuing the great care you all provide to the citizens of this community.”

Alameda Hospital’s emergency room will remain open, along with at least 50 of its 100 acute care beds, though Alameda Health System’s managers could ask the health care district board to change that. The county system’s leaders would exercise sole discretion over what other services may be provided by the hospital, which operates two nursing homes, a wound care clinic and an orthopedic practice.

Alameda Hospital’s chief executive officer, Deborah E. Stebbins, said the system plans to begin sending its overflow of outpatient surgeries into the hospital’s underutilized operating rooms in December, and that transfers from the emergency room at Highland Hospital, its flagship, could begin in January. The additional volume could help the hospital generate $9.6 million in income over the first five years of the agreement, Chief Operating Officer Kerry Easthope said.

While Alameda Health System’s board would assume oversight of the hospital, the Alameda Health Care District Board – which now provides that oversight – would retain control of the parcel tax the district collects to support it. The tax would be used to pay down a line of credit the hospital received from Alameda Health System that could reach $3 million, and once that’s paid off, to support the hospital and the health care district’s operations; any excess would be saved for future seismic repairs.

The district will also retain control of the hospital property; if it were to relinquish that control, it would not longer be able to collect the parcel tax, Stebbins said.

The countywide system’s managers would be required to present a parcel tax spending plan for the district board’s approval, though rejection of that plan – or a decision by voters to terminate the tax – could put the district in violation of the agreement.

The agreement requires Alameda Health System to find the money to complete near-term seismic upgrades that will cost an estimated $15 million, but it does not cover the more expensive replacement of the hospital’s acute care center, which must be completed by 2030. Negotiations for that upgrade would begin in 2020, and Stebbins said it’s not yet clear what the future seismic upgrades will cost.

In addition to near-term seismic upgrades, the hospital needs technology, cosmetic upgrades and more that will cost an estimated $11 million through 2020 – items Alameda Health System would help pay for if the deal is approved.

If found to be in violation of the agreement the district could be stripped of its rights, which include a seat on Alameda Health System’s board, and could be required to pay back money the system spends on the hospital – up to $30 million, which is five times the amount of parcel tax the district collects in a year. If Alameda Health System violates the contract, the district could stop collecting the parcel tax or assume management of the hospital, and it may not be required to pay back money Alameda Health System has spent.

The hospital has lost money nearly every year for more than a decade, a situation that has depleted nearly all of its reserves and put it in a position that prevents it from being able to obtain financing to make seismic repairs. Board member Jordan Battani attributed the losses to the hospital’s lack of patient volume – something that could change with the Alameda Health System deal.

The hospital lost more than a half million dollars in October alone, and has just $1.7 million in cash available; in June, board president J. Michael McCormick said that without the deal, the hospital would be insolvent in 15 to 20 months.

The district collects about $6 million a year through a special $298-a-year property tax levy assessed since 2002 to support the hospital, and managers have introduced new services that they hoped would generate enough cash to turn things around. While the services have provided some assistance to the hospital’s bottom line, it has continued to lose money.

The district board voted in June to approve a letter of intent to explore the deal, the latest of several that have taken place in the Bay Area. The deal is the second that the Alameda Health System will have completed this year; the countywide system, which Alameda County spun off on its own in 1997, took over San Leandro Hospital last month.

Leaders of both Alameda Health System and Alameda Hospital have said they think the deal will better position their entities to compete with private hospitals as health care reform is enacted. Alameda Health System’s leaders have said the deal and others like it could help extend their service mix and geographic reach.

Easthope said the deal could also help the system win better contracts with insurance companies and vendors, reduce expenses and streamline duplicative medical services.

The system operates Highland Hospital in Oakland; Fairmont Hospital, a 50-bed acute rehabilitation facility in San Leandro; and John George Psychiatric Hospital in San Lorenzo. The system also operates clinics in Oakland, Hayward and Newark, and more are planned.

Related: Alameda Hospital in affiliation talks

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Comments

Submitted by Steve Gerstle on Sat, Nov 23, 2013

Would the Alameda County Sheriff's Office be responsible for security at Alameda Hospital as they are at Highland, or would this still be the responsibility of the APD?

Submitted by B (not verified) on Thu, Nov 28, 2013

How will this affect those of us who visit doctors at Alameda Hospital and who have insurance that allows us to utilize the emergency room? Am I to assume that the hospital will now run as "efficiently" as Highland and/or Fairmont? If so this is a major disappointment. Many years ago when I was young and uninsured I had no choice but to visit Fairmont Hospital and found myself sleeping in the ER waiting room as I waited over 3 hours to be seen and then being misdiagnosed by ER staff who refused to give me a CT Scan (I was told a Kidney Stone was "back pain" and sent home). If this is what we have to look forward to in Alameda, perhaps it's time to consider switching to Kaiser.

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