Selling Your Hospital, Part 2

  • Doyle, Christine, MD, FASA
| Mar 07, 2016

Between the initial announcement of the DCHS sale in October 2014, the conditional approval by the Attorney General on February 20, 2015, and Prime’s withdrawal of its offer on March 10, 2015, we held many meetings. Prime’s operations team visited on several occasions to review our processes and make suggestions.  We started implementing some of them immediately, and others later.

documentationProbably the most important factor that changed was our attitude. We learned how truly important our documentation was for the hospital’s ability to bill for services. We learned about how coders do their work, even if we will never actually do it, so that we could help make their jobs easier. Our medical staff president spent hours one-on-one with our admitting physicians, showing them the difference a single word could make. Most of us had no idea, for example, that “urosepsis” wasn’t a valid diagnosis according to CMS. This information brought secondary benefits as well, as the ICD-10 transition became a non-issue for us. 

Our Geometric Mean Length of Stay (GMLOS), which started out 1.5 days over the target, was reduced to 0.1 days over the target within nine months. Although the actual increase in revenue was not known to us, it was clear that we were appropriately aligning our documentation with what was required by CMS.

We also looked long and hard at our expenses. A mitigation plan, aimed to reduce those expenses, was enacted in April. It was not without controversy, nor was it without revision. Key issues included inaccurate job titles, descriptions, and an overemphasis on confidentiality, leading to crucial positions being eliminated (i.e., our surgery biller) only to be subsequently reinstated. Low-volume service lines were closed or reconfigured.

Communication, once again, became a critically important part of the process. Rumors flew amongst the hospital staff, the local news, patients, other hospitals, and neighbors. Damage control again became important, especially since early advertising had been all about how the hospitals would close if the sale fell through. Fortunately, cash flow improved with receipt of deposit money from Prime and additional state funds.

DCHS filed suit against SEIU and Blue Wolf in Superior Court. Among the complaints were breach of contract for violating the confidentiality clauses, unfair competition by discouraging potential bidders, civil conspiracy for taking action that caused harm to DCHS, and aiding and abetting when Blue Wolf allowed SEIU to influence competing bidders.*

In response, the Attorney General’s office issued this press release, blaming Prime for breaking the deal. Her comments raised concerns that the conditions placed on any other sale would be the same or even more restrictive. These concerns were only slightly appeased when Attorney General Harrisstated that "the offer made to Prime was unique and tailored to Prime,” and that conditions for a different transaction would not necessarily be the same. 

square_1Back to square 1 (or maybe 2).

Within two weeks of the announcement that Prime refused the deal with the Attorney General’s conditions, our agents were again fielding requests from interested parties. The process was the same as before, so much of the work was already done.  Our financial situation had slightly improved, and we updated the prospectus.  Once again, we engaged in discussions with the Attorney General’s office, and with officials in Paris and Rome, so that when we had a potential buyer we would be able to move in an expedited fashion.

My mother and her neighbors who live within half a mile of the hospital sent letters to Santa Clara Supervisor Ken Yeager and San Jose Councilman Pierluigi Oliverio. They emphasized that the county would suffer a decline in tax revenue and other negative financial implications if businesses (physician offices) moved away from the area when O’Connor became “Valley North.” They asserted that property values would decline in one of the oldest, exclusive neighborhoods in San Jose. No response was received, and both Yeager and Oliverio remained remarkably silent on the entire situation.

The selection committee was reconstituted, with the addition of Sister Margaret Keaveney, who had been named the CEO of O’Connor Hospital after the planned departure of the prior CEO. It turned out that the original committee had no direct representation from the hospitals. Some observers felt that such representation might have improved the bid process and timeline.  

After mostly behind-the-scenes machinations, an announcement was made on July 17, 2015, that the selected buyer would be Blue Mountain Capital in conjunction with Integrity Healthcare. The former would provide the capital and the latter the management. Key provisions of the plan included maintaining the hospitals as non-profits for at least three years, keeping them open for at least five years, and conversion of the “church plan” retirement fund to an ERISA-compliant fund.

Both parties had been involved in the original bid. Integrity had been one of the finalists, but had been unable to secure funding in a timely manner. This new combination afforded each the opportunity to play to their strengths. The management team, with whom we would be working, was comprised of executives with extensive experience in California managing both community and academic hospitals.

The paperwork was submitted to the Attorney General’s office on July 31. This meant that the 105th day allotted for public review landed on Friday, November 13. Open hearings were scheduled for the second week in October, and they were much shorter and less contentious. SEIU was remarkably quiet. The final announcement from the Attorney General’s office was made, after a short extension, on December 3. The conditions were as expected, and were accepted by Blue Mountain/Integrity.

VerityHealthOn December 14 at 10 am, the formal transfer took place, and we became Verity Healthcare.


*Media references to the lawsuit:

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