For-profit . and not-for-profit Riverside (Calif.) Community Hospital have modified their pending joint venture in the face of inquiries by the California attorney general's office.
"It's a major step forward by Columbia," said George Reyes, Riverside's attorney. "They hit a homerun by stepping up and meeting the attorney general's concerns, and it shows how much they want to do business in California."
Reyes said the new deal will lift Columbia's ownership in Riverside to 75% from the 50% it would have been under the original agreement. That would give Riverside's charitable trust more liquidity and less of an interest in the financially marginal institution. Those were among the issues raised by California Attorney General Dan Lungren earlier this month (Dec. 9, p. 20).
The modified deal also gives the hospital more control over the resulting joint venture although its ownership stake is less.
For example, hospital-picked trustees for the joint venture's new board will have the authority to veto the selection of the hospital's top management and any proposed changes in hospital services as long as Riverside's stake in the joint venture is at least 5%. Under the original deal, the trustees would have lost those powers if Riverside's interest dipped below 20%.
"We think our deal is going to be a template for Columbia's future deals in California," said Reyes, adding that the transaction is likely to be submitted to Lungren's office for approval next year.
Richard Bracken, president of Columbia's Pacific Division in San Diego, called the reworking a "fair and viable partnership" but stopped short of endorsing it as a template.
"It appears acceptable to the attorney general, but that doesn't necessarily mean it will be a model for absolutely every joint venture we do in California," he said.
Healthcare industry observers had predicted that Columbia would be flexible in reworking the deal. "They need to be agreeable to changes if they want to keep up their market share with Tenet Healthcare," said Ronald Spoltore with Healthcare Financial Advisors, a Rancho Mirage, Calif.-based consulting firm.
"When the attorney general says they have issues with a Sharp (HealthCare) or Riverside sort of deal, it's usually not because Columbia is having problems or is withholding information," said Steve Valentine, president of the Camden Group, a Torrance, Calif.-based consulting firm that advised Riverside on the transaction. "They're going to have to remain expansive to market changes if they want to continue doing business, no matter where it takes place."
Lungren had yet to receive the original deal for review, but his office did send a copy of a letter to Riverside that had been sent to Sharp in November, threatening legal action to halt Sharp's joint venture with Columbia. Sharp executives subsequently agreed to halt the deal, pending modifications. Riverside executives met with Lungren's office shortly after they received the copy of the Sharp letter.