California's El Camino Hospital District has added an important footnote to the movement to convert public hospitals into private facilities.
When it transferred control of 426-bed El Camino Hospital in Mountain View, Calif., to the newly formed Camino Healthcare four years ago, it reasoned that the facility would fare better under private operators.
But Camino Healthcare lost $17 million in 1995, and the district-which remained in operation as a device to channel community healthcare funds to 426-bed El Camino Hospital-sued Camino Healthcare.
The suit forced the company to give the hospital back to the district, and Camino Healthcare was dissolved.
"(The district) had the highest hopes, but did it for the wrong reasons," said the hospital's newly appointed chief executive officer, Richard Warren. "Now, we would probably talk to anyone and everyone about an alliance."
Warren predicts the hospital will post up to an $8 million loss for 1996, although a large part of that will be attributed to one-time restructuring charges. The hospital's occupancy rate is hovering around 35%.
The experiment in privatization has caught the attention of the California attorney general's office, which is investigating the hospital's losses when it was in private hands.
"We want to make sure nothing improper occurred," said Deputy Attorney General James Schwartz, who emphasized that any losses incurred as the result of routine business practices aren't illegal. He expects the probe to last until at least mid-year.
The district's lawsuit against Camino Healthcare charged that some of its top executives benefited financially when it purchased Sunnyvale Medical Clinic and Shoreline Medical Group for $27 million in 1994. The two entities were combined to form Camino Medical Group. The move was part of Camino Healthcare's plans to create an integrated healthcare system.
The district agreed to drop its suit in exchange for resuming control of the hospital, but not before it paid $4.7 million in cash and arranged a $9 million line of credit for Camino Medical Group, which had threatened to countersue unless it received financing to operate independently.
Camino Medical Group Chairwoman Elizabeth Vilardo, M.D., didn't return phone calls seeking comment.
Wanda Jones, president of the New Century Healthcare Institute, a San Francisco-based consulting firm that was involved in the initial conversion, cited Camino Medical Group's physicians as an aggravating factor for the hospital's poor financial results.
"It became a physician-dominated organization, with the specialists from the Sunnyvale Medical Group becoming the most vocal leadership," she said. "As a result, (the hospital) didn't cut staff at the same rate as their decline in census, and they also reinvested in things doctors liked, not what was necessarily in the best financial interest of the hospital."
Said Vic Biswell, president of the California Association of Healthcare Districts: "By returning to the district, public involvement in the management of the hospital will be reintroduced, and that may provide a different management base on future decisions."
Jones believes the district will have to resort to large-scale layoffs and risk heat from their labor unions, some of which are already at odds with the hospital. Camino Healthcare was recently criticized by the National Labor Relations Board for the way it has conducted negotiations with its nursing staff.