Unafraid of California's not-for-profit hospital sales law, Tenet Healthcare Corp. is in talks with Queen of Angels/Hollywood Presbyterian Medical Center in Los Angeles to beef up its presence in Southern California.
The law, passed last year, gives California's attorney general greater authority to review and approve deals between not-for-profit sellers and for-profit buyers (Oct. 7, 1996, p. 18). The law already has been credited with scrapping one deal and significantly altering another.
"We're reviewing our options, whether we're looking at being a stand-alone, merging or being bought out by somebody," said Sy Graff, chief executive and president of 410-bed Queen of Angels/Hollywood Presbyterian.
He added that discussions began with OrNda HealthCorp and have been assumed by Santa Barbara, Calif.-based Tenet after it bought OrNda in January.
Both Graff and Tenet spokeswoman Diana Takvam cautioned that talks are preliminary and that no consensus has been reached on the type of alliance that may be implemented.
"It's all part and parcel with our integrated system strategy," Takvam said of the talks.
She added that Tenet is also in discussions with other area hospitals, but she wouldn't disclose names.
Once separate campuses, Queen of Angels and Hollywood Presbyterian merged in January 1989, shutting down the 404-bed Queen of Angels campus. Both were struggling financially with a daily census below 50%.
Industry observers say Queen of Angels/Hollywood Presbyterian is under pressure because of its large load of Medicaid and indigent patients-about 50% of its total-and lack of a large medical group and network affiliations.
"They have a declining payer base, and as a freestanding hospital it's becoming harder and harder for them to have access to contracts," said Steve Valentine, president of Camden Group, a Torrance, Calif.-based consulting firm. Valentine worked on the original merger of Queen of Angels and Hollywood Presbyterian.
While daily census is much improved from the 1980s and stands at 75%, it has declined from about 80% a year ago.
"We have been experiencing greater competition and have concerns about what is going to happen when Medi-Cal (state Medicaid) patients start moving into managed-care programs later this year, and have a greater choice of providers. Our census is going to get very volatile," he said.
Graff also has expressed concerns about the future of the hospital's 100,000-square-foot north building, which houses the emergency room. Constructed in 1924, it was heavily damaged in the 1994 Northridge earthquake. The hospital is still in negotiations with the Federal Emergency Management Agency over receiving repair funds.
Graff said it would cost up to $20 million to restore the building to the satisfaction of state hospital regulators.
"Do we agree on how it's rebuilt, or does Tenet have a different view? That's a factor in our discussions," Graff said.