REDONDO BEACH, Calif.-A not-for-profit Roman Catholic system made the winning bid in the race to lease a rival hospital in Redondo Beach that for-profit Tenet Healthcare Corp. planned to close.
The Beach Cities Health District board of trustees voted unanimously March 30 to lease its 149-bed South Bay Medical Center to Little Company of Mary Health Services, which operates a competing 335-bed hospital in nearby Torrance, Calif.
Little Company of Mary will convert the South Bay hospital to an outpatient facility when it takes control of the facility June 1. The system will pay $325,000 annually to the district under a 10-year lease of the hospital. Beach Cities agreed to commit $1.6 million for capital improvements.
Little Company of Mary beat a joint bid from a group of local physicians and Long Beach, Calif.-based hospital operator Pacific Health Corp. The coalition proposed leasing the hospital for 18 months and continuing to accept inpatients. Beach Cities calculated it would lose more than $8 million in potential rental income if the physicians and Pacific Health declined to renew the lease, making the Little Company of Mary proposal more attractive.
Beach Cities decided to solicit bids last year after South Bay's current operator, Santa Barbara, Calif.-based Tenet, announced it would close the struggling facility at the end of next month. Tenet's decision to close the facility returned operational control to the district, although Tenet still is obligated to make lease payments.
South Bay's occupancy had declined from 50% in the late 1980s to less than 20% today, as it lost out on several lucrative managed-care contracts snagged by Little Company of Mary Hospital and another rival, 360-bed Torrance Memorial Medical Center.
Had the district decided to maintain South Bay as an inpatient facility, it would have been obligated to spend about $40 million in seismic improvements to comply with stringent new building codes that go into effect in 2008.
Tenet acquired the hospital through its 1994 merger with American Medical International, which had begun leasing South Coast in 1984. It remains obligated to make $3 million annually in lease payments until 2014.