In a rapid reversal of fortune, Puget Sound Hospital in Tacoma, Wash., won a court order late last week rescinding the state's decision only days earlier to shut down the facility for "egregious" health and safety violations.
The threatened April 28 closure followed a Chapter 11 bankruptcy filing earlier last month by the hospital's Nashville-based parent, New American Healthcare Corp.
New American is selling all eight of its hospitals, including Puget Sound, as part of its bankruptcy proceeding, and the state's action against the hospital could make the facility less attractive to buyers or affect how much New American can sell it for.
The Washington State Department of Health and a health law judge approved an agreement to allow the 160-bed facility, one of the state's only hospitals specializing in mental illness and chemical dependency, to continue admitting patients.
"We were able to reach a settlement . . . because we got a very good response from the hospital to our statement of charges," said Gary Bennett, the health department's director of facilities and services licensing. "They jumped right into action and implemented substantial plans to address our immediate concerns."
The suspension of Puget Sound's license marked the first time in more than 25 years that the health department had ordered a hospital to close, he said.
Citing a serious danger to patients, the agency on April 26 ordered the near-century-old hospital to transfer all of its patients to other sites and close its doors by the end of the week.
Investigators said they found the facility's central sterile supply room littered with dead bugs and rodent droppings during a surprise inspection. They also noted a previously reported incident in which a patient from the drug-abuse ward pilfered 65 kinds of medication, including some potentially fatal combinations, from an operating room.
But during an April 27 court hearing, Puget Sound's chief executive officer, Mark Gregson, said the hospital had already fixed or was working to solve the problems.
"We're not happy that any of these incidents occurred. But the point is, by the time the state inspector arrived, virtually every issue had been addressed and rectified," Gregson said, adding that the hospital had passed what he called a rigorous, three-day state survey in December.
Among its improvements, the hospital has launched an extensive pest-control program, moved the supply room to a more sanitary location, and beefed up security.
Under the settlement, the hospital also agreed to draw up a long-term plan to tackle more systemic issues. Gregson said he is hiring three outside experts to study infection control, improve medication management and design a new quality-improvement process.
The health department plans at least one more inspection within the next three weeks. Only after it is satisfied with the hospital's progress will the agency formally lift its charges, Bennett said.
Gregson said New American's financial woes hadn't contributed to any of Puget Sound's health violations.
"They're completely unrelated issues. New American has kept us extremely well maintained," he said, adding that within the past year New American has equipped the hospital with a new roof, fire-alarm system and computed tomography scanner. "They haven't neglected us in terms of resources."
New American officials, however, have conceded that the company's bankruptcy filing stemmed from an inability to meet the capital needs of its hospitals (April 24, p. 6).
Earlier this month, New American sold 94-bed Doctors Hospital in Wentzville, Mo., to Essent Healthcare, a Nashville-based start-up.
Essent's president and CEO, W. Hudson Connery, said his company will have to invest several million dollars of "catch-up capital" at Doctors, including replacing the roof, making repairs to its parking lot and buying new radiology equipment, he said.
"If they're not making a $6 million payment to their banks, then there is no money for capital expenditures and probably hasn't been for quite a while," he said.
Essent paid $6 million plus working capital for the facility. New American bought the hospital from a group of local physicians in 1996 for $13 million plus working capital.
And then there's Trinity Regional Health System of Rock Island, Ill., which will have to spend about
$60 million to build a replacement facility for a 65-bed Davenport, Iowa, facility it bought from New American last August. The new owners decided they would do better to start fresh with a new building than try to rehab the old one.
"Previous owners never put a red cent into it. Organizations like New American would try to get every penny of cash out of it they could," said Eric Cromwell, Trinity's CEO.
Puget Sound Hospital faces some problems of its own.
Shortly after buying the facility in September 1998 from Tenet Healthcare Corp., New American discovered the property had been contaminated by underground storage tanks, according to an Securities and Exchange Commission filing. Environmental consultants have devised a remediation plan, which has yet to be approved by the state. Santa Barbara, Calif.-based Tenet has agreed to fund all cleanup costs.
Despite the health, safety and environmental issues, a number of potential buyers are showing interest in the hospital, Gregson said. Its sale would mark the fourth time Puget Sound has changed hands in 10 years.
"We're not going anywhere," Gregson said of the hospital. "We plan to remain a vital community asset."
With Barbara Kirchheimer and Ann Saphir