Michele Ellson
Alameda Hospital

Alameda Hospital’s board will consider pursuing a deal to hand over management of the financially ailing hospital to Alameda County’s health system, a deal the hospital’s top manager says will provide the cash needed to keep its doors open.

The Alameda Health Care District Board meets tonight to discuss approval of a non-binding letter of intent to pursue a merger with the Alameda Health System, and the county health system’s board is set to discuss it Tuesday. A deal could be closed by the end of this year.

“I’m very excited. It’s been the culmination of a lot of work,” Alameda Hospital Chief Executive Officer Deborah E. Stebbins said Friday.

The deal would keep Alameda Hospital’s emergency room open along with at least half of the 100 acute care beds the hospital now operates; its daily acute care population has averaged about 32 patients this year. And Stebbins said existing patients would have the same access to the hospital and their doctors under the proposed deal.

“I don’t think there’s going to be much of a change for Alameda Hospital patients,” Stebbins said.

Under the proposed deal, the health care district board would continue to collect the $298-a-year parcel tax voters approved in 2002 to support the hospital. County health system managers would seek the health care district board’s approval of their proposed budget for the roughly $6 million a year in tax funds, which can legally only be used on the Island. Money from the tax would be used to repay the line of credit, which is to be backed by the hospital’s foundation.

If the health care district board failed to assess and collect the tax or if voters rescind it, the county system could require immediate payment of any money used to support Alameda Hospital – an amount that could total as much as $30 million under current parcel tax collection amounts.

Under terms laid out in the June 12 letter from Alameda Health System CEO Wright L. Lassiter III, the county system would take over management and operation of Alameda Hospital, providing the money the hospital needs to pay for seismic upgrades due in 2020 and a new electronic health records system, along with a line of credit of up to $3 million for operating expenses and to pay off piles of past-due bills.

The move could also help both organizations better compete for patients as the Affordable Care Act, known by most as Obamacare, is implemented, he wrote.

“AHS has reached the conclusion that community hospitals like Alameda Hospital will need to affiliate with larger systems of care in order to obtain efficiencies of scale and the necessary financial strength to weather the transformation that our health care system is currently undergoing and will undergo over the next several years,” Lassiter wrote.

Stebbins said the move could help the county system, which is most closely associated with the trauma care provided at Oakland’s Highland Hospital, compete with Sutter Health and Kaiser Permanente for patients.

“Specifically Alameda Health System wants to present a competitive image to the marketplace,” Stebbins said.

The county health system has planted clinics across Alameda County and is pursing a similar deal to take over San Leandro Hospital, and Lassiter said that its leaders are seeking to broaden its geographic footprint, service mix and sources of payment. Starting next year, many of the uninsured patients the county receives federal money to care for could become insured – giving them the opportunity to consider other care providers over the safety-net services the county has traditionally provided.

The staffs of the county’s system and Alameda Hospital would be kept separate, though Alameda Hospital staffers would become county health system employees within two years – a move Stebbins said could mean better pay for workers who in recent years have seen their salaries frozen or reduced.

The letter leaves open the fate of the hospital in 2030, the deadline for additional seismic safety fixes.

With the hospital, the county health system would take control of Waters Edge, the Kate Creedon Center for Advanced Wound Care and other health care services the hospital operates. The health care district board would retain control over leases and property the district owns; a local representative would be appointed to the county health system’s board, and members of the health care district board would join other county board committees.

Stebbins said the deal will provide the county health system access to badly needed operating rooms for elective surgeries and acute beds. She said early indications are that the county system could use two of the hospital’s six operating rooms on a full-time basis.

Hospital leaders have been seeking an affiliation or merger deal since 2010, when Kaiser Permanente opted to let the contract it had to use Alameda Hospital’s operating rooms lapse – a move that cost Alameda Hospital $10 million a year. Hospital managers considered a dozen potential partners, a presentation to be offered to the hospital board on Monday shows; Stebbins said discussions with Alameda Health System began in late 2012.

The hospital’s finances began to falter over a decade ago, in part due to the defection of a group of doctors who provided much of Alameda Hospital’s patient volume, to the Kaiser system. Voters okayed the parcel tax in 2002, but it didn’t provide enough money to support the hospital, and its finances weakened over time. The loss of the Kaiser surgical contract in 2010 spurred a round of cost cutting; hospital managers also took out a loan against an apartment building and storefront the health care district owns.

The hospital is seeing revenues grow with the addition of services that include the Waters Edge nursing home, which Alameda Hospital is leasing, but even with those revenues, its finances continue to slide. As of March, the hospital was facing losses of $1.35 million for its current fiscal year; it no longer has the cash reserves required under the terms of its bank loan and the hospital is behind on its bills, with $11.3 million due to vendors as of the end of March.

“I think overall, in the last two years and especially with the approach of health care reform, frankly, it’s next to impossible for any independent and especially small hospital to make it on its own,” Stebbins said.

The hospital also lacks the assets to finance needed seismic upgrades, which could cost as much as $15 million. Hospital managers have secured an extension on those upgrades, due this year, to 2015, and they are hoping the state will give the hospital until 2020 to complete them.

Elliott Gorelick, a longtime hospital critic who resigned his hospital board seat on June 4, said he thinks voters should be offered a chance to weigh in on the deal.

“I think that this should be put to the voters directly and argued forcefully for that,” Gorelick said in an e-mail. “My (former) fellow Board members disagreed.”

The merger proposal is the latest of several affiliation deals among East Bay hospitals. Alameda Health System is trying to work out a similar merger deal with San Leandro Hospital, another financially ailing local hospital, which Sutter Health took over but has offered to give to the county. But it’s not yet clear if that deal will go through.

Washington Hospital in Fremont announced last week that it is embarking on a partnership with the University at California, San Francisco that will facilitate training for Washington’s doctors and referrals for the specialists at the UCSF. The partnership, in which both hospitals will retain independent governance, is being billed as an effort to adapt to a drive for higher quality and lower costs that is to be ushered in by federal health care reform – which will also create a stream of newly insured patients.

Alameda Health System – the new name for what had until earlier this year been known as Alameda County Medical Center – includes Oakland’s Highland Hospital; Fairmont Hospital, a 50-bed acute rehabilitation facility in San Leandro; and John George Psychiatric Hospital in San Lorenzo. The system also operates clinics in Oakland, Hayward and Newark, and more are planned.

The county hospital system also reportedly faced years of financial difficulties and was itself on the brink of collapse until Alameda County injected $200 million, in the 1990s. The system has turned itself around financially, with support from a half-cent sales tax.

The health care district board is slated to discuss the merger proposal during a public meeting at 6:30 p.m. today at Alameda Hospital, 2070 Clinton Avenue; the board meets in the hospital’s Dal Cielo Conference Room. The Alameda Health System’s Board of Trustees will discuss the proposal at 4 p.m. Tuesday at Highland Hospital, 1411 East 31st Street in Oakland.

A series of public forums is also scheduled to take place this summer, with the first one planned for June 27 at the hospital.


Richard Bangert's picture
Submitted by Richard Bangert on Mon, Jun 17, 2013

This does not sound like a "merger." In a corporate merger, one of the boards of directors disappears. Two companies become one. The more accurate term in this case is "affiliation."

It's a novel way of continuing to infuse money in a financially unsustainable health care operation, but is it prudent? The county is not going to be giving us free money. It's more like a loan secured by parcel taxpayers. If scale of operation is important, as I think most would agree, then why not just give the county our health district assets? In other words, let's do a real merger.

Submitted by Steve Gerstle on Mon, Jun 17, 2013

Would the Alameda Health Care District continue to have paid staff and a CEO?

Submitted by Michele Ellson on Mon, Jun 17, 2013

Richard: Good point, will amend headline. Steve: I asked and it sounds like that hasn't yet been worked out in terms of hospital management; hospital staff would continue as I understand it, becoming county health system employees within two years (but remaining at AH).