Needles Officials Reconsider Non-Profit Status For Hospital Operator

NEEDLES—The efforts of San Bernardino County’s smallest city to retain its community hospital entered a crucial stage recently as the city council discussed the parameters of the citizen-backed measure that mandates the sale of Colorado River Medical Center to a non-profit organization.
On December 13, the council devoted considerable time to examining Measure Q, which was passed by Needles voters in June 2010. Voters passed the ordinance, which was intended to keep the hospital’s doors open and absolve the city of the financial burden of subsidizing the facility.
The city took on ownership of the Colorado River Medical Center in April 2008 after Brentwood, Tennessee-based Lifepoint Hospitals, a for-profit corporation, embarked on an effort to move the institution’s equipment and personnel to another hospital it owned in Arizona, roughly 12 miles from Needles.
But because of long-running inadequate billing practices, including failures to invoice Medicare and Medi-Cal as well as insurance companies and patients in a timely fashion, the hospital has lost money, representing a financial liability to the city. The city created a board of trustees to oversee the hospital, and that panel, together with the city council, has come to a consensus that spinning the facility off to an independent operator is the best solution for ensuring that the community has adequate medical care without soaking the taxpayers.
There have been competing offers to take over the hospital’s operations, including a few from for-profit corporations. The only credible effort to mount a non-profit organization to take on ownership of the hospital is that of Needles Hospital Inc., which was founded by former Needles councilwoman Rebecca Valentine.
While Needles Hospital, Inc.’s proposal has progressed further than any other, one serious competitor to that proposal emerged from a for-profit company  – Los Angeles-based AM Pharmacy. Though AM does not meet the requirement that it be a non-profit entity, which is stipulated in Measure Q, a consensus of the hospital board and minority of the city council appears to be in favor of at least considering in depth the possibility of letting AM absorb Colorado River Medical Center into its portfolio. The reasoning here is that AM has real world experience in running hospitals.
Valentine, who is the president of Needles Hospital Inc., said her organization meets the objective of having a non-profit operate the hospital and ensuring quality care at an affordable rate to the local populace. According to Valentine, Needles Hospital Inc. has secured financing to make a $3.16 million purchase of the facility and can now  open escrow. Needles Hospital Inc. will contract with Quality Healthcare Solutions to manage the hospital, she said.
AM Pharmacy has said it will use one of its employees, Bing Lum, who was raised in Needles, to oversee the hospital operation if it is given the right to purchase the facility. Lum emphasized that his company has experienced hospital operators on staff who have dealt with start-up and troubled hospitals. He expressed confidence his company could turn Colorado River Medical Center around financially, making it both profitable and an asset to the community. He said AM Pharmacy’s financial solvency puts it into a position of being able to fund operations at the hospital until reforms are in place that will allow it to function on its own without subsidization. He suggested that his company could create a non-profit arm, build a firewall between AM Pharmacy’s for-profit and non-profit operations and that the non-profit could be used to run the hospital. Lum said the management team for the hospital would relocate from Los Angeles to Needles to oversee the hospital’s day-to-day operations. AM has also said it stands ready to form a board of directors for the hospital consisting entirely of local residents.
On December 13, city attorney John Pinkney said the city council must sign off on the sale of the hospital under the terms of Measure Q, but could use its discretion in whether to proceed with a sale or not. “In order to qualify, the purchaser would have to be a nonprofit corporation,” Pinkney said. “The initial board of directors of the nonprofit corporation would have to be approved by the city council and have to be residents of the city of Needles.”
The sale would need to be made at a price equivalent to fair market value, Pinkney said. A portion of property enclosing the hospital that is federal land would not be part of the sale. The hospital’s debt could be subtracted from the fair market value under the terms of the sale, Pinkney said, such that the purchaser would assume all outstanding liabilities at the hospital and be responsible for all accounts payable.
The buyer would have to meet strict licensing guidelines, Pinkney said. As such the purchaser will have to demonstrate licensing in a host of areas to include round-the-clock provision of emergency, intensive care, radiology, outpatient surgery, laboratory, dietary, surgery and anesthesiology services.
Per Measure Q, Pinkney said, if the hospital ceases to operate as a rural general acute care hospital, the nonprofit corporation has the first right of refusal to the city of Needles.
Pinkney said that the hospital board is definitely leaning against allowing Needles Hospital Inc. to assume operation of Colorado River Medical Center and had voted to cease negotiations with the non-profit. Instead, the board has called for brokering a deal with AM Pharmacy.
While city council members Linda Kidd and Jim Lopez as well as Mayor Ed Paget have in the past sought to be excused from any decisions relating to the hospital because of potential conflicts of interest, the council as a whole seems to be at odds with the hospital board and would appear to favor Needles Hospital Inc.’s overture.
An ad-hoc committee has been formed to hash out the differences. The ad-hoc committee has suggested that an evaluation of the relative merits of the competing offers could be better made if both entities were to submit proposed contracts.
The city council previously expressed concern that neither Needles Hospital Inc. nor AM Pharmacy had offered to purchase the facility for the $3.6 million specified in the original appraisal done for the hospital. Needles Hospital Inc. offered $3.16 million for the hospital. AM Pharmacy offered $3 million.
Pinkney said neither offer meets the requirements of Measure Q that fair market value as determined by an independent appraiser be paid. Pinkney did indicate, however that the appraisal the city obtained by the city is stale and it did not include the accounts receivable. Those would need to be determined and added to the appraisal.
Given that neither party met the specifications with regard to all criteria in Measure Q, Pinkney said the council could use its own discretion in making a determination. The council could legally, if it makes certain findings, allow the board to make a non-binding decision to sell to either bidder. The council could also negotiate different terms or entertain a bid or bids from another entity or entities.
Rebecca Valentine asked the council to abide by the language of Measure Q.
Tony Frazier appeared to be the member of the council most strongly in step with the hospital board in its desire to sell the facility to AM.
Pinkney suggested that the council allow the board to make its recommendation and then use its own discretion and judgment in confirming or vetoing the board.
On November 22, the council gave both Needles Hospital Inc and AM Pharmacy until January 10 to submit revamped offers.

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