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Thursday, Mar 28, 2024

Sherman Oaks Hospital Plans are Outlined

The chairman of the company planning to take over Sherman Oaks Hospital says that if the sale goes through as expected by the first of the year, he can bring the money-losing facility to a break-even position in one year. Prime Healthcare Services Inc. Chairman Prem Reddy said that the company, which owns two other hospitals in Southern California, will lure more patients by investing millions of dollars in equipment and expansion at the hospital. “When the community and physicians come to know us and get to see the improvements that are happening, that would motivate them to call it their hospital rather than shopping around,” said Reddy. Sherman Oaks Hospital, which lost more than $5 million this year, has struggled over the last few years to stay open. It has outstanding debt with the Cal-Mortgage Insurance Division of the Office of Statewide Health Planning and Development of $145 million. In addition to its debt load, the hospital has faced increasing bad debt and charity care and costs resulting from increases in nurse staffing ratios, lower workers’ compensation reimbursement rates and the inability to afford expansions or equipment upgrades. Phil Dalton, president of Medical Development Specialists in El Segundo, a health care planning and policy consulting firm that wrote a report for the state attorney general on Prime Healthcare’s proposed purchase of the hospital, said that Prime will have a distinct advantage when it takes over because it will be free of the hospital’s pre-existing debt. Cal-Mortgage will be responsible for the remaining debt as a part of the purchase agreement. Prime is paying $17 million, significantly higher than other offers, for all of the hospital’s assets, and is prepared to pay another $10 to $15 million to pay for new equipment and an expansion of the hospital’s emergency room. “The hospital hasn’t been in the position to make capital improvements, or buy modern, more expensive equipment like new imaging equipment,” said Dalton. “These are things that the new owners have made a level of commitment. They may be able to attract more patients and more payers with more up-to-date equipment and a larger facility.” Prime operates small primary and secondary-care hospitals. The company also owns 83-bed Desert Valley Hospital in Victorville and 126-bed Chino Valley Medical Center. Although the Sherman Oaks sale must be finalized, Reddy said the company is working with the current administration and that some changes are already being made. For example, he said, the hospital is being served by a new emergency physician medical group whose doctors are all board-certified emergency physicians. Building relationships with physicians will be key for the hospital. Most of the services it provides, except for burn care services at the Grossman Burn Center, are available from other providers near the hospital’s service area. The hospital is also in the process of adding to its 153 beds in its medical/surgery and telemetry, one step down from its intensive care units. The hospital relies heavily on Medicare patients, and Reddy’s goal will be to compete for those patients. At the same time, Prime will be evaluating the length of stay for Medicare patients. If the hospital can be more efficient and reduce stays by a few percentage points, its financial situation will improve, Reddy said. He said the company accepts that it will have to invest quite a bit in the facility to make it profitable. “Some times you have to put in more money in order to get something out of (a purchase), and my plan is to invest substantial amounts of money,” Reddy said. As part of the agreement, the attorney general may require Prime to operate the hospital and burn center for a minimum of five-years after the purchase is complete. Reddy said the Prime is not interested in “flipping” the facility, and points to his company’s commitment to capital expenditures and evidence of that commitment. James Garrison, a member of the hospital’s board, said Prime has proven its commitment to be long-term owners of Sherman Oaks Hospital. “They really have not had a history of turning over hospitals,” said Garrison. “I think they’re a buy and hold entity, and clearly there is a definite market for health care here.”

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