An unlikely scenario is unfolding on the border between La Cañada and Glendale: a small community hospital that is facing the prospect of tough times under health care reform is finding itself the target of a takeover battle. Suitors for the 158-bed Verdugo Hills Hospital include Glendale Adventist Medical Center, which made its desire to acquire the small hospital public in a handful of newspaper advertisements on March 22. The USC Health Sciences Center is also in the running, sources said, as is a medical group that Verdugo Hills declined to name. Verdugo Hills has told area hospitals that it’s looking for a partner, but it has yet to choose one. In a statement released March 22, the hospital said it is “exploring strategic opportunities for affiliation and partnerships.” Health care reform is expected to pose significant challenges, the hospital said, noting it is looking for partners that would help “preserve our future relevancy to the residents of the Foothill communities we serve.” Verdugo Hills executives were not available to comment for this article. The two giant health systems likely have different motives. Glendale, with 457 beds, may be interested in the hospital to keep competitor USC out of its service area, for example. USC, on the other hand, may be aiming to expand beyond downtown Los Angeles. Complicating the decision for Verdugo is the fact that many of its physicians are affiliated with one organization or the other. Verdugo Hills faces a tough reimbursement climate as an independent community hospital. The California Hospital Association has said that the Accountable Care Act could cost California hospitals $17 billion in Medicare and Medicaid reimbursements over 10 years. With the two federal programs accounting for 20 to 40 percent of revenues at most hospitals, the cuts will hurt many smaller institutions that lack larger partners. That prospect is what’s driving Verdugo Hills to seek a partnership with a larger provider system. Though Adventist has made its desire clear, USC declined to say if it’s interested. USC currently is focused on opening its Pasadena multi-disciplinary center this month, which will house 40 physicians and 11 specialists in a new building near Huntington Hospital, said Geoffrey Baum, interim assistant vice president of USC Health Sciences Public Relations and Marketing. USC does not operate any freestanding full-service hospitals besides its own downtown medical center and its Norris Cancer Hospital. Hospital systems everywhere are looking to grow or align with others to be more attractive partners to health plans and others as health care reform encourages the creation of accountable care organizations and other forms of shared savings. In its public statement, Glendale Adventist said it “desires to join forces with Verdugo Hills Hospital to create a shared health care system to meet the needs of our local communities.” CEO Kevin Roberts said Glendale stands ready to invest “significant capital dollars to enhance the buildings and programs at Verdugo.” In an interview, Roberts said Glendale would benefit from having an additional campus as it looks down the road toward meeting the needs of a growing aging population. “This is not just about 2012,” he said. “We have to think ahead. There are a lot of things going on in health care and one of those big ones is the aging population. If we continue to have a bubble in demand, our hospital is going to need to get bigger.” Glendale just completed a $220 million addition, the final phase of which added 60 new beds in the hospital’s West Tower. At the opening in January, hospital officials indicated that Glendale was not done expanding and was still looking to grow. Roberts said Verdugo enjoys an excellent reputation and the loyalty of the local community, which also makes the acquisition attractive. Glendale and Verdugo have been talking for several months, Roberts said. Talks late last month appeared to be headed toward a climax, and he said he hoped Verdugo would accept the terms soon. He would not speculate about why Verdugo was holding out and did not disclose terms being discussed. Verdugo Hills was 55 percent occupied in 2010, the latest figures available from the Office of Statewide Health Planning and Development. It had net patient revenues of $82.9 million in 2010 and a net income of $2.2 million. The hospital listed $527,428 in charity care. “We’re prepared to invest to stabilize it and make the facilities more contemporary,” Roberts said of Verdugo Hills. The two hospitals share many patients and many doctors have privileges at both institutions, he said, adding it would make a combination “a no brainer.” In addition, he said, the La Cañada community would benefit from a tertiary care hospital that’s just four miles away, instead of a partner located further away.
Suitors Emerge for Verdugo Hills Hospital Partnership
