In a quiet way, Victorville cardiologist Prem Reddy has become a player in Orange County’s hospital market.
Reddy’s Prime Healthcare Services Inc. is spending more than $50 million to buy Anaheim Memorial Medical Center, a nearly 50-year-old, 224-bed hospital that has lost money in recent years.
Memorial Health Services Inc., the Long Beach-based nonprofit hospital operator that’s owned Anaheim Memorial since 1995, decided to sell it last fall for several reasons, including a potentially big bill for bringing Anaheim Memorial up to California’s earthquake standards.
If Attorney General Jerry Brown signs off on the deal, Anaheim Memorial will join West Anaheim Medical Center, La Palma Intercommunity Hospital and Huntington Beach Hospital in Prime Healthcare’s local stable. Brown has to approve the sale since it converts the hospital to for-profit status.
Reddy owns eight hospitals overall, all in Southern California.
He and Prime aren’t strangers to controversy. His latest buy of Paradise Valley Hospital in National City, outside San Diego, drew fire from some doctors and former officials. They were upset that Adventist Health, 103-year-old Paradise Valley’s longtime owner, was selling it to a for-profit operator.
Prime was allowed to buy Paradise Valley, but only after Reddy agreed to conditions, including keeping emergency rooms open, maintaining “charity care” levels and not cancelling managed care contracts.
Vita Reed, the Business Journal’s healthcare writer, recently spoke to Reddy about the pending buy of Anaheim Memorial.
What’s the timetable for completing the Anaheim Memorial buy and integrating it into Prime Healthcare?
We need the attorney general’s approval. Normally, the attorney general takes 60 to 90 days to approve the deal. Hopefully, he will take 60 days rather than 90 days. It is Memorial that has to submit the application. I believe they (recently submitted the application). Forty-five days would be the earliest; 90 days from now would be the latest.
What, if anything, can you do in the interim?
It depends on the nature of the agreement between Memorial and us. We have decided not to do anything until the attorney general’s approval.
How did Anaheim Memorial come to Prime Healthcare’s attention?
The first time I heard that was in the public news,they announced they would be divesting Anaheim Memorial and were looking for bidders. When I learned that, we called Citigroup, which was selected as the broker, and we got into the bidding process.
Overall, what is Prime looking for in its hospitals?
A community hospital, that’s what attracts us. Basic services like medical-surgical services, not like a specialty hospital. We are not interested in specialty care hospitals that only do cardiology, orthopedics, anything like that.
We prefer smaller community hospitals, but when you look at the services Anaheim Memorial Hospital offers, it isn’t that big. For that community, it is pretty correct. It fits into our model of a community hospital with a broad range of services and not based or oriented to only specialty services. It has a decent network of providers, physicians and the market is viable.
Once the deal’s done, what do you think Anaheim Memorial and the other hospitals in Prime’s OC lineup have to do to compete?
Even though there are so many strong (hospital) systems in Orange County, there are certain areas, pockets of influence.
Including Anaheim Memorial, Prime Healthcare Services will not be directly competing with Memorial because Memorial would be more like in Long Beach and Saddleback (Memorial Medical Center) except for one facility, Orange Coast, in (Fountain Valley).
Of course, Hoag is predominately Newport and surrounding areas.
St. Joseph (Hospital-Orange) is within our competing market, but predominant competitors will be small, like Anaheim General, Western Medical-Anaheim. I see them being more in competition (with us) than St. Joseph’s system.
Our goal is not to compete with everyone, but to offer quality medicine in a cost-effective way, the best way we can.
We will be trying to retain the contracts at Memorial, and hopefully discuss with the health plans to extend them to other hospitals if they are fair.
How about purchasing? Do you belong to a big purchasing group such as Premier Inc. or Novation, or do you act as your own agents?
For purchasing contracts, we already have the best purchasing contracts that the big networks have because we now are eight hospitals strong,with Anaheim Memorial, we will be nine hospitals strong, and we have substantial contracts like big networks have. We use Broadlane, MedAccess.
Have you decided on a name change for Anaheim Memorial yet?
Memorial put in the purchase agreement that we cannot use “Memorial” in the name, but the medical staff and employees are complaining that the name Memorial was there even before Memorial bought the hospital.
So they believe Memorial cannot prevent Anaheim Memorial from having the same name. That is in discussions now. If Memorial agrees with the requests of the physicians and employees to keep Memorial’s name in it, we will have the name continue as Anaheim Memorial Medical Center.
And if they decline to give us that name, the alternative name we’re looking at is Anaheim Regional Medical Center.
How do you market your hospitals?
Once we get the licenses issued in our name, we advertise. We advertise in all the local newspapers and media about what things we do differently, the philosophies we have, the emergency department being more efficient, more open. Rather than going on saturation, we will be small in services.
And in the case of Anaheim Memorial, we would like to promote the heart program even better than what it is (now). And then, we could refer patients (to it) from other hospitals.
One of the reasons Memorial wanted to sell Anaheim Memorial was the seismic issue. Do you find it a daunting prospect to pay for earthquake improvements?
Almost all of our hospitals, except Huntington Beach Hospital, are in the process to obtain 2030 (the year of compliance for the state’s seismic law). We have not evaluated Anaheim Memorial at the present time. That’s what we will look at once we (obtain) the license. We will address that, whether we’ll have to retrofit the entire structure or add a second patient tower and use the existing building for services that are not necessarily mandated by seismic retrofits like outpatient services.
That’s an evaluation that’s going to take at least six months (from the time) we take possession of the hospital.
You’ll have to meet certain conditions, including maintaining the emergency room, continuing to serve Medi-Cal, Medicare and charity care patients, and having the resources to maintain Anaheim Memorial’s current service levels. Are you confident you’ll be able to do so?
Yes. We did that in all our hospitals, including the most recent acquisition at Paradise Valley Hospital.
It’s pretty standard for the attorney general to require (a buyer) to definitely maintain the emergency department (and) most of the services that are essential services to the community. We intend to maintain all essential services and contracts with Medicare and Medi-Cal.
We maintain the same charity care level as before. Those are anticipated that we would continue to do that.
In some of the markets, most recently National City, you’ve been the subject of scrutiny and criticism. How do you react to this?
In the Paradise Valley situation, things have become more complex than other communities because it was one of the oldest hospitals (established) by the Adventist church, so a lot of people were upset at Adventist leaving rather than Prime coming in.
When they compared with this not-for-profit, major faith-based organization deserting their community, their anger was deserted equally against Adventist and us in expression, whereas it was mainly directed in spirit against Adventist.
So I took, unfairly, the brunt of that criticism. Second, there had been, unfortunately, misinformation conveyed to the public by some self-interested parties that either wanted to buy the hospital but don’t have the financial resources to do that, and some from Orange County facilities that wanted to buy Memorial. So they staged their own protests in a different market, National City.
That was a little bit disheartening to see such an uproar against the sale, but the alternative was seeing that community deprived of the hospital in the first place. Instead of being thankful we came and saved the hospital, they somehow had gotten angry at Adventist and less so at us, albeit on both of us.
That’s an unfortunate situation. I don’t see that happening at Memorial because Memorial went through due diligence of soliciting bids over three, four months, if not six months. And they have used several layers of decision-making process before selecting Prime.
We now have gone through more scrutiny (in buying) Paradise Valley than anybody else. I hope the attorney general’s office and the Department of Health Services will look at us more favorably without being subjected to the same rumor and innuendo.
How do you reach out to the medical staff of a hospital that may be wary about you coming in?
We intend to partner with the medical staff to produce better results. At Paradise Valley, the medical staff is turning around and supporting us, except maybe a handful of doctors, if any, who are still hung up in the past.
Almost all the physicians who admit patients to the hospital are working with the hospital to turn operations around and produce better results. We’ve heard from almost all the doctors at Anaheim Memorial Medical Center that they’re really eager to support us now, now that the decision has been made to sell the hospital.
Before, the medical staff was of the opinion that they could stop the sale and work with Memorial, but now that the decision has been made, Memorial is out of that market. Now that Prime is the selected bidder, they want to work with us, from the chief of staff to the executive committee, to pretty much most of the admitting doctors.
