What’s In A Contract: HCCA, Tulare Regional and Southern Inyo

Readers can compare the HCCA-TLHCD and HCCA-SIHD contracts by clicking here.

Healthcare Conglomerate Associates’ contract to operate the Tulare Regional Medical Center (TRMC) has been under increasing scrutiny as the Measure I campaign rolls towards its end.

HCCA came into life as the hand-picked partner for Tulare Local Healthcare District (TLHCD) the legal entity that owns TRMC. It was picked by the TLHCD board in early December 2013, though the company was legally formed two days after it was chosen.

HCCA’s later deal with another healthcare district, the Lone Pine, California-based Southern Inyo Healthcare District (SIHD) and its Southern Inyo Hospital, provides a unique opportunity to see how the company — whose first deal was with the Tulare board — negotiates its hospital partnerships, and how Southern Inyo’s deal compares to Tulare’s.

Tulare and Southern Inyo are currently the only hospitals that HCCA operates. The company’s website leaves spots open for “HCCA Future Site 3” and “HCCA Future Site 4,” but it is unknown whether the company is in active negotiation with any other hospitals, or if these are simply placeholders for future possibilities.

The contracts basically use the same language. But, where Tulare’s agreement with HCCA spans across four major contracts, Southern Inyo’s agreement with HCCA only contains one. There many other differences.

The Criticism

Critics of the Tulare Local Healthcare District Board of Directors – the legal entity that owns TRMC – and Measure I say the contract is too restrictive. They’re working to elect new board members who, they say, will work to either re-negotiate the current contract with HCCA, or find a new hospital partner.

“We need a new board that represents the interests of Tulare District, not their own, and new management that provides us a fair deal,” Citizens for Hospital Accountability, the main anti-Measure I group, said in a recent Facebook post. “The first step is defeating Measure I, but we know our work does not stop there. We must continue fighting to get the hospital we deserve.”

The group’s position on HCCA is echoed by its supporters.

“There is so much wrong with this contract that it would take at least a 5-page newspaper exposé to thoroughly cover every facet,” Dr. Patricia Drilling wrote in a letter to the editor published in the July 21 edition of the Valley Voice.

However, HCCA’s leadership group states that the proof is in the pudding, so to speak – Tulare’s hospital still exists, and it is now profitable.

“When HCCA stepped up and presented a plan that allowed the hospital and its assets to remain publicly owned yet have its operations run like a private business, the Board said it had finally found the right partner,” Kathleen Johnson, VP of Marketing for HCCA, wrote in a May 5 Voice opinion piece. “This unique public-private partnership has infused Tulare Regional Medical Center with fiscal responsibility and strong leadership, while leaving full ownership of its assets in public hands.”

The current TLHCD board agrees.

“Some people are just not going to accept the facts: that there is a change, which is a positive change, saving 550 jobs, and having that profitability with raises and full benefits restored. That’s the story that only God can write, and the good work of you, sir,” TLHCD Board Member Dr. Parmod Kumar told Dr. Benny Benzeevi at a board meeting in June.

Tulare’s Arrangement

HCCA’s current contract with Tulare Regional Medical Center is called the Management Services Agreement (MSA). The contract, signed May 29, 2014, is in effect for 15 years, and automatically renewing every 10 years thereafter. The next renewal is scheduled for May 29, 2029.

According to the contract, the base monthly compensation Tulare Local Healthcare District pays HCCA for its services is $225,000 per month. That raises yearly in a complicated formula:

  • The existing management fee is multiplied by the greater of the per-year CPI [consumer price index] percentage increase or five percent,
  • The existing management fee is added to that amount,
  • Then the adjusted management fee is multiplied by 1.01 to determine the new management fee.

By these calculations, the Tulare Local Healthcare District currently pays $253,048 per month for HCCA’s services – or $3,036,576 for the calendar year of 2016.

Once its bonds are paid, the District can step into a more advanced form of partnership contract (the “Joint Operating Agreement”) with HCCA, one that would give HCCA 95% of profits and leave 5% for the District.

TLHCD has two options for exiting the agreement: they can choose not to renew the contract a year before the next renewal, or they can unilaterally choose to terminate the contract.

There is no penalty for non-renewal, but exiting the contract would cost upwards of $70,000 per month left in the contract term, limited to a total of 120 months, multiplied by the CPI percentage increase between January 1, 2015 and the date the fee is made payable, plus one percent.

The cost before all of those calculations is still staggering: it would cost the district $8.4 million to exit the contract today.

Exiting the contract wouldn’t only be expensive; it could be messy, too.

Tulare’s Independence?

A puzzling section of the contract between Tulare and HCCA disallows any representative of the Tulare Local Healthcare District to enter TRMC, its clinics, or other sites without prior approval from HCCA.

It also prevents them from accessing data systems used for the operation, presumably including computer networks, though the District is forced to pay for IT upkeep and management as part of the contract. Tulare Regional’s web presence has also been subsumed into HCCA’s website, appearing alongside resources for Southern Inyo instead of having its own dedicated website and domain; though that was not contractually obligated.

No representative of the District may speak in any negative form against HCCA as well, according to the contract, though the section is not bilateral: it does not prevent HCCA from speaking negatively against the district.

The contract also required the transfer of all Tulare Local Healthcare District employees – except those required by law for continued operations – to HCCA, which now leases back each employee for use at TRMC.

Should either party walk away from the agreement, TLHCD is prohibited from attempting to re-hire those employees for a period of two years, leaving them without employees to run the hospital, and leaving the hospital’s employees without jobs – even if the hospital is otherwise open and functioning.

Tulare’s Option Agreement

Tulare Local Healthcare District is paying HCCA 130% of each employee’s base salary or wages. The additional 30%, HCCA says, is simply to cover employee benefits, such as health insurance.

The initial agreement, however, required the district to pay HCCA 130% of each employee’s overall compensation, inclusive of benefits, taxes, and reimbursements -- the change came about in an amendment to the Management Services Agreement.

Alongside that amendment, an “Option Agreement” signed between HCCA and TLHCD affords HCCA the option to buy the hospital or execute a 30-year long-term lease. The amended Management Services Agreement allows HCCA to defer any of the employee lease payments towards a possible purchase.

The Option Agreement, and the amendment to the Management Services Agreement that allowed the deferment of those funds, caused controversy when they were revealed to the wider public.

HCCA says that controversy is unfounded – while it may have negotiated an agreement that would give it the right to purchase the hospital, that doesn’t mean it plans to.

“To be clear, HCCA has zero intention to buy the hospital,” Johnson wrote in the previously mentioned May 5 piece. “And if it ever did, the deal would have to be approved by the registered voters in the district and sold at its full market value at that time.”

Tulare’s Facts on the Ground

There is no doubting that under HCCA’s leadership, Tulare’s hospital has returned to profitability. The financial numbers and audits are the proof, HCCA officials say.

For those opposed to Measure I and the board’s contract with HCCA, though, that does not mean that there still are not improvements to be made.

Citizens for Hospital Accountability recently pointed to a 2014 study in Becker’s Hospital Review which they cite as evidence that HCCA’s fees are far too high for a hospital of Tulare’s size.

“HCCA collects over 50% of TRMC's net income!! How is this level of compensation justified; especially when the level of care continues to decline under HCCA's watch?,” their Facebook post states. “According to the financial data provided by Kaweah Delta and Sierra View, TRMC still wouldn't be earning the $50 million in revenue that warrants a $3 million per year contract if we put them both out of business and got all their patients!”

HCCA contends their arrangement was better than the alternatives.

“Rather than the District filing bankruptcy and laying off hundreds of people, HCCA re-hired the entire staff and gave them pay raises,” Johnson, wrote in her May 5 letter. “Management empowered the staff to make key decisions and these improved patient care, and the hospital’s overall performance.”

The Agreement in Lone Pine

At Southern Inyo Hospital, however, HCCA is helping the Southern Inyo Healthcare District do just that - file bankruptcy.

HCCA’s contract with the Southern Inyo Healthcare District specifically provides for a “Chief Restructuring Officer” – currently Alan Germany, HCCA’s CFO – to assist them through their Chapter 9 bankruptcy proceedings, and also arranged for Baker Hostetler, a Los Angeles-based law firm HCCA and TRMC contract out to, to handle the SIHD bankruptcy proceedings.

By SIHD’s own admission, the operation was in a shambles when HCCA came around: the old CEO and board effectively threw their hands in the air and left, leaving the hospital in a management vacuum. The Inyo County Board of Supervisors was forced to appoint three members to the board to create a quorum.

Even in those dire conditions, however, the SIHD board was able to negotiate a different contract than the one TLHCD has with HCCA.

Lone Pine: Less Money, Less Problems

The only contract between HCCA and SIHD is the Management Services Agreement. It is broadly structured in the same way as Tulare’s MSA, but there are key differences: mainly in cost, longevity and independence.

SIHD also signed a five-year contract, with five-year renewals. Officials from SIHD are not placed under any restrictions from visiting their hospital, nor are they restricted from accessing any data systems used in connection with the hospital.

HCCA also did not take on any of Southern Inyo’s employees - they remain SIH employees – if HCCA and SIHD split up, SIH would not be left in the lurch without any staff.

SIHD Board President Richard Fedchenko stated he had no comment for for this article, but told Sierra Wave Media, an outlet local to that area, that the contract afforded SIHD was significantly different than the one HCCA officials first presented.

“Our contract (with HCCA) is different that the Tulare contract. As a matter of fact, it’s very different than the original contract (HCCA first presented). At the end of the day, it’s pretty simple. A monthly fee covers HCCA and there are no options to buy,” Fedchenko said in April.

The SIHD contract offers Southern Inyo Hospital a higher degree of independence at a lower price. Part of that difference is likely due to HCCA’s reduced responsibilities and the size of the hospital. SIH has four acute-care beds and 33 skilled-nursing beds to TRMC’s 112 acute-care beds.

The non-disparagement clause still exists, but it goes both ways: HCCA can’t disparage SIHD, and SIHD can’t disparage HCCA.

SIHD’s management fee is $65,000 per month, with the same CPI calculations as used in Tulare’s contract. Since this is the first year of SIHD’s contract, they will be paying the flat $65,000 per month, for a total of $780,000 in its first year.

Crucially, as Fedchenko stated, HCCA has no option to purchase the hospital.

In a statement on Facebook after the Voice published each contract for comparison, the Citizens for Hospital Accountability group raised questions as to how Southern Inyo’s deal worked out.

“Though SIH's contract is obviously not ideal either, our question is: why would SIH receive a better contract than TRMC and actually have negotiated terms if they were in a far worse position as a smaller hospital which even reached bankruptcy,” the post read. “The only answer we can provide is that our board has been, at best, negligent, and, at worst, self-serving, in the negotiations for our contract. They have abandoned the public they were elected to represent and must be held accountable.”

The Medical Staff Clause

Southern Inyo’s contract also does not include any clause relating to a medical staff, as TLHCD’s did.

HCCA’s contract with the Tulare Local Healthcare District states HCCA is obliged to “recommend written bylaws for adoption by the District” and “provide recommendations to the District regarding Governing Body [board] approval of Medical Staff by-laws.”

The contract states that it is the goal of both HCCA and the TLHCD to create a “Medical Staff Development Plan” and that “[t]he parties recognize that changes established pursuant to the Medical Staff Development Plan implementation may result in a smaller, more accountable Medical Staff being appointed.”

In February, the Tulare Local Healthcare District Board of Directors ended its contract with the Tulare Regional Medical Staff and moved those members to a replacement body, the Tulare Regional Medical Center Professional Staff.

Officials for the Tulare Local Healthcare District and Healthcare Conglomerate Associates claim that the switch was necessitated due to a negative report from the Center for Medicare and Medicaid Services (CMS).

But the contract provision has become a key point of concern for those who claim the switch was motivated by other purposes.

“You saw in the contract – that had been planned for years,” Dr. Lonnie Smith, a former TLHCD board member, stated during a presentation at the recent No on Measure I forum. “They used the survey that the state did, that said that the board – the governing body – was the problem. They used that survey to say that, OK, we need to fire the medical staff and start over again.”

Smith also stated that a new organization coming to life with a full set of bylaws and regulations was unheard of – he made the comparison that a medical staff’s bylaws are like its “constitution,” and drew references to the Founding Fathers’ creation of the United States Constitution.

In a March article for the Voice, John D. Harwell, the lawyer representing the ousted Tulare Regional Medical Staff, stated he was just as surprised.

“[The replacement staff] just sprung out of nowhere and announced they were a new medical staff, that they had bylaws and regulations, which is just astonishing, because bylaws and regulations take months to put together, not hours,” Harwell said.

The ouster should draw serious concerns, Smith said.

“If there is not an independent medical staff in charge of patient care and quality, then if they tell me that no, we can’t spend that extra $100 for the right medicine for you, then I can’t spend it, and you may be at risk,” Smith said at the forum.

In the state of California, a hospital’s medical staff is required to be independent from the hospital to prevent any conflicts of interest. Smith and others charge that the new group’s independence is tenuous, at best.

“You go behind closed doors with the vice-chair of the board, his wife, and four contracted physicians, and put them in charge, and say that’s the new MEC,” Smith said at the forum. “And guess what, people? Doctors like me who have been on the staff for 20 years – we no longer can vote [on medical staff decisions].”

“It may cost your life, your loved one’s life, your children’s life, if I am not independent and I cannot say what is wrong with the way any treatment is going,” Smith said. “That’s why it’s important, that’s why you should care that the medical staff has been kicked out, and a new medical staff […] are in charge of everything. That’s a problem.”

Don’t Mess With What Works?

Both of HCCA’s hospitals have been successful. For Tulare, it is hard to argue with cold, hard financials. While there may be debate as to how they came back to life – the Affordable Care Act, Medi-Cal reimbursements, and other discussion centering around insurance and reimbursements – there’s no debating cold hard cash, hospital proponents say.

“Is their contract favorable to them? Sure it is and they have been worth every penny, saving our community millions of dollars in a very professional manner,” Robert Bell, DDS, wrote in a Visalia Times-Delta commentary. Bell is the husband of Sherrie Bell, TLHCD board president.

In Depth: Tulare Regional Medical Center

17 thoughts on “What’s In A Contract: HCCA, Tulare Regional and Southern Inyo

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  1. The reason that the contract with
    SIH is so different than the one HCCA originally presented was because the contract had to be approved by the Bankruptcy Court and TLDC’s did not. Had TLDC filed to operate under the protection of bankruptcy the court would have had to approve the contract with HCCA. They would have looked out for the best interest of the District’s voters and we would have a substantially different contract.Is it any wonder that HCCA and the current Board was in such a hurry to get the contract in place.

    • Bob, my understanding is that this contract was approved before SIHD filed Chapter 9.. if only by minutes.

      From Sierra Wave Media: http://www.sierrawave.net/sih-5/

      “In essence, the Chapter 9 filing “is a bonus” of the management agreement, paid for by HCCA funds as part of the initial loan of operating capital for the hospital.”

      The initial Chapter 9 filing was done by Ashley M. McDow of BakerHostetler, HCCA’s preferred legal group.

  2. The Benzeevi Bros/HCCA contract makes me think of that line in the movie The God Father ….”I’m gonna make an offer that you can’t refuse” and one might say that the TRMC Board of Directors foolishly took the offer (hook, line, and sinker).

  3. THE FOUR HORSEMEN
    I am just amazed at amount of misinformation that Tulare is getting from the “Yes on Measure I” campaign. The biased opinions noted are coming from the group I have come to regard as: “The Four Horsemen”: Benzeevi, the CEO and board members Kumar, Bell and Wilborn. They are all just a smoke and mirrors tactic they’ve used all along. The resulting confusion about the measure has caused a disheartened electorate, which can of course suppress the vote when people just get disgusted and don’t vote at all. A pretty low-life move from a group who can only see dollar signs in their future if this measure passes. ..But I think the voters in Tulare are smarter than that!
    When you combine those erroneous comments with the huge volume of Yes on I propaganda we’ve received in the mail, you begin to wonder “why are they pouring it on so hard? What are they trying to hide? And why do I need to mail the ballot in right now?”
    It’s because they don’t want you to get all the facts so you can make an informed decision! How can the “yes on I” people afford these mailings? Is it because a large number of citizens support the measure? No, it has come from a $250,000 donation from one person. That money was then used to hire a PR firm to “work” the public to be in favor of Measure I.
    Again…what are they trying to hide? And why all the scare tactics like saying the hospital will close otherwise? It won’t. It’s a cash cow for them right now. (If they did they’d be shooting themselves in the foot.) Or the absurd comment Benzeevi made a few weeks ago during our discussion in front of Starbucks on a Saturday in early August (documented on Facebook). At that time, while walking by Benzeevi I asked him how he was going to live with himself afterwards. He replied “how are you going to live with yourself when people die! (It seemed as an odd comment coming from a doctor making more than $3 million a year.) The behavior by Benzeevi should be very troubling for Tulare. He acts like Chicken Little, saying the sky is falling and people are going to die if the hospital closes then he turns and acts like Jim Jones, saying “I have the solution, just drink this Cool-Aid and give me your ballot; I’ll take care of it!”
    Seriously, people are not going to die and TRMC is not going to close. They won’t let the hospital close, HCCA has millions in reserve and they are making money every day.
    Please get the facts before you vote. And please do vote (if you haven’t already) and mail in your ballot. It’s a very important issue! With a low turnout they are seeing, every vote really does matter! It’s important that you get your ballot mailed before the deadline, August 30th. If you need some help with voting or have lost your ballot, you can call the Registrar of Voters for help at: (559) 624-7300
    Along with the fact that if Measure I passes it will mean increased taxes for homeowners and increases in rent, it means Benzeevi (a Southern California physician who doesn’t even live in Tulare) will be able to continue to “Stick It” to Tulare. He now gets a $3 million salary with automatic raises for the 10 year contract that our hospital board signed years ago. An amount that is more than 3 times the salary of the CEO at Kaweah Delta! I think the real question that needs to be asked is: “Has there been collusion between the hospital board members and HCCA in the past? And if so, does the California Attorney General’s office need to investigate? I think a decision to give the hospital a $55 million dollar blank check right now with Measure I is just a bad idea.
    I urge my fellow Tulare citizens to vote NO on Measure I. For the facts, please go to: hospitalaccountability.com
    John C. Williams III
    Citizen of Tulare

  4. Mr Williams is very insightful contributions to the Yes campaign come fro two elderly individuals $250K & $50K with financial ties to Kumar. Money then goes to LA consultants to fleece citizens of Tulare. They fleeced Moreno Valley now they try Tulare.

  5. This board has given away our public property to a for-profit private corporation.

    Shame on them.

    HCCA is showing profit only because
    1) they took away employee retirement benefits
    2) they are not paying vendors on time
    3) government grants

  6. The people ” The Voters” have to vote their hospital away HCCA can not just take your hospital this again is another lie. Another scare tactic so people will vote no.

    I spoke with a couple the other day who said they didn’t no which way the were going to vote so they called someone they new from the NO site and asked them WHAT IS YOUR PLAN TO FINISH THE TOWER AND WHERE WILL YOU GET THE MONEY TO FINISH THE TOWER? Her NO on I friend had no answer for them so the Voted YES on Friday.

    THE NO on I campaign has NO PLAN AT ALL TO SAVE THIS HOSPITAL. The only way to keep your hospital is to pass Measure I
    I urge you to Vote YES!!

    Don’t allow people who don’t work her anymore to destroy the future of your hospital.

    • well the whole thing is, $55 million is not needed. Why take out more money then what’s needed? If they do this and have the $20 million left over, Jack Stone said to complete the tower would be $35 million to which $15.7 would go to the contractor and $19.3 to finish the tower, they could pay off the 2005A bonds and begin the profit sharing as noted in the article. The hospital has over $12 million worth of stuff in storage. Things like flooring, wall paper, gerneys that they pulled out and are using now it that storage. None of that type of stuff was supposed to have been bought yet. $85 was for the building not furnishing it. If you took the time and read any of the minutes from oversight meetings you’d see that the CEO at the time was trying to keep costs in check up to a point. They started giving him busy work and he got distracted.
      The ‘Audit Report’ is not an audit. It was a 3 page document. Come on now William…..don’t drink the Kool-aid.

      • “William” is “Nicole,” and she implies—see the last sentence—that she works at the hospital. I’ll leave the rest of the detective work to you.

  7. Nicole is my wife thank you for asking I’ll add both names of that makes it easier for you not to get confused lol

    Again targeting people.
    Do you know who

    Concerned is or Jack. Why would you continue to target me is it because I’m for the YES on Measure I

    • You and your wife have alarmingly similar writing styles. And if I was targeting you, Kim, you’d know it. I do know who Concerned is. I also know that person tells the truth. What I can’t abide are the falsehoods you peddle. Do I want the hospital to succeed? Emphatically! But I don’t have a dog in that hunt, and those who do deserve the truth. It would make sense for you to argue that completing the tower at a later date is likely to be more expensive than doing so now. But it is not reasonable to insist that the hospital will close if the bond does not pass. To begin with, Kaweah Delta did not close—and its bond failed big time. You’re right about the seismic regulations, but the cut-off date for those to be completed is 2030. Do you really think the hospital will sit on its hands for 14 years? The Yes On I camp has a reasonable perspective, and many fine arguments. Why, then, rest on scare tactics and obfuscation? The voters need your side to step up and tell them the truth. Everyone I’ve talked to regarding this—and I mean that literally—wants the hospital to thrive. There remain legitimate questions on how to achieve the excellence everyone strives for. And your side is not helping.

  8. The reality of this story is YES this hospital will definitely close if in 13 years ( 2030) the Tower is not completed. That my friend is a true statement.

    If the Fund are not available this hospital will again close.

    We have yet to see any plan from the opposition to where the may come up with the funds to complete the Tower.

    And like I said befor when asking the No on I group where they will get the funds to finish the towe all they say is ” We need to get rid of the board ” & ” We need to replace HCCA”. That alone could take 13 years and that tells myself and others that they have NO plan.

  9. Also when you say ” Kaweah Delta did not close”. Any educated person again knows that the hospitals will not close overnight so how that could even be a comparison makes no sense at all.. l what we know for a 100% accuracy is it in 13 years if KDDH and TRMC do not have earthquake safe facilities THEY WILL SHUT DOWN and that’s a fact.

    • William/Nicole…..If TRMC closes it will be the best ocean front property in all of Tulare County! You know, not everyone buys into “the sky is falling” argument. You apparently have no faith in your fellow Tulareans….or perhaps you are new to the area. Either way you are still completely wrong. TRMC WILL NOT SHUT DOWN AND WE WILL SAVE OUR HOSPITAL!

  10. If William/Nicole is really a Kim then it must be Kimberly Hughes that is a nurse at the hospital. Her writing style is very similar to how she was writing on our Citizens page. She lives in Visalia, so tax burden doesn’t impact her.

    She was a huge advocate for bringing back Bolouki and she spews falsehoods that are definitely not formed from truth. Now it explains the attack she did on myself and Bill Postelwaite, under a false name.

  11. looks like William and Nicole have drank the tea HCCA put out for them. William please read the contract between TRMC and HCCA and then tell me if you still feel the same way. Read it carefully because it’s not a contract that benefits TRMC and it’s community.

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