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.
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.
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.
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.