When voters in the Kingsburg area go to the polls next week, the fate of the city’s former hospital will be in their hands.
More than a decade ago, the Kingsburg Tri-County Health Care District went broke and eventually closed the city’s only hospital. Now, the new tenants want to buy the building they’ve already spent more than $2 million renovating. At least one resident, however, says selling it off would be a bad deal for citizens of Tulare, Kings and Fresno counties who still pay to keep the District running. District voters will make the final decision when they consider Measure K on November 8.
Operating In the Red
After a change in payouts from Medicare and MediCal in the 1990s, the District found revenues at the hospital, Kingsburg Medical Center, were no longer sufficient to keep the doors open. With the help of Adventist Health—which the District still owed nearly $500,000 as late as 2013—and the Tulare Local Health Care District, the Center stayed open until 2010, when it was losing nearly $55,000 a month.
For five years, the hospital stood empty. Then in 2015, Crestwood Behavioral Health leased the facility to open a 44-bed in-patient mental health hospital, making more than $2 million in renovations before opening their doors. The move, which came despite objections that another provider might be interested in reopening an acute care facility at the site, included a lease-option contract.
Allowing that sale, says Kingsburg resident Betsy Tunnel, will cost taxpayers money and ensure the people of Kingsburg will continue to seek medical care outside the city limits.
“What happens on this vote, the public is saying, ‘Yes, (Crestwood) can buy (the hospital) per the lease-option terms,’ and those terms state that tenant can buy at the pre-renovation value, basically the land value,” said Tunnel. “They put in $2 million in improvements. It would probably appraise for $2.5 million. That’s where the rip-off comes.”
District officials say their hands are tied. When Crestwood agreed to move in, it would only do so if it was given the option to purchase the property at some future date. The agreement also stipulates that Crestwood may buy the property at its assessed value before upgrades were made. That figure, which the District says is fair market value, is $800,000.
Currently, the District receives $108,000 a year in rent from its tenants. Should the hospital be sold, its income from the property tax Crestwood would pay would be just $8,000 a year.
“I understand where she’s coming from,” said Arlie Rogers Jr., who chairs the District’s board of directors. “We’d be giving up future rent.”
But that isn’t the entire picture, he says.
Other Costs, Concerns
“I own two rental properties. I think they’re great because you get rent income, but it’s not free,” said Rogers. “There’s a lot of maintenance. When you’ve got a 44-bed facility with lots of people going in and out, there’s a lot of wear and tear. There’s no guarantee that that rent revenue will cover that.”
While the hospital sat idle, the District paid to maintain the empty building. If it retains ownership, it will have to continue pouring money into the property that could be paying off the District’s debt. At the time Crestwood’s offer came along, Rogers says, no one else was interested in the empty hospital. Those in charge felt it wasn’t in the District’s best interest to throw good money after bad in the hope of finding someone to reopen Kingsburg Medical.
“Given our financial position at the time, it made sense,” Rogers said. “We didn’t want to make $2 million of improvements and hope we got someone in there.”
Tunnel isn’t buying this explanation.
“It’s all bull,” she said. “It’s about a real-estate deal. Citizens went to the Board and said let us sell it now before they renovate it. Now, we’re supposed to give it up. Crestwood wants to capture this property, and we don’t have to sell it. They’re not providing service to us, and in the future they won’t. They can sell this property, do anything they want with it.”
Tunnel described going to the District before Crestwood took over in February of 2015 with a plan to find someone else to reopen Kingsburg Medical. She says she and others found potential operators, but the District inked the Crestwood deal anyway.
“Two weeks later when we had the UC system interested, some skilled nursing facilities, (the District) rushed to get the lease done that day,” she said. “It was disgusting.”
Too Little, Too Late
By the time the Crestwood deal was underway, it was too late for anyone to reopen Kingsburg Medical no matter how sweet a deal they could offer.
“At some point, we actually lost our license to even have a hospital on that property,” Rogers said. “Even if a billionaire wanted to come along and open a hospital, we couldn’t do that.”
The District had other offers on the property before the license was lost. A group of Southern California physicians were willing to spend several million dollars upgrading and reopening the hospital. Then, the lead investor died.
“That kind of torpedoed that whole deal,” said Rogers.
Back in the Black
To Rogers, selling the hospital seems like the right thing to do, given the District’s financial position. The income from the sale will be used to pay off the District’s debts dating from before its bankruptcy in 1997.
“I think it is a good thing,” he said. “The other side of the coin here is the district has $2.25 million of debt. Roughly $1.4 million is state debt, and that debt is accruing interest at 7%. $800,000 will go a long way to knocking that off.”
Tunnel doesn’t believe that either.
“Board members indicated at the meetings they’ve been in negotiations to get (the District’s debts) settled,” she said. “It may not have to be all that money. Again, we can’t get that information. They throw numbers out, but it’s not verified.”
Moses Diaz, the District’s attorney, agrees no one is exactly sure how much the District owes. In fact, some of the claims against the District may no longer be due because they’ve gone uncollected for so long, he said.
“I haven’t looked into the debt to see if it’s collectible,” Diaz said. “In my opinion, those other (non-state) debts would be beyond any kind of limitations period. I wouldn’t even refer to them as ‘debts.’ The District is going to address them soon.”
And, the District isn’t sure how much it owes the state, if anything.
“The state of California has affirmed a debt that is associated with MediCal. In terms of the renegotiation, my understanding is the District’s financial consultant has been looking into it,” Diaz said. “There’s a couple issues on that. We don’t want to reacknowledge a debt that might be uncollectable.”
Improving Health Care
Tunnel’s final objection to selling the hospital is a belief property owners don’t realize they will still have to pay a 1% tax to support the District even if the building is sold. The District currently has some $1.7 million in trust and it continues to collect about $700,000 a year in revenue.
That income, says Rogers, will bring improvements in health care to Kingsburg and the surrounding area, and it will continue to do so whether the property is sold or not. If it is sold, the amount the District has to spend on other projects would actually increase.
“An ambulance has been something the city has approached us about,” Rogers said. “We’ve been approached about putting in more parks for kids to help fight childhood diabetes. We’d like to poll the citizens to see what they want.”
Moving Crestwood into the empty hospital has already had unexpected benefits for the area. Because the company renovated the building, the District was able to lease part of the property to Valley Health Team to house its Federally Qualified Health Center.
Rogers says Valley Health Team plans to build its “flagship facility” in Kingsburg, creating a clinic that will provide medical services that include vision and dental care. The development would not have been possible if the former Kingsburg Medical had not been an option.
“They had to have a place-holder so they could open up and receive their grant,” Rogers said. “I think that story has kind of gotten lost in this whole thing.”