Board narrows field for potential hospital affiliates

By Jim Johnson, Monterey County Herald

April 5, 2012 — Two potential affiliation partners remain for Salinas Valley Memorial Hospital — county-owned Natividad Medical Center and for-profit hospital management company HCA Healthcare.

By a 4-1 vote Wednesday, the Salinas Valley Memorial board of trustees chose both organizations to proceed to the second phase of the hospital’s affiliation review. Board member Nathan Olivas cast the dissenting vote after arguing the process was moving too quickly.

Natividad and Nashville-based HCA emerged from what turned out to be a group of seven organizations that expressed interest in merging with or acquiring the Salinas-area hospital, which is seeking a partnership that could offer a financial boost.

Before the board’s vote, Jim Moloney of affiliation consultant Cain Brothers announced that Vanguard Health Systems had indicated it was no longer interested in a partnership, but that a new proposal had been received by a firm called Pinnacle Healthcare Development.

In response, the board adjourned to an unscheduled closed session to discuss the new proposal, possibly violating the state’s open meeting laws. Board president Jim Gattis said there was no discussion about the possibility of a Brown Act violation, and legal counsel Gary Ray did not raise an objection. Gattis said it simply made sense to discuss the new proposal in private before considering whether to proceed with the affiliation process and with whom.

Following the brief closed session, Gattis indicated the new proposal did not meet the hospital’s affiliation criteria and Pinnacle would not be considered.

Now, Natividad and HCA will enter a "due diligence" phase where they and the hospital will be required to submit more detailed information about their operations. The two organizations will also be subject to a public vetting process that’s expected to involve hospital employees and the community, and include two town hall meetings to discuss progress.

At the end of the second phase, the organizations are expected to produce a more detailed affiliation proposal, or perhaps a letter of intent or a more definitive agreement. Natividad may be asked to submit a proposed memorandum of understanding.

Moloney said the second phase is likely to take about two months and stretch into June, about a month longer than originally expected.

If the board chooses to proceed and selects one of the proposals, it would seek a final agreement with the candidate. A public vote required for final approval would be held in the fall.

Natividad, HCA and Vanguard each made presentations to the board last week.

The organizations were chosen from a list of six that initially responded to Salinas Valley Memorial’s request for affiliation proposals.

Cain Brothers recommended the board choose the three organizations, and the board left open the possibility that LHP Hospital Group could be invited to participate under certain conditions.

However, LHP also indicated recently that it was not prepared to proceed, Moloney said.

Natividad’s bid has earned broad support from community groups because of the potential for retaining local control of the hospital and the opportunity to build an expanded local public health care system.

HCA’s proposal drew praise from Moloney as the most clearly aligned with the hospital’s affiliation criteria.

In closed session, the board also considered sending its legal services contract out to bid, but took no formal action. Instead, it indicated it would review all professional services, including legal, during its budget review.

Gattis recused himself from that discussion because of what he called a "remote interest" in the board’s current law firm, Ottone, Leach, Olsen and Ray.

Jim Johnson can be reached at jjohnson@montereyherald.com or 753-6753.

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