In the midst of medical group contracting changes underway at Palomar Health, some doctors and other medical staff are questioning links to Prime Healthcare, the private operator known for scooping up financially-distressed hospitals and making major staffing, billing and operational changes.
Dr. Marcelo Rivera, an internal medicine specialist, former Palomar board member and member of physician leadership at Palomar Medical Center Poway, said there has definitely been speculation about Prime’s possible role, one that has been explicitly denied by administration.
“I have heard people say, ‘this is the initial step of privatizing the health system and of having Prime come in,” Rivera said last week. “It is fair to say that people within the health system are fearful that it’s privatization of the health system and that Prime might be a major player.”
Dr. Michelle Faierman, who declared that she will leave Palomar over the current contracting situation, said by email Monday that she has heard the same speculation, indicating “it has been brought up by physicians as a concern.”
Diane Hansen, Palomar’s chief executive officer, emphatically denied the Prime speculation in her own statement late last week.
“There is absolutely zero truth to the unsubstantiated rumor about Palomar Health being acquired by Prime Healthcare, or any other organization for that matter,” Hansen said.
Why, then, does there seem to be so much chatter spreading in the hallways of Palomar’s two main hospitals in Escondido and Poway?
There are two main facts driving the behind-the-scenes discussion:
First, Palomar recently hired Michael Bogert, Prime’s former hospital system chief financial officer and executive vice president, to serve as its new chief financial officer.
Bogert’s profile on the jobs site LinkedIn indicates that his previous position was cabinet level, overseeing 34 Prime CFOs responsible for the finances at “45 hospitals and 118 total entities currently in 14 states” and that he was “very involved in identifying, due diligence and integrating new hospitals in the Prime family of hospitals that has added 23 hospitals since January, 2014.”
Second, a significant percentage of the hospitals represented by Emergent Medical Associates, the medical group that Palomar signed with last week, are Prime properties. A comparison of the lists of represented facilities listed on the two organizations websites show that 10 of the 22 total hospitals listed on EMA’s website are owned by Prime. The medical group represents doctors at 10 of Prime’s 17 California hospitals.
These facts have become something to discuss in recent weeks as more than 100 Palomar doctors have considered signing on with EMA and its subsidiary, Benchmark Hospitalists & Intensivists.
Disagreements over potential workload changes drove some Palomar doctors, nurses and others to protest in front of Palomar Medical Center Escondido in recent weeks. The medical executive committees at both hospitals followed up with votes on no confidence in administrative leadership last week.
Asked whether it is interested in Palomar, Prime issued a single-paragraph statement that made it clear it does not discuss its future acquisition plans, regardless of the specific facility or facilities in question.
“To further our mission of saving and transforming hospitals, Prime Healthcare is always evaluating potential acquisition opportunities in new and existing markets; however, it is the company’s policy not to comment on the specifics of acquisition development strategies,” the company statement said.
In an email, Dr. Irv Edwards, EMA’s founder and president, noted that while his company does staff multiple Prime hospitals, that does not mean there is a strong link between the two.
“There is no relationship between EMA and Prime Healthcare other than contractual services similar to what we are providing at Palomar Health,” Edwards said.
The doctor does have close experience with Prime. Edwards confirmed in an email that he previously served as chief of staff at Chino Valley Medical Center, leaving that role two years ago. Prime purchased the facility in 2004.
He noted that Vituity, one of the largest physician medical groups in the nation and the company that EMA is replacing at Palomar, also staffs Prime hospitals in Southern California.
Hansen, Palomar’s chief executive officer, made the same point, indicating that any links to previous Prime personnel or affiliates are simply strategic.
“It is true that our CFO worked for Prime in the past, but is now an integral member of our executive team and is using his industry knowledge to help us grow our own services for the benefit of the entire community,” Hansen’s statement said. “I can say with absolute fact that I, nor anyone else from the Palomar health executive team, is having conversations with anyone from Prime Healthcare nor does anyone have any financial stake in Prime.
“Furthermore, while EMA does have service contracts with multiple Prime hospitals, Vituity also has service contracts with multiple Prime hospitals.”
Prime, which says on its website that it pays taxes, suggesting that it is a for-profit entity, also operates 14 non-profit facilities through its healthcare foundation.
The Ontario-based company made headlines in 2018 when it paid a $65 million settlement in a whistleblower claim that alleged Medicare billing fraud at 14 of its California hospitals. The case started with a sealed complaint from a nursing director at Alvarado Hospital in La Mesa who received more than $17 million in the settlement which admitted no culpability on Prime’s part. A smaller $1.25 million settlement for filing false Medicare claims on behalf of two Prime hospitals in Pennsylvania followed in 2019.
The company signed a “corporate integrity agreement” that requires it to hire “an independent review organization to review the accuracy of the company’s claims for services furnished to Medicare beneficiaries,” according to a statement made by the U.S. Department of Justice in 2019.
But the health system is not shy about pointing out that it has recently been winning numerous quality awards, including 22 “A” hospital safety grades in the latest spring 2021 report from the Leapfrog Group, a nonprofit health care quality assessment company.
Prime, said Christopher Whaley, a health care economist with RAND Corporation, an international policy research firm, is known for its rapid growth, starting with a single facility in Southern California’s high desert and rapidly gaining a nationwide footprint.
“It started with buying up hospitals in their own market but has really shifted toward acquisitions in new markets and trying to expand,” Whaley said.
Prime’s growth, he noted, came during a nationwide surge in hospital acquisitions as health care systems sought to grow large enough to capitalize on economics of scale, especially in terms of negotiating contracts with health insurance companies.
Lately, though, acquisition activity has dwindled, Whaley said. Much of the focus has shifted to physician medical groups, which are key to realizing operational efficiencies and excelling on the kinds of quality measures, such as patient readmissions after discharge home, that many insurance companies use to decide which facilities to contract with.
Palomar, on its face, does not look like a typical Prime acquisition target, at least going by the company’s previous patterns anyway.
Few have watched the Ontario-based company more closely in recent years than Erik Dimitruk, lead research analyst for the Service Employees International Union, an organization that represents thousands of health care workers across the state and has clashed with Prime in staffing disagreements.
Dimitruk said the pattern that emerges looking at Prime’s acquisition activity in recent years is a focus on small community hospitals that are in very serious financial distress, buying their assets outright.
“Generally, they come in and they are the only ones willing to take over a hospital,” he said.
Once they do, he added, staffing cuts often occur shortly thereafter.
“The company has demonstrated a general pattern of reducing and eliminating certain services, imposing cuts on workers, including layoffs,” Dimitruk said.
A look at Palomar’s most recent balance sheet, posted publicly on its website, shows that this is not a health care system actively circling the drain.
Through Mar. 31, the health care district indicates that hospital operations made $23 million more than they spent while doctor groups lost $17 million. All told, when a large amount of interest debt payments were balanced against the $37.5 million in property tax revenue that the district received, the organization’s overall financial position appeared to be at or just slightly below break even in fiscal 2021, though results for April, May and June are not yet listed.
It is perhaps better than might be expected following a global pandemic that put unprecedented financial strain on the entire health care industry with hospitals large and small across the nation indicating severe losses due to canceled surgeries and procedures and reduced operating capacities.
But the future is less certain, given that Kaiser Permanente is currently building its first hospital in North San Diego County — due to open in late 2023 — right next door in San Marcos.
Palomar must build lean muscle now for the reality that it will not be the only hospital operator east of Oceanside and north of Encinitas for long.
Over the years, Palomar has been no stranger to talk of selling out to another operator. In the late 1990s, Palomar’s board went deep into negotiations with Scripps Health about a purchase deal that would have required a public vote that asked all districts residents to give the matter a thumbs up or thumbs down. The deal ultimately fell apart as did a proposal from Sharp HealthCare to manage the hospital on the district’s behalf as it has for the Grossmont Healthcare District in East County since 1991.
Nothing has changed, confirmed Cathy Martin, executive director of the Association of California Healthcare Districts. Voters would need to approve of a Palomar sale.