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Two Local Chains Show Interest in Buying Hospital

Alvarado Hospital Medical Center has several potential buyers, and its leaders say they don’t worry about selling the East County hospital by a February deadline set by federal officials.

Both of San Diego’s largest hospital chains , Scripps Health and Sharp HealthCare , have said they are considering purchasing the La Mesa hospital.

Federal regulators from the Department of Health and Human Services told Alvarado’s parent company, Dallas-based Tenet Healthcare Corp., in May that it must shut down or sell the hospital because of accusations that the hospital and its former chief executive broke federal anti-kickback laws.

Essentially, in a settlement that cost the corporation $21 million, it admitted that from 1992-2002 some employees accepted money meant for physician relocation packages or tenant improvements.

Tenet spokesman Steve Campanini said there have been “several” local and national potential bidders, though he would not name any.

While Scripps confirmed it has expressed its interest to Tenet Healthcare Corp. and called itself a “potential bidder,” Sharp would only say it is evaluating the hospital to see if it fits into its long-term plans.

Scripps still must spend $500 million to update its facilities to meet earthquake standards in the next several years, said Scripps spokesman Don Stanziano. According to Tenet, Alvarado will also need about $70 million worth of seismic upgrades.


Location A Factor

While Scripps has five local hospitals, it doesn’t have one in East County. The nonprofit health system closed Scripps Memorial East County in 2000.

Sharp HealthCare has a hospital in East County, Sharp Grossmont, which has 481 beds. It hasn’t been unheard of for local health systems to have hospitals even a mile apart, such as Scripps Green Hospital and Scripps Memorial La Jolla in La Jolla.

While no asking price has been disclosed for Alvarado, experts say it could sell for upwards of $50 million. Becky Bales, vice president of the El Segundo-based The Camden Group, which offers health care consulting services, including appraisals, said hospitals tend to sell based on the amount of revenue they generate. Unfortunately for Alvarado, the hospital went from a $20.4 million profit in 2003 to a $15.7 million loss last year. Patient admissions have also fallen.

Alvarado has about 1,000 employees in addition to a 500-plus member medical staff, and Campanini said while morale among some is low, the company is not aware of any employees quitting as a result of the turbulence.


Legal History

The saga of the dubious future of the hospital began a couple of years ago when the Office of the U.S. Attorney Southern District of California filed suit over the kickback allegations against Tenet and Barry Weinbaum, former Alvarado chief executive officer. Two trials have ended in hung juries.

Campanini said recently that some Alvarado employees were planning to take out an ad in the The San Diego Union-Tribune to show their loyalty to the hospital.

“February is not that far away,” Campanini said. “It would be premature for (employees to quit). While there is understandably concern for the future, the worst thing that could happen would be for the employee base to destabilize.”

Following the federal health department’s Office of the Inspector General’s decision to force a sale or closure of the hospital, the California Hospital Association called the federal action “troubling.” If Tenet had not complied, Alvarado would have lost its Medicare and Medicaid reimbursement, which makes up about half the hospital’s revenues. Closure of the hospital would have been certain, experts have said.

“The OIG appears to be substituting its judgment and authority for that of two separate juries,” a recent statement from the hospital association said.

Alvarado serves an area of more than 900,000 San Diegans.

Tenet faces multiple lawsuits nationwide and has sold or closed more than 40 hospitals in the last four years. The chain owns 19 hospitals in California, and three are for sale, including Alvarado.

Campanini has said Tenet has been mostly successful in convincing buyers of its hospitals to keep employees in good standing in their jobs.

Tenet shares, traded under the symbol THC on the New York Stock Exchange, were trading up nearly 2 percent at $8.06 mid-day June 1.

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