The article below was published in 2006, but is being excerpted here because it may be of interest to those watching the situation at Shasta Regional.
Dr. Prem Reddy, Valley Hospital
November 30, 2006
Paradise Valley is losing money at this time. It has a heavy mix of unfunded or under-funded patients. Like all hospitals in California, it has to meet certain expensive seismic standards set by the state. It may not be in compliance with certain regulatory medical standards. So why does your company, Prime Healthcare, want to buy this hospital? What opportunity do you see?
Prime Healthcare got into the hospital market when it reacquired Desert Valley Hospital, an 83-bed hospital in Victorville. We have turned around a failing hospital in Victorville from an $8 million loss in 2000 to break even in 2001. Since then we have had profitable operations. If it were a profitable hospital, nobody would want to sell it to you. Paradise Valley gives us another opportunity to implement our protocols. To build a hospital, either new or replacement, takes substantial money, a million dollars a bed or more. Every hospital we have acquired has had financial troubles. I read about the negative events that are going on as published in the Union-Tribune. Some of our hospitals had the same situations when we acquired them. Our second acquisition in 2004 was Chino Valley Medical Center. It was in bankruptcy and about to be shut down. It is doing well now.
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Have you done due diligence on the seismic standard costs at Paradise Valley?
I don’t have a definite answer on that portion. I have done significant due diligence on all other aspects. Six of our hospitals are in the process of being upgraded. Desert Valley is already meeting the new standards. Some of our facilities are being upgraded for a cost of $2 million to $3 million. Sherman Oaks may require $35 million. Huntington Beach and now Paradise Valley will be two facilities where we need to evaluate how far we want to expand. Is there a way to build a limited patient tower and use existing buildings for outpatient and administrative services?
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Yours is a private, family-owned company?
Yes. My family, my three children and my wife.
Do you have access to significant amounts of outside capital?
We use real estate investment trust financing. The REIT buys the real estate and leases it to us as an operator. They have access to larger amounts of capital at cheaper rates. They finance pretty much all the cost of the building and the land so our money goes into operations. We deal with Medical Properties Trust of Birmingham, Ala. It is traded on the New York Stock Exchange.
Is there a cultural problem on non-compliance with regulatory requirements such as lack of training, language issues and other problems common to small hospitals that could block the deal at Paradise Valley?
My approach is to offer a small community hospital. If you believe a hospital has to be large to be efficient, that is not true. Except for certain services like cardiac surgery. One hospital excepted, we don’t do cardiac surgery at our hospitals. But we do caths, we do stemmies, we do blood vessel openings. Among the 300 physicians at Paradise Valley are those with expertise for complicated surgeries. But they can perform them at a number of hospitals in the area.
How aggressively do you compete with other companies in making bids for hospitals?
If we want to get into a situation where we go in front of the attorney general and we invest our time and resource and capital, and somebody else puts in a competing bid, I would rather let them have it. For me, I’m in acquisition mode. I would like to buy hospitals that are community based. I don’t want bells and whistles, tertiary facilities. Small hospitals actually do a lot more service than the big hospitals. Big hospitals try to do fancy things. What you need in everyday life is a well-functioning emergency department that can avoid bypasses (diverting ambulances to other facilities because the emergency department is overwhelmed). And I want patients we treat to be safely transported, if they need a higher level of service, to a tertiary care facility. For National City, I believe Paradise Valley is a big facility. You don’t need 300 beds for a population of 75,000 or so (in its primary service area).
You’ve got 1,515 employees at Paradise Valley who are probably wondering what your future staffing will be.
Most employees retain their jobs because most of the employment in acute care facilities is nursing staff. So we need more nurses. In every facility we have acquired, we have added nurses. Instead of having a CEO for each hospital, we have a regional CEO with a nursing director at each site reporting to him. We would be willing to buy another hospital in this area so we could capitalize on the synergies.
