Health care reform is expected to shake up the established business model for hospitals in much of California, resulting in some closures, consolidations, layoffs and ultimately fewer hospital days for patients. But experts say some areas of the state, such as the Inland Empire, could be more insulated from economic pressures.
“The Inland Empire is a little bit different from the rest of the state in that the need and growth rate is greater than anywhere else in California,” said Jim Lott, executive vice president of the Hospital Association of Southern California.
One example of an Inland Empire hospital that is expanding, rather than contracting, is St. Mary Medical Center in Apple Valley. The medical center plans to begin construction this year on a $270 million medical campus in Victorville and recently offered $35 million to purchase nearby Victor Valley Community Hospital, which filed for bankruptcy in 2010.
So why is St. Mary growing instead of shrinking? The answer has to do with demand for services.
Once considered a remote region, removed from the bustle of more populous cities near the county seat, the area encompassed by the cities of Apple Valley, Victorville, Hesperia and Adelanto today is largely developed, with suburban housing subdivisions and shopping centers occupied by large, commercial box stores. Despite these changes, Victor Valley Community Hospital is still considered a rural hospital, as is St. Mary.
“When you’ve got 450,000 people living in the High Desert, that’s not all that rural,” said Alan Garrett, president and CEO of St. Mary. “You’ve got quite a residential base.”
One indication of how underserved the region is has to do with its ratio of hospital beds. With 1.9 beds per 1,000 residents, California lags well behind the national average of 2.7 beds per 1,000. The High Desert only has 1.1 beds per 1,000, according to Randy Bevilacqua, St. Mary spokesperson.
There are additional pressures on the region’s hospitals. The poverty rate in the High Desert is about twice that of Orange County, Garrett said.
The Inland Empire also has one of the highest percentages of uninsured residents. About one million residents do not have insurance in the Inland Empire, contributing to further capacity issues at regional hospitals.
Until recently, the High Desert region was largely undeveloped. But the area above Cajon Pass, just north of the San Bernardino Mountains, experienced some of the most rapid population increases in the state during the housing boom. Medical infrastructure, however, did not keep up with that growth.
“The High Desert is really underserved,” Garrett said. “Our emergency department is almost always at capacity. The inpatient capacity is a concern for us within St. Mary’s campus already.”
St. Mary has remodeled departments and is adding 24 beds, for a total of 210 beds, but that expansion has not been enough to meet demand.
Victor Valley Community Hospital, which was one of the few independent hospitals in the Inland Empire, provides 101 beds for the community. The new 100-acre medical campus, named Victorville Oasis for Health and Wellness, will provide 126 new beds.
Although St. Mary is part of St. Joseph Health System, St. Mary would be the entity purchasing Victor Valley Community Hospital, Garrett said. The medical center also has pledged $25 million for capital improvements at Victor Valley. The money could be used to address equipment needs, aging infrastructure or other services, Garrett said.
“The difficulty for us is that even if we were to start building tomorrow, it’s about a five-year process for us to build a hospital,” Garrett said. “We’ve got pressing needs right now. That’s really the origin and entire foundation of our offer to acquire [Victor Valley Community Hospital].”
To alleviate the hospital bed shortage, Desert Valley Hospital, also in Victorville, completed a $40 million expansion in January, which included adding 53 beds and 12 intensive care unit rooms.
With health care reform looming, hospital expansion in the High Desert seems to be outside the norm. Experts say the switch from a volume-based, fee-for-service payment model to a model that rewards for patient outcomes will cause a restructuring in delivery systems and a reduction in hospital beds because hospital stays will be shortened as services migrate to outpatient facilities.
“The biggest thing that’s driving change is moving farther away from ‘heads in beds’ to value for care provided,” Lott said.
The hospital shakeup is expected to start taking hold this year. In a report issued last December, the Hospital Association of Southern California predicted that in 2012 the region “may be primed for a substantial uptick in merger/acquisition activity.”
Similarly, a report issued in January by the California Hospital Association predicts hospital closures will accelerate and mergers and acquisitions will increase statewide in 2012. The report notes that rural hospitals will become more fragile, with most California hospitals facing increasing financial challenges.
Rural hospitals are expected to be hit hardest by the changes in quality standards, which could reduce Medicare payments, and by the governor’s call to move beneficiaries of Medi-Cal — California’s Medicaid programÂ –Â into managed care programs, Lott said. In addition, it may be more difficult for rural hospitals to align with others, he said.
“The standalone independent hospital is pretty scarce nowadays in Southern California,” Garrett said of Victor Valley Community Hospital, one of the last independent hospitals in the region. “I think there are a lot of synergies that can be had in a larger system. It provides opportunities for best practices sharing and clinical idea sharing. You’re much more willing to do that with a sister hospital than a competitor.”
Garrett said health care reform will result in finding new ways for members of the health care continuum to work together and improve access.
This development could be beneficial for residents in the High Desert because medical facilities there are not able to offer the scope of services provided in more urban population centers, such as the Riverside-San Bernardino area and Orange County.
For example, oncology services could be greatly expanded, Garrett said. Patients would not need to be referred to medical centers “down the hill” for doctor visits involving a roundtrip drive of two to four hours.
Another recent development could shape how services are provided to High Desert residents. Four Orange County hospitals belonging to St. Joseph Health System have joined a commercial accountable care model with Blue Shield of California. Garrett sees potential for that ACO to expand in the future and for St. Mary to be a part of some form of ACO delivery network in the future.
“I don’t think it’s creating something new,” he said. “I think it’s us participating in something we’ve already begun to work on.”
This perspective seems to dovetail with recommendations from the Hospital Association of Southern California. “A key to success will be a hospital’s ability to create an integrated delivery system that aligns physicians and presents an attractive ACO to private and public payers,” according to the association’s December report.
A Lengthy Process
Meanwhile, the process to purchase Victor Valley Community Hospital could take months. St. Mary is the third buyer to make an offer for the bankrupt hospital. The last offer by Prime Healthcare Services was rejected by Attorney General Kamala Harris.
“We’re still in the due diligence process right now,” said Lovella Sullivan, Victor Valley’s spokesperson.Â
After the due diligence process, St. Mary will submit its offer to the hospital board of directors, which can accept or negotiate the sale agreement. Then the agreement must be approved by bankruptcy court and sent to the attorney general for approval.
Representatives from both St. Mary and Victor Valley said it’s difficult to predict how long the process could take.
“It creates a lot of anxiety for the community not knowing what’s going to happen,” Garrett said. “From that perspective I’d like to see it wrap up sooner than later.”