Is the VHS deal a good investment?

Welcome to JP’s blog. This is where we take off the gloves and the typing gets worse.

Again I have to stress, the current bondholders were the principal whiners to the bankruptcy judge. Despite VHS’ overall improving finances, the monthly results were still losses. The bondholders urged the judge to revoke bankruptcy protection and let the creditors loose on the district.

Basically, the terms that were revealed Wednesday, simply shift the debt to PHH from VHS. That is a simplification, but not far from the final solution. How will PHH pay its new debt if the hospital is still losing money or barely profitable?

Doctor after doctor spoke last night. They all implored the board to approve the deal and let them protect the valley patients by owning the hospital. Nearly all made to sure to mention the times they worked 18 or 24 hours in the hospital.

Nearly every doctor posed a binary choice. Either sell the hospitals to them or let them be sold to cover the “Wall Street bondholders” threats!!

This conjured images of men in waxy moustaches and top hats sitting in clubs and dividing up the world. If these robber barons sold the hospitals they would be closed.

Why would the buyers pay millions for hospitals and then close them? I guess to renovate Hemet Medical Center into a high rise hotel or condominium unit.

The other threat to the community was the looming shadow of Kaiser — a single payer healthcare. Dr. Fred White offered that connection to national politics. By the way, they also feared Kaiser would limit their access to hospitals.

Rejecting PHH was tantamount to selling to Kaiser Permanente, who has not made any informal bids. And that means not enough beds.

It’s true southwest Riverside County has a lower bed per capita ratio than the rest of the state. But HVMC and MVMC have a lot of vacant beds available, which aren’t filled very often.

Which brings one back to how will the doctors afford this deal? Dr. Alex Denes, the PHH spokesman, said 130 physicians have “signed up.” He did say PHH would release a list of members after the agreement is accepted.

But he did indicate that only 54 of them have made a financial commitment.

So back to the profit margin, Denes says PHH will save $300,000 monthly because they won’t have the cost of bankruptcy on its back. That still not enough for the secured bondholders.

The profits have to come from increased revenue because PHH has agreed to keep substantially all of the current employees. Of course, “substantially” was later defined to mean “most”.

Denes did announce that PHH has aligned itself with Catholic Healthcare West, the group that manages St. Bernadine Medical Center in San Bernardino. He said this will help PHH offer expanded services such as cardiac and orthopedic.

Meanwhile existing services such as emergency room and obstetrics will stay open for at least 5 years; but only “to the extent that it is commercially reasonable and viable to do so in the context of the then applicable health care environment.”

I’m not sure what the “health care environment” will be over the next five years, but I bet the economic environment will continue to make it difficult and costly for people to get adequate care. So the demand for emergency facilities will grow.

Denes suggested that PHH might establish some neighborhood clinics to treat non-severe cases and try to shift some demand away from the emergency rooms.

When asked if Idyllwild might be a location because of its distance from HVMC, he conceded the possibility. But PHH has not done any planning to enable them to say with authority where these clinics might be located.

Two final thoughts that may affect the deal in the long term:

1. There is talk and some action in halls of Congress to limit Medicare payments to physician owned hospitals. That would have a real effect on revenues — negative. Dr. Cherry, VHS chairman of the board, says that will never happen.


2. If the proposed new hospital were completed, how would that affect admissions to HVMC and what about the eventual costs to rehab it for seismic strengthening.

But on doctor was so cocky he said he was willing to invest his life savings in this deal. Right.t.t.t.t.t