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STATE CAPITOL COMMITTEES

P.O. BOX 942849 CHAIR, HIGHER EDUCATION


SACRAMENTO, CA 94249-0078 ACCOUNTABILITY AND
(916) 319-2078 ADMINISTRATIVE REVIEW
FAX (916) 319-2178 JOBS, ECONOMIC DEVELOPMENT,
AND THE ECONOMY
DISTRICT OFFICE VETERANS AFFAIRS
7144 BROADWAY
LEMON GROVE, CA 91945 SELECT COMMITTEES
(619) 462-7878 CHAIR, K-16 ARTICULATION,
FAX (619) 462-0078 ACCESS AND AFFORDABILITY

WEBSITE
MARTY BLOCK BIOTECHNOLOGY
CAREER TECHNICAL EDUCATION
http://asmdc.org/members/a78 ASSEMBLYMEMBER, SEVENTY-EIGHTH DISTRICT AND WORKFORCE
DEVELOPMENT

November 24, 2010

Mark B. Horton, MD, MSPH


Director
California Department of Public Health
1615 Capitol Avenue
Sacramento, CA 95899-7377

Re: Alvarado Hospital

Dear Dr. Horton:

As the Assemblymember for the district in which Alvarado Hospital is located, I am very
concerned about patient care and septicemia rates of infection at Prime Healthcare
Services hospitals that recently purchased Alvarado Hospital. I am calling upon you in
your capacity as Director to take all steps necessary to enforce the standards established
for safe patient care at the Alvarado Hospital facility.

I understand and appreciate that the California Department of Public Health (CDPH) and
other agencies have begun investigations into Prime Healthcare’s billing for disturbingly
high rates of septicemia. Until these investigations are concluded and the rates of
septicemia under control, it is my belief that Prime Healthcare should not be awarded a
new license to operate a hospital, in particular Alvarado.

I also understand that in Prime Healthcare’s public announcement of the acquisition of


Alvarado Hospital in San Diego, they stated that the purchase of the hospital does not
represent a change of ownership because Prime bought 100% of the ownership interest in
the company that owns the hospital, but not the hospital itself.

I am deeply troubled that Prime Healthcare may be attempting to circumvent the


requirements of the law in order to acquire and operate a health facility despite these
pending investigations and poor track record on rates of septicemia infection. I am
genuinely alarmed that if Prime Healthcare is allowed to use this device to obtain control
of a health facility, compliance with the existing law regarding change of ownership of
health facilities will be effectively voluntary, applicable only to those entities that choose
to comply with the law.
Mark B. Horton, MD, MSPH
November 24, 2010
Page 2

If Prime’s assertion that acquisition of Alvarado is not a change of ownership stands, then
the Health and Safety Code’s licensing requirements upon a change of ownership at
hospitals and nursing homes would be eviscerated. The vast majority of nursing home
and for-profit hospital sales could be structured so that the purchaser buys a controlling
interest in the legal entity that holds the hospital, typically an LLC, but disclaims
ownership for the purposes of licensing. This would enable anyone to assume an existing
license over a health facility in California.

In the e-mail from Suzanne Richards to Kathleen Billingsley dated November 17, 2010, it
states “Prime Healthcare, Inc., acquired 100% of the membership interests of Alvarado
Hospital LLC. This is not a change of ownership, but a change of information as the
licensee, Alvarado Hospital LLC, will remain the same.”

However, in its press release announcing the “acquisition” of Alvarado Hospital, Prime
Healthcare repeatedly states that it will “operate” the hospital. For instance:
• “Prime Healthcare will continue to operate Alvarado as an acute care hospital
with an open and improved emergency department.”
• “Several of the other thirteen hospitals Prime Healthcare owns and/or operates in
California are undergoing major seismic retrofit structural improvements”

In addition, Prime Healthcare portrays itself as the management of the hospital in the
following statements:
• “New management will retain substantially all of the current employees and
honor the contractual obligations of the current collective bargaining agreements
in place.”
• “Prime Healthcare intends to maintain the managed care contracts currently in
place at Alvarado and will continue to contract with Medicare, Medi-Cal, and the
County of San Diego Indigent Programs.”
• “Prime Healthcare has no intention of closing Alvarado Hospital (“Alvarado”) or
the services it currently provides”
• “Prime Healthcare will ensure the hospital building structures comply with all
seismic regulator requirements.”

By its own words, Prime Healthcare indicates that it intends to manage and operate the
hospital. The provisions of Section 1253 of the Health and Safety Code state in part:

1253 (a) No person, firm, partnership, association, corporation, or political subdivision of the
state, or other governmental agency within the state shall operate, establish, manage, conduct, or
maintain a health facility in this state, without first obtaining a license therefore as provided in this
chapter,…
Mark B. Horton, MD, MSPH
November 24, 2010
Page 3

Moreover, state regulations prohibit the transfer of a hospital license to a new owner, and
specifically require application for a new license upon a change of ownership. 22 CCR
§70105, §70125.

Acquisition of a majority ownership of a limited liability company constitutes a change


of ownership under state and federal law. Prime Healthcare has purchased a 100%
ownership interest in Alvarado Hospital LLC. Thus the ownership of Alvarado Hospital
LLC has changed thereby triggering the change of ownership license application process
under Section 1265 et seq. of the Health and Safety Code.

I request that you refuse to accept the alleged “change of information,” revoke Alvarado
Hospital LLC’s existing license and take all measures available under the law to ensure
that Prime Healthcare does not skirt the licensing requirements. The Department should
further deny any change of ownership license application by Prime until such time as all
investigations are completed, and safe patient care is established.

Sincerely,

Marty Block
Assemblymember AD-78

Cc: Kathleen Billingsley, R.N.


Deputy Director
CDPH

Monica Wagoner
Deputy Director
Office of Legislative and Governmental Affairs
CDPH

Sheena Nash
Legislative Coordinator
Office of Legislative and Governmental Affairs
CDPH