Petaluma hospital deal on life support

A deal with a potential future operator of Petaluma Valley Hospital is quickly unraveling as healthcare officials appeared poised to reject the latest proposal from the top candidate.

Southern California-based Paladin Healthcare proposed an agreement to manage the publicly-owned hospital while a complicated medical records database is built. The Petaluma Health Care District board, which sought a lease agreement for the 80-bed hospital, said Tuesday the management agreement proposal puts too much financial risk on the district.

“The management agreement structure requires the district to assume significant financial risks, and to incur expenses that may not be in the best long-term interest of PVH,” Ramona Faith, CEO of the district, said in a statement after the board’s discussion. “Our concerns around these issues mean that we need to deliberate further on a number of points.”

Faith said the board did not make a final decision after its closed door meeting Tuesday. She said the district would explore all options, including selling the hospital or reopening negotiations with St. Joseph Health, the current operator.

Gary Frazier, senior managing director for Paladin, said in reaction to the district’s statement that the company was not currently considering other deals for Petaluma Valley Hospital.

“I don’t think we have any other options,” he said. “The key word is risk. That risk has to sit somewhere.”

He said if the district decides to put the hospital up for sale, Paladin would consider purchasing it. The company owns four Southern California hospitals, Howard University Hospital in Washington, D.C., and last year reached an agreement to buy two Philadelphia hospitals.

St. Joseph’s 20-year lease with the hospital ended last year and talks to extend the company’s tenure ended over several sticking points. The district then selected Paladin as its top choice to succeed St. Joseph, which agreed to stay on during the transition.

Transferring the hospital to Paladin hit a snag over the hospital’s electronic medical records system. St. Joseph built the current system, which is integrated into the company’s regional network. St. Joseph officials have said it would be too costly and cumbersome to decouple the current system from their network, and they have offered $2 million towards the cost of building a new electronic record keeping system.

A new system could cost around $5.5 million and take 12 to 18 months to build, officials said. Since a hospital is required by law to have electronic medical records, a new tenant could not move in until the new system is in place.

Paladin was unaware of the information technology issue when it originally bid to take over the hospital, Frazier said. He said the management agreement was proposed as a temporary solution until the IT system was built, at which time Paladin would consider leasing the hospital.

“There’s all these risks involved,” he said. “That’s what brought us to this creative idea of a management agreement.”

Frazier said that Paladin was willing to fund the balance of the cost to build the IT system, but did not want to assume the risk of building it before taking over the hospital.

“We did not see the logic of taking 100 percent of the risk on an asset we are not immediately moving into,” he said. “Paladin is OK with building a new system. We are not OK with building a new system and not operating (the hospital).”

St. Joseph’s current deadline to leave the hospital is November. Todd Salnas, president of St. Joseph Health Sonoma County, said the company is committed to working with the district and Paladin on the IT issue.

“I will never give up hope that there is a creative solution out there,” he said. “We’d be open to looking at any new IT options proposed by Paladin or the district.”

(Contact Matt Brown at

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