The Petaluma Health Care District on Monday signed a letter of intent with a St. Joseph Health affiliate for a longterm lease to operate Petaluma Valley Hospital. A final deal, expected next year, is pending approval of St. Joseph’s joint operating company with Adventist Health, to run the companies’ Northern California operations.
The letter of intent lays out the terms that the newly combined company, which will be known as ST Network, LLC, will likely accept as it takes over hospital operations. St. Joseph has operated the hospital on a 20-year lease that expired in 2017.
The deal keeps in place most core services at Petaluma’s only hospital, and it solves a dispute over which entity owns a hospice program in Petaluma, giving St. Joseph and its affiliates the program that the health care district started.
The district expects to negotiate a final lease agreement by March 1, which must then be ratified by district voters, likely next summer.
“We’re moving in the right direction,” said Ramona Faith, CEO of the district. “We’re closer to getting an operator.”
The letter of intent marks a milestone in the ongoing two-year search for a hospital operator. Discussions with St. Joseph to renew its original lease broke down over financial terms, a non-compete clause and the Catholic heath care provider’s unwillingness to continue some female reproductive health services.
The district then launched a new search, settling on Southern California-based Paladin Health. But a deal with Paladin fell apart due to the company’s lack of an electronic medical record keeping system, a requirement for hospital operators.
Under the terms of the deal, ST Network would pay $800,000 per year to lease the district-owned hospital for 30 years. The company has the option to purchase the hospital.
Vanessa deGier, marketing and communications executive director for St. Joseph, said in an email that the deal is subject to ST Network obtaining a license to operate a hospital and other licenses, permits and certifications.
“The proposed joint venture is under review,” she wrote. “We do not have a date yet as to when the review will be complete. We anticipate it will take another few months at least.”
Female reproductive health services, which St. Joseph currently provides under the expired lease, will stay under the new contract. The new company has committed to operating the family birthing center for at least three years, but could decide to discontinue the service.
ST Network will invest $3.5 million in the hospital each year, according to the terms.
Negotiators for the district and ST Network reached agreement on language in a non-compete clause. Except for a list of approved services, the district agreed to refrain from offering services that could conflict with the company’s business. The list of exceptions the district is permitted to continue offering includes community health initiatives, adult day care, mental health, nutrition education and youth counseling.
According to the deal, St. Joseph and its affiliates will pay $400,000 to take over hospice services. Hospice of Petaluma, which provides end of life services, was started locally by the health care district. When St. Joseph leased the hospital in 1997, it also took over operations of hospice services, which has a separate office on Payran Street. It also runs hospice programs in Healdsburg and Santa Rosa.