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January 28, 2004

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Publication Date: Wednesday, January 28, 2004

Hostile hospital takeover? The face-off between Sequoia Hospital and Palo Alto Medical Foundation raises questions about how best to deliver medical care in these times Hostile hospital takeover? The face-off between Sequoia Hospital and Palo Alto Medical Foundation raises questions about how best to deliver medical care in these times (January 28, 2004)

By Renee Batti

Almanac News Editor

Sequoia Hospital is its people, not its bricks and mortar, a group of the hospital's doctors has become fond of saying lately.

If that is so, it appears that the hospital may need intensive treatment for one doozy of an anxiety attack. And the public health-care district that co-owns the 53-year-old Redwood City hospital could use a strong dose of migraine medication.

The headache and anxiety are due in part to the decision by Sequoia's renowned cardiovascular doctors to leave the hospital when a competing medical complex opens its doors, which could be as early as 2007. And though there are only about 20 physicians in the cardiovascular program, those doctors bring in 60 to 70 percent of Sequoia's annual income.

Sequoia's nagging headache has raised urgent questions within south San Mateo County's medical community: Will the community hospital be rebuilt? Can it survive the exodus of its most prestigious and profitable group?

Or will it be squeezed from the health-care district scene in the south county by the northward migration of the Sutter Health-affiliated Palo Alto Medical Foundation (PAMF), which plans to build a full-service hospital near the Redwood City site Sequoia favors for its own rebuilt facilities?

It is PAMF, according to the announced plan, that will welcome Sequoia's cardiovascular program into its new medical complex, which foundation officials say they are determined to build.

"We'll help them build a cardiac unit in a state-of-the art facility, and we will use that facility to take care of our patients," stated Dr. Vincent Gaudiani, a renowned cardiovascular surgeon and the powerhouse who persuaded his colleagues to leave Sequoia for PAMF when that facility is built.

The questions that have arisen around the future of Sequoia Hospital as it faces a state mandate to retrofit or rebuild its facilities have created an environment of anxiety and resentment among many of the hospital's staff and the doctors who practice medicine there.

"We believe what is happening with Sutter/Palo Alto is a hostile takeover," said Dr. Fred Marcus, Sequoia's medical director for physician strategy who recently helped form a physicians' alliance committed, among other things, to "defending our turf."

But other doctors, most notably those in the three cardiovascular groups, say the private, nonprofit Catholic Healthcare West (CHW), which co-owns and operates Sequoia, is not committed to rebuilding the hospital.

"CHW has never had any intention of rebuilding," Dr. Gaudiani said -- a statement that is refuted by CHW officials.
Intentions uncertain

CHW's intentions have been questioned by members of the public Sequoia Healthcare District board as well. The district and CHW jointly own and govern the hospital through a nonprofit corporation, Sequoia Health Services, or SHS.

SHS has a 10-member governing board, with five members appointed by CHW and five by the public health-care district, whose board members are publicly elected.

Early last year, CHW and district officials launched an effort to find and buy land on which to relocate the hospital, and ultimately named a nearly 14-acre property at 405 and 425 Broadway in Redwood City as the most promising site.

But the announcement by PAMF in May that it wants to build a medical complex in nearby San Carlos slowed the process. Concerned that the area couldn't support two hospitals, Sequoia officials tried to ascertain the scale and reach of PAMF's plans.

After its May announcement, in which it identified a San Carlos site near the Holly Street-Bayshore Freeway interchange, PAMF also secured an option to buy the old Excite@Home property on Broadway in Redwood City -- just across the street from the property that Sequoia district and CHW officials favor as the new Sequoia site.

Malcolm MacNaughton of the Sequoia Healthcare District board said the district was already frustrated in working with CHW on the land-purchase process even before PAMF came into the picture. But the frustration began to "boil up" under the new pressure of a possible competing medical group moving in so close to Sequoia's potential site.

A critical moment occurred in July, when the owner of one of the Broadway parcels said Sequoia would have to purchase the land or it would be made available to another party. The district asked CHW to put down $250,000 -- a request that was refused.

That refusal was seen by Dr. Gaudiani and other doctors as evidence CHW wasn't committed to rebuilding the hospital. "When CHW decided not to put 250,000 measly dollars down on the property, I knew they were not ready to do business," he said. In fact, he added, "It occurred to me that we may not be part of their business plan."

Dr. Gaudiani said he soon turned to Dr. David Druker, CEO of PAMF, and the two found the common ground needed for Dr. Gaudiani to campaign to move the cardiology groups to PAMF. Last September, he and the other doctors in the groups signed a letter of intent to practice at PAMF's new facility.

Although some Sequoia officials noted that a letter of intent is not binding, Dr. Gaudiani stated adamantly: "This is a very real agreement. I will be operating out of a Sutter/PAMF facility when it is built."

Dr. Hardwin Mead, who was chief of one of the cardiovascular groups before he quit to serve on the SHS board about a year ago, agrees that the three groups will move the cardiovascular program to PAMF. Appointed by CHW to the SHS board, Dr. Mead said CHW officials "have not been forthcoming with what their plans are."

"We on the SHS and district boards are still waiting to hear what CHW plans," Dr. Mead said. It was frustration over CHW officials' failure to reveal specifics of the rebuilding plan that "drove all of us to even consider the PAMF hospital" as a place to practice, he said.

Glenna Vaskelis, president of Sequoia Hospital, said CHW is being unfairly blamed for not putting the $250,000 down payment on the land last July. The owner of the parcel, she said, placed a 72-hour deadline on the deal, and the district turned to CHW for the down payment. "But CHW didn't have board approval to put down $250,000 in 72 hours," she said. The parcel was then sold to another buyer, limiting the amount of land available at that site to build a new hospital on.

Dr. Mead scoffs at that explanation. "There was a six-month period of time when (CHW) knew exactly what was going on," he said. When the deadline was placed on the deal, it should have come as no surprise, he added.

And Dr. Gaudiani is equally dismissive.

"Glenna is a fine person and has done a good job making our hospital safe for the sick," he said. "However, CHW is chronically a day late and a dollar short as planners. ...

"Are we to believe that CHW abandoned a well-honed strategy to rebuild Sequoia because of a $250,000 payment? This is nonsense."
A mass exodus?

Dr. Gaudiani said he believes the PAMF model of medical care -- with PAMF physicians on staff at the medical facility -- is the wave of the future for medical care. The integrated approach allows primary care doctors working for the same organization to refer patients to specialists within the PAMF group. And primary care doctors are better paid in such a group practice, making it easier to recruit and retain them.

Both he and Dr. Mead predicted that many doctors and other medical professionals now at Sequoia will move to PAMF. "What we see happening is that the bulk of what is Sequoia Hospital now [in terms of its people] is going to move to PAMF," said Dr. Mead.

But their assertions are hotly contested by others at Sequoia -- some of whom spoke at the January 7 meeting.

"The statement that everyone will be happy with PAMF is a misstatement ... and it's self-serving," Dr. Marcus, the co-chair of the newly formed Sequoia physicians' alliance, told the Almanac. "Sequoia physicians for the most part are becoming extremely resentful of the cardiologists."

Dr. Marcus noted that a number of doctors, nurses and other medical professionals prefer a community-based care system like Sequoia, and don't want to work in a closed group like PAMF.

But he acknowledged that "it's a fluid situation," and Sequoia physicians "wish to prepare themselves for the future, regardless of what that future is."

He and his colleagues hope that "CHW and the district make amends and will go forward [to rebuild the hospital] ... but we want to do everything to protect the physicians regardless of the outcome with respect to the partners," he said, adding that that is one of the main goals of the physicians' alliance.
A different model

Dr. Druker of PAMF denied that his group was engaged in a "hostile takeover" of Sequoia Hospital, noting that PAMF already has some 40,000 patients living in the district.

In an interview with the Almanac, he emphasized the effectiveness of the multi-specialty group-practice model that PAMF pioneered when it opened in 1930 as the Palo Alto Medical Clinic.

With primary care physicians working as paid staff, rather than as independent doctors with outside practices, PAMF has been more successful in recruiting and keeping younger physicians, he said. This is key, he explained, because of the aging physician population in the area.

Unless new methods of practicing medicine and recruiting doctors are used, "within five to 10 years, we'll have a community that will be in crisis" -- with too many residents unable to get medical care because of a shortage of primary-care physicians, he predicted.
CHW's move

While CHW officials' intentions have come under question, they have in the last few months taken steps to try to reassure the public and the hospital community.

Just as CHW committed resources to turn Sequoia Hospital around financially in the mid-1990s, "we remain committed to rebuilding the hospital," said CHW spokesman Mark Klein.

CHW has a four-acre parcel at 415 Broadway in Redwood City in escrow, and "will continue to pursue what is necessary to rebuild," he said.

It also announced late last year that it has committed $150 million to the rebuilding project, but that money is contingent on several things, including matching funds from the Sequoia Healthcare District.

"Any one of the contingencies is an avenue out" of the commitment, said Mr. MacNaughton of the district board.

Both he and board President Art Faro said they are dubious that the area can support two new hospitals, and that taxpayers may reject the idea of helping to pay for rebuilding Sequoia if a competing hospital is built nearby.

Mr. MacNaughton said district officials will meet with CHW representatives on January 28 to "run them to the ground and try to get some answers." If CHW plans to go forward, he said, a feasibility study of rebuilding Sequoia if a second hospital is built in the district will have to be done.

Mr. Faro has been urging CHW to meet with district officials for some time. "What I'm pushing for right now is for everyone to move quickly and make their decisions," he said.

"My main concern is the anxiety (that the uncertainty) is creating with employees and doctors at Sequoia."

In a nutshell: Palo Alto Medical Foundation

** Established in 1930 as the Palo Alto Medical Clinic ** Nonprofit, community-benefit organization, with a 45-member board of directors made up of community members and health-care professionals. ** Pioneer in multi-specialty group practice of medicine: Physicians are on staff, on salary. Primary-care doctors refer patients to staff specialists. ** Pioneer in outpatient medical care. ** Affiliated with the nonprofit Sutter Health. ** Funding sources: internal profits; tax-exempt bonds; philanthropy.
In a nutshell: Sequoia Hospital

** Opened in 1950 as a taxpayer-supported community hospital. Administered until 1996 by the Sequoia Hospital District, with a five-member board chosen by voters. ** Owned and governed since 1996 by Sequoia Health Services (SHS), a nonprofit corporation formed by the public Sequoia Healthcare District (formerly Sequoia Hospital District) and the nonprofit Catholic Healthcare West (CHW). The district and CHW appoint five members each to the 10-member SHS board. ** Operated since 1996 by CHW, with oversight by the public Sequoia Healthcare District. ** Primarily serves residents of the health-care district, which comprises Menlo Park, Portola Valley, Atherton, Woodside, Redwood City, San Carlos, Belmont, and nearby unincorporated areas. ** A community-based hospital, with few on-staff physicians. Most Sequoia-affiliated doctors are independent physicians with private practices who have admitting privileges at Sequoia. ** Funding sources: Primarily, CHW from internal profits; also, health-care district through grants. ** Funding source for health-care district: District taxpayers. Tax revenue is about $4 million annually.


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