$131 million price tag for Emanuel hospital in Turlock

kcarlson@modbee.comMay 27, 2013 

— Tenet Healthcare Corp. will pay $131 million to acquire the nonprofit Emanuel Medical Center of Turlock, according to publicly disclosed terms of the sale.

In one of the key items, the Dallas-based for-profit hospital chain has agreed to maintain cardiac care, cancer treatment, the emergency department, birthing center, intensive care and other services at Emanuel for at least 10 years. And the deal calls for Tenet to spend $30 million in the next five years on investments in expansion, improved services, equipment and medical staff development.

Tenet's subsidiary, Doctors Medical Center of Modesto, will acquire the assets of the 209-bed Turlock hospital, its clinics and physician contracts. The Mo-desto and Turlock hospitals will operate under a single governing board with an integrated administration and physician staff.

Tenet also owns Doctors Hospital of Manteca and has 47 other U.S. hospitals.

The purchase price and terms were not disclosed when Tenet and Emanuel announced the agreement in February, but they are spelled out in documents filed with the attorney general's office, which will decide whether to approve the sale.

A state-hired consulting firm reviewed the deal and concluded it will "likely continue the availability and accessibility of health care services" in the Turlock area and won't change access to services for the uninsured or patients in government health programs.

Medical Development Specialists of Southern California said Tenet's investment in services and staff development should improve health care for Turlock-area residents.

The report didn't find any opposition to sale of the 96-year-old hospital, owned by the Evangelical Covenant Church, though some Turlock folks are concerned the hospital won't maintain ties to the church and Legacy Health Endowment.

Tenet has vowed to preserve Emanuel's religious orientation, including its statuary and pastoral care activities, but there are limits to that promise. A proposed change to the agreement says preserving the hospital's Christian principles "shall not be construed to restrict the type or level of medical services DMC may offer at the hospital."

Emanuel Chief Executive Officer John Sigsbury said Wednesday the state's Corporations Code prevents the seller from restricting the medical services offered after the ownership change — and that will apply to hospital policy regarding abortion. The hospital has considered abortions only in cases of rape or incest or to save the mother's life, but those restrictions won't remain in place. Sigsbury said the issue doesn't surface often because the services are available elsewhere. Emanuel has supported contraception and surgical procedures such as tubal ligation, he said.

State approval is required for the sale of a tax-exempt nonprofit hospital in California. The public can comment on the Tenet-Emanuel agreement at a hearing May 31 in Turlock. A decision is expected by July 5.

According to Emanuel officials, changes in the health care industry, the sluggish economy and health reform make it difficult for the hospital to remain independent. The documents submitted to the state include PowerPoint materials for an Emanuel management retreat in October 2011 that predicted serious financial losses after a contract with Kaiser Permanente ended this year. In terms of income minus expenses, consultants projected a loss of $6.5 million in 2014 and $4.5 million in 2015 unless the hospital "re-sized operations" to account for the lost Kaiser revenue. For 10 years, Emanuel had a contract to care for Kaiser-insured patients, but it expired in April.

An auditor's report from Deloitte & Touche said the hospital had net income of $2.35 million last year. Doctors Medical Center has insurance contracts and the ability to efficiently deliver services to improve Emanuel's bottom line.

According to documents, Tenet also agrees to:

• Offer jobs to Emanuel's 1,400 employees, including management staff, who meet its hiring practices and polices. Some workers could be offered jobs with a Tenet affiliate or outside firms that handle information technology and billing.

• Continue open-heart surgeries at Emanuel for at least three years.

• Maintain Emanuel's graduate medical education programs for 10 years. Federal rules prevent DMC from assuming the current training for osteopathic residents but agrees to use Emanuel as a teaching hospital for other residents.

• Donate $6 million over 10 years to a Covenant church service arm.

Emanuel will continue for nine years as a renamed corporation, EMC Health, which will choose the vice chairman of the Doctors Medical Center board for five years.

EMC Health initially will operate Hospice of Emanuel and Jessica's House for grieving children. Covenant Retirement Communities West will take over operation of the Brandel Manor nursing facility and Cypress of Emanuel residential care.

A religious foundation will be created to oversee fund-raising dollars transferred from the hospital.

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