AV Hospital Farms Out Management
A for-profit hospital company headed by the former top executive of Prime Healthcare Services has been selected to manage one of the state's largest district hospitals.
A divided Antelope Valley Hospital board of directors voted 3-2 on Nov. 4 to have Irvine-based Alecto Healthcare Services take over management of the 422-bed Antelope Valley Hospital in Lancaster.
The hospital has been without a chief executive officer since last July. It chose Alecto over Tennessee-based Quorum Health Services and two CEO candidates.
Alecto has some close ties to the hospital, which serves the high desert communities of Lancaster and Palmdale 60 miles north of Los Angeles. Pamela Hinson, Alecto's director of revenue services, worked at high-level jobs at the hospital. She served as its acting CEO during the second half of 2013.
Alecto currently owns four hospitals in West Virginia, Texas and California. The two other California properties include Olympia Medical Center in Los Angeles and St. Rose Hospital in Hayward.
It's the first time in Antelope Valley Hospital's history that an outside management firm has been hired to guide its day-to-day operations. According to hospital board chairman Doddanna Krishna, M.D., Alecto brings “an extensive background in healthcare quality, financial stewardship and innovative program development; and its deep and broad experience with other similar hospitals will serve our community well as we face the many changes and challenges currently confronting the healthcare industry.”
The decision is not without controversy: Antelope Valley has been moderately profitable in recent years, according to audited statements files with the Office of Statewide Health Planning and Development. Management firms are typically brought in when a facility is on the brink of insolvency.
Alecto's founder and CEO, Lex Reddy, departed for-profit hospital chain Prime Healthcare Services in February 2012 after 11 years at the helm.
The last year of Reddy’s tenure at Prime had been marred by allegations of upcoding for rare medical conditions at its hospitals and state and federal investigations into the practice, although the findings of those investigations have never been made public.
Under the terms of its three-year contract, Alecto will be paid $1.5 million a year – the equivalent of the hospital's three highest-paid executives, plus an additional sum representing 1.25% of net operating revenue, which is expected to be around $4.3 to $4.4 million.
The three highest-paid employees at Antelope Valley earned a combined $1.16 million in 2013, according to the most recent records that are available. The hospital's annual net income has been about $2 million in recent years, according to the OSHPD data.
Don Parazo, M.D., a hospital board member and of the two dissenting votes on the deal, authored an opinion article in the local newspaper, the Antelope Valley Press, criticizing the pact.
“Why, when our finances are the best in years, did three board members vote for a most controversial and expensive management team (Alecto Healthcare Services) to run the hospital?” he asked. Parazo, a former president of the Association of California Hospital Districts, also noted that the district never made a request for proposals regarding the selection of a management company.
Antelope Valley Hospital's district board is comprised of publicly elected directors. Four of the directors are physicians who have clinical ties to the facility. The fifth director, a nurse practitioner by trade, was employed by the hospital in the 1980s and 1990s.
Election campaigns to the hospital’s board have been known to be among the most raucous in the region, with recall elections often occurring every few years, and recalled directors sometimes being later re-elected.
In September, the hospital's $97.1 million in debt was downgraded by Moody's Investors Service to Ba3, which is the equivalent of a junk bond, although it has been graded as speculative for the past 21 months.
In its most recent downgrade, Moody's was critical of the departure of former CEO Dennis Knox in July. A formal statement said Knox left for personal reasons, but both published reports and sources have suggested he was fired for clashing with the hospital board.
Moody's noted the conflict in its report and remarked that the downgrade was “attributable to unstable governance and management.” The CEO vacuum has also made it difficult for the hospital to refinance its debt through the federal office of Housing and Urban Development, sources and published reports say.
