Although voters shot down Hemet-based Valley Health System's attempt to sell its assets and privatize in November, the financially ailing heath care district approved the sale Feb. 1 of its 101-bed Moreno Valley Community Hospital to Oakland-based Kaiser Foundation Hospitals Inc. for more than $47 million.

"We have no intention, no thoughts of selling anything else," Chief Financial Officer Hugh King said.

District assets include hospitals in Hemet and Sun City and a Hemet skilled nursing facility.

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Photos By Dan Elliott

Hugh King, left, chief operations officer and Chief Executive Officer Fred Harder of Valley Health System in Hemet.

"We are looking forward to the ability to focus our resources on the two Hemet hospitals and the Menifee Valley Medical Center," King said.

Valley Health System, which is a public hospital district, filed for Chapter 9 bankruptcy Dec. 13. Chapter 9 provides for reorganization of public agencies and taxing districts.

The sale had been in the works since August, said Valley Health System Chief Executive Officer Fred Harder. The hospital bled cash and was a drain on the bottom line, he said.

In November Valley Health laid off 41 of its nearly 2,000 employees. Officials said they intended to renegotiate major health plan contractors and increase prices for some medical procedures to prevent hospital closures.

"In the 17 years we've owned Moreno Valley Hospital, we've never made a profit. So the sale benefits us because it removes an ongoing operating loss and reduces our debt," Harder said.

Valley Health had negotiated a sales agreement with Del Mar-based Select Healthcare Solutions LLC last year. Valley Health planned to sell all of its assets to Select Healthcare. Select established Select VHS Acquisitions Co. LLC to hold all district assets and revenues. That sale fell through when voters rejected Measure G in November. The measure would have allowed Select to take control of three hospitals. But 54% of the voters opposed the plan.

Although the sale of the Moreno Valley hospital has been approved, it will not close until March. The planned sale must be reviewed by the bankruptcy court.

"We also have to work with bond holders and make sure they are comfortable with the terms of the sale," Harder said. "We feel very good about the decision to sell because clearly Kaiser is a well-established provider. Instead of a closure, the sale preserves Moreno Valley Hospital as a community hospital. What's not to like?"

Before Kaiser came into the picture, Valley Health was set to sell the 30-acre Moreno Valley hospital to Select.But that right was amended and Kaiser was given the sale. However, Select will get $14 million from Kaiser. That $14 million was an advance that Select VHS gave to the hospital earlier. The district spent the advance on payroll.

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Hemet Valley Medical Center in Hemet is part of Valley Health System.

Kaiser also will pay Select VHS nearly $4.4 million for expenses. Select will pay $1.6 million to Valley Health as an assignment fee, according to news reports.

"It was a three-way deal," Harder said.

However, if the sale to Kaiser falls through, then Select will have 45 days to purchase the hospital.

Kaiser plans to operate the Moreno Valley hospital as a community medical center and keep current doctors on staff when it takes over. Those doctors will not be required to join the medical group that cares for Kaiser patients.

Kaiser plans to improve the hospital with updated technology.

The size of the hospital's property presents the opportunity to expand with an 80- to 100-bed patient tower and more operating and emergency rooms.

Valley Health plans to help Kaiser transition into operations.

"In the short term it will provide a revenue stream for us because we will offer shared services," Harder said. "Kaiser won't be able to install and transition right away."

Valley Health posted a $5.3 million net operating loss from July through December.

"We've been through a lot of turmoil and there's still work to be done," Harder said. "We'd like to restore stability and confidence in the community; we're looking forward to getting through this bankruptcy."