A plan by Providence and Kaiser Permanente to build a new medical center in the High Desert region of California is the latest example of leading hospital chains seeking market advantage.
They intend to spend up to $1 billion to build a hospital in Victorville, a city of about 123,000 that sits 85 miles northeast of Los Angeles. The site is only 11 miles from a hospital Providence already owns, and plans to close, in the adjoining city of Apple Valley. The new site is next to Interstate 15, a major artery that cuts across a swath of the Mojave Desert and through the San Bernardino Mountains toward the more populous cities of Fontana, Riverside and San Bernardino. That location should help ratchet up market share in an area whose population has skyrocketed over the past four decades. Victorville’s population has nearly doubled since 2000.
The unusual pairing of very different health care giants — a Catholic chain and an HMO-only model — will result in a facility available to both systems’ patients. But Kaiser Permanente members won’t be able to get certain reproductive services, including abortion, at the hospital because of Providence’s Roman Catholic affiliation.
According to a filing with the state, the new hospital will be fully functional by 2028. KP will contribute 30% of the capital to build it, and Providence 70%. Providence and KP hope to win state approval for their plan and sign a definitive agreement by year’s end.
The new facility will help the partners take on their two main Victorville competitors — Desert Valley Hospital, owned by Prime Healthcare Services, and Victor Valley Global Medical Center, owned by KPC Health. Prime is a large national health care system, though not as large as Providence, which is the nation’s 10th-largest. Kaiser Permanente, which is both an insurer and a provider, has 39 hospitals and 724 medical offices across eight states and Washington, D.C. (KHN is not affiliated with Kaiser Permanente.)
A key part of the plan is for Renton, Washington-based Providence to close its 65-year-old St. Mary Medical Center in Apple Valley. It says costly upgrades required under looming state earthquake mandates don’t make economic sense.
“Retrofitting the current hospital would cost close to the same amount as building the new hospital, but you’d have to do it while operating the hospital,” said Erik Wexler, president of Providence South, which includes the group’s operations in California, Texas and New Mexico.
The seismic mandates require that by 2030 all hospital buildings used for patient care be capable of functioning in the aftermath of a major earthquake. The California Hospital Association, the industry’s main lobbying group, and seven other hospital advocacy groups are trying to persuade state lawmakers to soften the law. They warn it would cost California hospitals over $100 billion and force many to close.
The costs of meeting seismic safety codes have also factored into the business decisions of other California hospitals.
In December 2017, Pacific Alliance Medical Center in Los Angeles closed, citing the financial burden of seismic retrofitting. Sutter Health has said it will shut its Alta Bates hospital in Berkeley by 2030 because meeting the state seismic standards would not be cost-effective.
But the Providence-KP deal is as much about competition as it is about earthquake readiness. Even if hospital lobbyists persuade state lawmakers to soften the requirements, there’s no turning back on the project, Wexler said.
Though Providence has 51 hospitals in seven states, associating with KP can burnish its credentials. KP, for its part, would get a local hospital where its approximately 110,000 members in the region can go for more than just emergency care.
That makes the deal advantageous for KP members. At present, they can use St. Mary, Desert Valley or Victor Valley Global for emergency services. But for any nonemergency hospital care, they must travel to the nearest KP hospital, 40 miles away in Fontana.
If the proposal goes through, they will have a hospital for almost all their needs much closer to home, said Bill Caswell, a senior vice president at Kaiser Permanente.
That means reduced spending on emergency care for KP members at other hospitals in Victorville — including the one owned by Prime Healthcare, with which KP has a history of mutual hostility.
And having a local hospital could help KP increase its membership in the High Desert, said Kevin Holloran, who oversees financial analysis of nonprofit hospitals at Fitch Ratings, which provides credit ratings and research for investors.
Some employers and individuals prefer KP but are put off by its lack of a nearby hospital, so they sign up with other large insurance companies such as Blue Shield of California, Anthem Blue Cross, Cigna or Aetna, Holloran said. Having a Kaiser Permanente-affiliated hospital in their community might persuade them to switch, which could ultimately draw business away from Prime, KPC and even Providence-affiliated physicians, he said.
Kaiser Permanente has affiliations with 12 other hospitals across California allowing its members full access.
KP doctors will be full-fledged members of the medical staff at the new hospital, but it will be operated by Providence, which follows Catholic health care directives that prohibit abortions, insertion of birth control devices and certain other forms of reproductive care. The KP doctors will be bound by those directives while working in the hospital.
Providence is currently embroiled in a legal battle with Orange County’s Hoag Hospital, one of its affiliates, in part over allegations by Hoag that Providence illegally restricts reproductive care for Hoag patients.
Unlike Hoag, KP can accommodate its members’ reproductive health care needs at its existing facilities, including medical offices in Victorville and nearby Hesperia and its Fontana hospital, Caswell said.
The Providence-KP plan is unsettling to many residents of Apple Valley, a town a little more than half the size of Victorville. St. Mary is the town’s biggest employer and has been around since 1956. The new hospital would be Victorville’s third, while Apple Valley would be left with none.
“My main concern is that the people in Apple Valley would have to go quite a bit farther for a hospital,” said Yvonne Spallino, an 85-year-old Apple Valley resident. “Why don’t they build one over here? Why is it over there?”
Scott Nassif, a member of the Apple Valley Town Council who sits on the board of the St. Mary Medical Center Foundation, said many people in Apple Valley felt blindsided by the news their hospital would close.
“We worked so hard to have that hospital. The original developers of Apple Valley donated the land for it. Residents have financially supported it, and all of a sudden, ‘Poof — thank you, but we’re moving,’” said Nassif. “Everybody is still a little bit in shock.”
The loss of nearby emergency care would hurt Apple Valley residents the most, Nassif said. Eleven miles doesn’t sound like much, but it can take more than a half-hour to get to the site of the new hospital if traffic is heavy, he said.
Nassif, who lives close to St. Mary, is keenly aware of that time factor. One night in 2016, he began having severe chest pains and was rushed to the emergency room. “Basically, when I got there, I was on my way out,” he said. “If I’d had to go anywhere else, I probably wouldn’t be around.”
There has been talk of converting St. Mary to an emergency care-only facility. At present, state law does not allow standalone emergency rooms, but there is a move afoot to modify that law.
If such a law were to pass, Wexler said, Providence would consider an ER at the Apple Valley site, but he added, “We can’t commit to doing it.”
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