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Dennis Colthurst walks through the spotless corridors of Sonoma West Medical Center, greeting physicians, nurses and medical technicians in the small Sebastopol hospital’s emergency department, operating room, laboratory, inpatient and intensive care units.

On Friday, there were patients walking in and out of the hospital and receiving care in the various units. But there need to be a lot more to bring in much-needed revenue, said Colthurst, president of the board of directors of the Palm Drive Health Care District, which owns the hospital and supports it financially.

Even as critics of the district and hospital raise red flags about the hospital’s financial viability, citing persistent debt and potential legal liabilities surrounding a lucrative but now-defunct drug testing program, Colthurst remains optimistic about the hospital’s future.

“We’re treating patients, our emergency room, our surgery department are open,” Colthurst said. “We’re OK right now. We’re looking at the next steps to increase revenue through extra lines of work.”

But for some hospital observers and critics, the controversy surrounding the hospital toxicology program demonstrates poor leadership on the part of both the hospital and district, and the best solution may be to sell it.

Hospital district board member Jim Horn started raising questions about the toxicology program in June, and said last week the hospital is sure to have significant monthly losses now that the hospital’s toxicology partnership with Durall is dead.

He has begun pushing the board to consider cutting its management services and staffing agreement with Sonoma West Medical Center and selling or leasing the hospital. Horn said doing so would remove “IRS defects” in the district’s current tax-exempt bonds.

The defect comes from the district’s business arrangement with Sonoma West Medical Center, which the IRS could view as a “de facto lease” that has led to a nongovernmental use of the hospital, he said. As a result, the district is currently trying to refinance its bonds as taxable, a move that will increase interest payments $5.7 million over the life of the bonds, he said.

Cutting ties with the medical center could result in even more savings if the district refinances roughly $10 million in certificates of participation to an even lower tax-exempt interest rate.

Last spring, the hospital was losing about $1 million a month since reopening in October 2015. That’s when the hospital formed a partnership with Aaron Durall, a Florida-based attorney who ran a medical laboratory company called Reliance Laboratory Testing that did drug testing for rehab or detox centers.

Under the deal, the hospital agreed to conduct drug screenings for Durall in exchange for a loan of $2 million, part of which was used to buy lab equipment.

The toxicology program generated about $31 million between July 2017 and February 2018; the hospital’s share was $10 million, or about $1.25 million a month.

But the hospital stopped doing drug testing for Durall after insurance giant Anthem Blue Cross in early February accused the hospital and health care district of participating in a business fraud scheme resulting in more than $13.5 million improper payments to the medical center.

Anthem said Durall used the hospital’s reimbursement rate to charge as much as 10 times the rate of a standalone toxicology lab. Anthem has threatened legal action and demanded the money be repaid.

In late March, Anthem filed a lawsuit against Durall and his business holdings, accusing him of engaging in a “widespread fraudulent scheme” to enrich himself at the expense of the insurance company. Durall’s toxicology operations were the subject of a CBS News investigation last month.

Durall declined to comment on the latest lawsuit. His spokesman, Kevin Boyd of Boyd Public Relations in Fort Lauderdale, Florida, repeated Durall’s statement of last month, insisting that all testing done at the Sebastopol hospital was “properly conducted in accordance with all local, regional and federal regulations and laws.”

Colthurst and hospital officials on Friday defended their involvement with Durall, insisting that they have done nothing illegal and that all tests done at the medical center and by Reliance were properly billed.

Natalie Peters, 72, a Sebastopol resident who with her husband has attended several meetings about the hospital’s future, said certain members of the district have lost sight of their responsibility to taxpayers in the district.

Peters lives in the Harmony Union School District, which is in the hospital district’s boundaries, and believes the district board has mismanaged taxpayer funds.

“Their focus is to keep that hospital open at the cost to all of us taxpayers,” she said. “They need to have someone like Kaiser or whatever take over that hospital.”

Hospital officials and staff are convinced the hospital can make it on its own. They say the infusion of toxicology funds has put hospital on stronger financial grounds.

The medical center’s chief nursing officer and COO Barbara Vogelsang said Friday improvements to the hospital’s billing and collections procedures have resulted in greater revenue for the hospital.

These changes brought in an extra $400,000 over a three-month period, not including surgery revenue, hospital officials said.

Surgeries, which were stalled for an extended period of time from a problem with mold, have resumed and are expected to result in future revenue.

The hospital costs about $1.7 million a month in salaries and expenses to run and generates about $1.4 million in monthly revenue, not including surgeries, officials said. Hospital administrators are looking at ways to bring in more revenue, including more aggressively marketing its laboratory services.

Rosaly Medina, a registered nurse who works in the emergency department, believes the hospital can survive.

Medina said the five-bed emergency department usually sees 15 to 20 patients in a single 12-to-15 hour period, and most days averages one or two inpatient admissions to the hospital’s surgical unit.

Mark Blankenship, director of the hospital’s operating room, said that in the past four weeks since the hospital operating room reopened, 34 surgeries had been performed as of Friday.

Most of them are elective surgeries, but also emergency fracture management cases, such as broken hips, ankles and wrists.

“We’re back up, we’re open and we’re busy, and we’re happy to be so,” Blankenship said.

John Peleuses, the medical center’s CEO and president, said it’s too early to gauge how the hospital is doing after losing the lucrative flow of money from Durall’s toxicology program.

He said that the hospital’s viability based on monthly revenue would become evident in another six months.

Colthurst, the district board president, said the hospital has proven its worth. During last October’s firestorm, he said the hospital took in 21 patients in three hours that fateful Oct. 9 morning.

In just five days, the hospital treated 544 patients, due to the closures of Kaiser and Sutter hospitals.

“This place just hummed,” he said.

You can reach Staff Writer Martin Espinoza at 707-521-5213 or martin.espinoza@pressdemocrat.com. On Twitter @renofish.

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