Sonoma West Medical Center files for liquidation bankruptcy

Sonoma West Medical Center, the management services firm that until early September operated Sebastopol’s struggling district hospital, filed for Chapter 7 bankruptcy last week, according to court filings.

The move, known as a liquidation bankruptcy, affects some 180 creditors ranging from insurance companies to vendors that provided medical products, food and office supplies, according to a voluntary bankruptcy petition filed Sept. 26.

Dan Smith, president of the board of directors of Sonoma West Medical Center, who is listed as the authorized representative in the bankruptcy filing, could not be reached by phone or email Monday. The listed attorney, Douglas Provencher of the Santa Rosa law firm Provencher & Flatt, also could not be reached by phone or email.

Sonoma West Medical Center had struggled to make the hospital profitable since it reopened the facility in the fall of 2015. The hospital, which is owned by the Palm Drive Health Care District, was closed in the spring of 2014 due to dramatic declines in both overnight patient stays and insurance reimbursements.

Sonoma West Medical Center’s nearly three-year partnership with the district, as spelled out in a management services agreement between the two, was fraught with controversy - in particular, the medical center’s business venture with a Florida-based drug testing company that triggered a major lawsuit.

In a legal suit filed June 1, insurance giant Anthem Blue Cross accused the medical center of conspiring with the Florida company in a billing scheme that Anthem claims defrauded it and its members of $16 million.

The lawsuit alleges that the medical center knowingly allowed Reliance Labs to use it as a drug-testing front, taking the hospital’s credentials to bill for testing on urine samples taken from Anthem members elsewhere. Hospital officials said Sonoma West had complied with the law and rejected the claim it was used as a front to bill for testing it had not performed.

The district’s relationship with the medical center ended in early September, when it signed a new management services agreement with Advanced American Management Group. Under the agreement, the struggling Sebastopol facility is being transformed into an extended-stay hospital under new management.

The agreement also gives the new operator the exclusive option to potentially purchase all or part of the hospital’s assets, including its license, equipment, supplies and furnishings. The new facility provides hospital-level care for patients with complex medical conditions who must remain in the hospital setting for 25 days or more. The nearest such facility is in Kentfield.

Dennis Colthurst, president of the health care district board, said neither the district nor the new operator are responsible for the previous operator’s financial liability.

“This could be a good solution,” Colthurst said, referring to the new operator. “We’re going to have a long-term acute care hospital. Those beds are sorely in demand.”

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