Sonoma West Medical Center at a crossroads after losing lucrative drug-screening revenue
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.