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Deal on eggshells: Petaluma hospital board calls Paladin Healthcare's agreement very risky

A management agreement between Petaluma (Calif.) Valley Hospital and El Segundo, Calif.-based Paladin Healthcare may fall through because the Petaluma hospital board deemed the deal too risky, reports The North Bay Business Journal.

Paladin Healthcare proposed an agreement to manage Petaluma Valley Hospital while it builds a new EMR system. However, Petaluma Hospital District's board said Tuesday the proposal places too much financial risk onto the district, according to the report. The hospital was seeking a leasing agreement rather than a management agreement.

"The management agreement structure requires the district to assume significant financial risks, and to incur expenses that may not be in the best long-term interest of PVH," said Ramona Faith, CEO of the Petaluma Hospital District, according to the North Bay Business Journal. "Our concerns around these issues mean that we need to deliberate further on a number of points."

Ms. Faith said the board didn't make a final decision on rejecting Paladin's latest proposal; however, she mentioned the district will explore other options, including selling the hospital or reopening negotiations with Irvine, Calif.-based St. Joseph's Health, the current operator.

Last year, the hospital's 20-year management lease with St. Joseph's Health ended and talks to extend the agreement flopped over several discrepancies. The Petaluma hospital district then selected Paladin as its top choice to succeed St. Joseph's, who agreed to stay on as an operator during the transition. However, the transition hit a bump over the hospital's EMR system. PVH's EMR is currently integrated into the St. Joseph's regional network and the hospital system said it would be too costly to decouple PVH's system from its network. As a result, PVH must construct a new system, which could cost upwards of $5.5 million and take 12 to 18 months to build.

Since a hospital is required by law to have an EMR system, Paladin could not move in until the new system is in place.

Paladin was unaware of the IT  issue when it submitted a bid to take over as operator of the hospital. The management agreement was proposed as temporary, "creative" solution that allows Paladin to manage the hospital until the IT system was built. Once the EMR installation was completed, Paladin would then consider proposing a leasing agreement.

Paladin's Senior Managing Director Gray Frazier told The North Bay Business Journal that the health system was willing to help fund the IT system, but did not want to assume the risks involved before officially taking over the hospital.

"We did not see the logic of taking 100 percent of the risk on an asset we are not immediately moving into," Mr. Frazier said. "Paladin is OK with building a new system. We are not OK with building a new system and not operating [the hospital]."

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