Proposed lab services to bring $2 million a month
A deal that district board members called the hospital’s “last hope” was approved yesterday during a joint meeting of the Sonoma West Medical Center governing board and Palm Drive Health Care District board.
Both boards approved a management services agreement and laboratory management services agreement between Sonoma West Medical Center and Durall Capital Holdings, a Florida-based investment firm with approximately a year experience in the hospital industry.
“Sonoma West Medical Center is entering into a lab and management agreement,” said Chief Nursing Officer Barbara Vogelsang. “This is an opportunity for Sonoma West Medical Center to embark upon new services lines that have helped other rural hospitals.”
Under the laboratory management services agreement, the hospital will perform initial toxicology testing sent by Durall from individuals in drug rehabilitation programs from throughout the country. Durall technicians will perform the tests on new equipment to be installed in the hospital. Durall will purchase the equipment, valued at approximately $100,000, and invoice SWMC for repayment after six months of performing toxicology testing.
Durall will manage the toxicology laboratory for $150,000 a month, a sum that seemed superfluous to some board members.
“What exactly is Durall doing for $150,000 a month?” Jim Horn, district board member asked.
According to district attorney Bill Arnone, Durall will be, “funneling business through their contacts.”
“I think developing the service line is huge,” added district executive director Alanna Brogan.
Aaron Durall, principal with Durall Capital Holdings, estimates the hospital will run between 10,000 and 15,000 tests per month. Durall believes payout from insurers for the drug testing will be $2.8 million a month. SWMC interim CEO John Peleuses said the hospital and Durall researched the reimbursement rates from the hospital’s current insurers and that the estimated revenue is realistic.
According to the estimates, SWMC would collect $923,000 per month after payment for cost of reagents, personnel and estimated overhead of $773,000 is paid to Durall. According to the summary of agreements, the monthly payout is still being worked out.
According to Vogelsang, the country’s opioid epidemic will bring a steady stream of testing into the laboratory. “Our lab will have the necessary equipment to rapidly process these tests,” she said.
The United States Department of Health and Human Services reports that 12.5 million Americans misused prescription opioids in 2015; approximately 48,000 people died from opioid overdose.
Vogelsang said SWMC will eventually establish a drug rehabilitation center at the hospital, following the business plans put into effect at rural hospitals in Georgia and Alabama, also owned by Durall.
Vogelsang emphasized the hospital will continue to provides its current services.
“All existing services, including the operating room, emergency room, ICU and medical surgical unit will remain and continue to serve our community,” she said.
Under the management services agreement, Durall will manage all aspects of the hospital operations and abide by the management services and staffing agreement between the hospital and the district. SWMC will pay Durall $80,000 a month for the first six months of operations. The fee will reduce to $70,000 a month for the subsequent six months.
An additional $200,000 will be paid to Durall once the hospital, “has working cash liquidity in the amount of $2 million” and is current with all accounts payable. As of early June, the hospital’s current accounts payable was about $6.8 million, according to Peleuses.
Durall came into the picture in early April when the hospital was facing closure after the anesthesia group quit for lack of payment. The holdings company gave the hospital a $1 million loan; since then, the hospital has received another $1.1 million. A promissory note, also approved by the district, requires SWMC to pay the loan back once its accounts payables are current and the hospital has working capital.
“It’s a loan on very beneficial terms to SWMC,” Arnone said.
Peleuses said he believes the agreement will turn things around for the struggling hospital.
“I’m pleased to say the two hospitals [Durall manages] were not profitable, not successful,” he said. “Since then, not just with the lab, but by adding detox, they’ve been able to turn from a non-profitable to a profitable state.”
He added that Durall has invested capital into its two other hospitals, bringing in new beds and surgical instruments and working to make the sites more aesthetically pleasing.
Peleuses did not have any documented evidence on whether or not patient care at each site has improved, worsened or stayed the same.
“Rest assured,” Peleuses said. “We are not about to let the quality of care we give slide. That won’t change.”
Currently, the hospital is under investigation by the California Department of Health because it found mold in its sterilization room. Hospital management allowed scheduled surgeries to occur the day after both state and county officials advised the hospital to avoid using the sterilized equipment.