SWMC audience

EAGER CROWD — A small crowd of Sonoma West Medical Center management and employees listened with anticipation to district deliberation Thursday afternoon. The health care district approved management agreements between SWMC and Durall Capital Holdings. Photo Amie Windsor

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.

(10) comments

Rocketship XM

Well, I hope it works, but it doesn't seem to relate to the running of a real hospital, does it? It sounds like more creative self-destruction to me. Seems like Durall has the best part of the deal. And what was once Palm Drive seems desperate to stay on any life support system available, to the point of lunacy.


Right Rocketship XM. And that "lunacy" is going to ultimately cost taxpayers in the District millions of dollars. You can thank Marc Levine for AB582 which puts a statutory lien on the parcel tax. Directors Colthurst, Powers and Thomas have no conscience.


This is just part of the larger pattern RSXM: any carnival barker with a scam of some kind has been invited into this facility to keep the zombie corpse alive. There have been at least four individuals or other entities with previous, current or future lawsuits that have come in with the latest get-rich-quick scheme (remember "no-wait" ER?) and promises of pots of free money that this board of elected officials (with the exception of ONE) has followed around like lost puppies waiting for table scraps. The GB of SWMC is no less at fault. The River people were smart enough to run away from this dumpster fire.
Stand back! It's going to be more spectacular than the 3rd of July celebration when this sucker finally blows up.


Why would anyone invest in this place, other than to launder some dirty money (better watch out, it's liable to get moldy in the process)? These Florida companies aren't regulated sufficiently which is why they form their LLC's, etc. there. Nothing smells right about this transaction! They're giving it away piece by piece.


There was a story on the Megyn Kelly show last evening about the thousands of drug treatment services now located in southern Florida. Seems like very few are licensed or inspected but are eligible for reimbursement thru various insurance sources. The biggest claims are being paid for laboratory services sometimes to the extent of $10,000 per day and sometimes amounting $1,000,000 over the course of the stay. Patient families receive no feedback from any of these facilities and some patients can cycle thru 8 to10 locations because they are cash cows given the insurance they have.
Interesting coincidence that Durall is a Florida entity. What volume of these anticipated lab requests will be coming from south Florida drug treatment facilities?




Durall expects to clear $2 million a month by shipping in lab tests from around the country. They are doing that because they can charge two, five, ten times as much for a lab test done in a hospital as in a stand alone lab. It's legal, but is it ethical? They make their profits by legally gouging consumers and insurers. And SWMC and the District Board said that was OK, as long as it kept the hospital open.


What a sham!! The proposal was presented by the CNO of SWMC. She has so much knowledge? Where was the Dural man? Not to worry. After the only critical questions asked by Director Horn, the stuttering legal counsel for the District informed everyone that Dural has already signed the agreement. Sorry no changes or suggestions needed from the peanut gallery. Pack your bags Peleuses.


Oh for heaven's sake! SWMC can't pay its creditors now so why on earth would anyone think they will dole out 70K a month for this? Let's ask the 2 ED physician groups, the anesthesiologisrs or any of the vendors that will no longer supply goods how agreements have worked for them. Chat with the employees whose paychecks bounced. Come on folks-reality check.


This is just more BS. This group is USING the hospital's license to collect MediCal $$$. What does the hospital Board think we are smoking? . Just watch, if the Trump cuts happen, it all will be ashes because the Florida group will declare bankruptcy.

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