10:00 PM PST on Friday, December 11, 2009

By GAIL WESSON
The Press-Enterprise

Voters on Tuesday will decide the future of health care in the San Jacinto Valley and Menifee area when they consider whether to allow the sale of public hospital assets to a private doctors’ group.

The hospital board in October approved the sale of assets, including Hemet Valley Medical Center and Menifee Valley Medical Center to Physicians for Healthy Hospitals, a group of 132 local doctors, for an estimated $162 million.

It is the second time in recent years that voters have been asked to weigh in on selling Valley Health System’s assets.

In November 2007, voters rejected Measure G to sell the district’s assets to Select HealthCare Solutions of Del Mar. Some months later, in a complex deal involving Select and Kaiser Foundation Hospitals, the district-owned Moreno Valley Medical Center was sold to Kaiser.

But that didn’t end the district’s financial woes and two years ago the district filed for bankruptcy intending to devise a repayment plan. The district owes bondholders about $42.5 million and unsecured creditors — those not guaranteed payment — about $21 million.

Unlike past hospital-related elections in which voters received pro and con campaign mailers, only yes-on-Measure-P literature is in mailboxes

Instead, Prime Healthcare Services, owned by cardiologist Prem Reddy, has filed several lawsuits and been the target of one on measure-related issues. Prime was rebuffed in an attempt to offer a competing bid, because the doctors group had an exclusive agreement with Valley Health. Other lawsuits have sought public records, information about investors for the doctors’ offer and dueling lawsuits over ballot statements.

Reddy is known throughout the Southern California health care industry for canceling insurance contracts, allowing his hospitals to collect higher payments.

But Prime’s attorney, Michael Sarrao, said of Physicians for Healthy Hospitals: “We think they are trying to hide things from the public that shouldn’t be hidden.”

Legal maneuvering has failed to determine where the purchase money is coming from.

The federal bankruptcy judge concluded Prime did not prove that the hospital district’s decision to sell was influenced by Dr. Kali Chaudhuri, a polarizing local doctor and businessman. The judge stated that no proof was submitted showing that Chaudhuri would benefit from the sale.

Dr. Alex Denes, spokesman for the doctors group, said Reddy has been “obstructive not constructive.”

More than 90 percent of the active medical staff of the two hospitals support the group, Denes said. Doctors buying shares in the group will have a stake in its success.

“This process and our Private Placement Memorandum are in compliance with federal securities laws to safeguard investors and the sale transaction. It would be inappropriate and potentially in violation of securities rules to release confidential investor information at this time,” he said in a written statement this week.

The other questions raised in the community are about continuation of emergency, obstetrics and other services. The agreement requires the services continue for five years, with narrow exception, but Denes said the aim is to continue the services.

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