November 24, 2010 Mark B. Horton, MD, MSPH Director California Department of Public Health 1615 Capitol Avenue Sacramento, CA 95899-7377 Re: Alvarado Hospital Dear Dr. Horton: As the Assemblymember for the district in which Alvarado Hospital is located, I am very concerned about patient care and septicemia rates of infection at Prime Healthcare Services hospitals that recently purchased Alvarado Hospital. I am calling upon you in your capacity as Director to take all steps necessary to enforce the standards established for safe patient care at the Alvarado Hospital facility. I understand and appreciate that the California Department of Public Health (CDPH) and other agencies have begun investigations into Prime Healthcare’s billing for disturbingly high rates of septicemia. Until these investigations are concluded and the rates of septicemia under control, it is my belief that Prime Healthcare should not be awarded a new license to operate a hospital, in particular Alvarado. I also understand that in Prime Healthcare’s public announcement of the acquisition of Alvarado Hospital in San Diego, they stated that the purchase of the hospital does not represent a change of ownership because Prime bought 100% of the ownership interest in the company that owns the hospital, but not the hospital itself. I am deeply troubled that Prime Healthcare may be attempting to circumvent the requirements of the law in order to acquire and operate a health facility despite these pending investigations and poor track record on rates of septicemia infection. I am genuinely alarmed that if Prime Healthcare is allowed to use this device to obtain control of a health facility, compliance with the existing law regarding change of ownership of health facilities will be effectively voluntary, applicable only to those entities that choose to comply with the law.

STATE CAPITOL P.O. BOX 942849

SACRAMENTO, CA 94249-0078 (916) 319-2078

FAX (916) 319-2178

DISTRICT OFFICE 7144 BROADWAY

LEMON GROVE, CA 91945 (619) 462-7878

FAX (619) 462-0078

WEBSITE http://asmdc.org/members/a78

MARTY BLOCK ASSEMBLYMEMBER, SEVENTY-EIGHTH DISTRICT

COMMITTEES CHAIR, HIGHER EDUCATION ACCOUNTABILITY AND ADMINISTRATIVE REVIEW JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY VETERANS AFFAIRS SELECT COMMITTEES CHAIR, K-16 ARTICULATION, ACCESS AND AFFORDABILITY BIOTECHNOLOGY CAREER TECHNICAL EDUCATION AND WORKFORCE DEVELOPMENT

Mark B. Horton, MD, MSPH November 24, 2010 Page 2 If Prime’s assertion that acquisition of Alvarado is not a change of ownership stands, then the Health and Safety Code’s licensing requirements upon a change of ownership at hospitals and nursing homes would be eviscerated. The vast majority of nursing home and for-profit hospital sales could be structured so that the purchaser buys a controlling interest in the legal entity that holds the hospital, typically an LLC, but disclaims ownership for the purposes of licensing. This would enable anyone to assume an existing license over a health facility in California. In the e-mail from Suzanne Richards to Kathleen Billingsley dated November 17, 2010, it states “Prime Healthcare, Inc., acquired 100% of the membership interests of Alvarado Hospital LLC. This is not a change of ownership, but a change of information as the licensee, Alvarado Hospital LLC, will remain the same.” However, in its press release announcing the “acquisition” of Alvarado Hospital, Prime Healthcare repeatedly states that it will “operate” the hospital. For instance:

• “Prime Healthcare will continue to operate Alvarado as an acute care hospital with an open and improved emergency department.”

• “Several of the other thirteen hospitals Prime Healthcare owns and/or operates in California are undergoing major seismic retrofit structural improvements”

In addition, Prime Healthcare portrays itself as the management of the hospital in the following statements:

• “New management will retain substantially all of the current employees and honor the contractual obligations of the current collective bargaining agreements in place.”

• “Prime Healthcare intends to maintain the managed care contracts currently in place at Alvarado and will continue to contract with Medicare, Medi-Cal, and the County of San Diego Indigent Programs.”

• “Prime Healthcare has no intention of closing Alvarado Hospital (“Alvarado”) or the services it currently provides”

• “Prime Healthcare will ensure the hospital building structures comply with all seismic regulator requirements.”

By its own words, Prime Healthcare indicates that it intends to manage and operate the hospital. The provisions of Section 1253 of the Health and Safety Code state in part:

1253 (a) No person, firm, partnership, association, corporation, or political subdivision of the state, or other governmental agency within the state shall operate, establish, manage, conduct, or maintain a health facility in this state, without first obtaining a license therefore as provided in this chapter,…

Mark B. Horton, MD, MSPH November 24, 2010 Page 3 Moreover, state regulations prohibit the transfer of a hospital license to a new owner, and specifically require application for a new license upon a change of ownership. 22 CCR §70105, §70125. Acquisition of a majority ownership of a limited liability company constitutes a change of ownership under state and federal law. Prime Healthcare has purchased a 100% ownership interest in Alvarado Hospital LLC. Thus the ownership of Alvarado Hospital LLC has changed thereby triggering the change of ownership license application process under Section 1265 et seq. of the Health and Safety Code. I request that you refuse to accept the alleged “change of information,” revoke Alvarado Hospital LLC’s existing license and take all measures available under the law to ensure that Prime Healthcare does not skirt the licensing requirements. The Department should further deny any change of ownership license application by Prime until such time as all investigations are completed, and safe patient care is established. Sincerely, Marty Block Assemblymember AD-78 Cc: Kathleen Billingsley, R.N. Deputy Director CDPH Monica Wagoner Deputy Director Office of Legislative and Governmental Affairs CDPH Sheena Nash Legislative Coordinator Office of Legislative and Governmental Affairs CDPH