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American Advanced Management Group (AAMG)

Palm Drive HCD Reveals Sale-Lease to American Advanced Management Group Contract

Feb 5, 2019

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By Carol Benfell

The first details of a contract to sell Sebastopol’s hospital were unveiled on February 4 at a meeting of the Board of thePalm Drive Health Care District.

The contract with American Advanced Management Group (AAMG) is a two-year lease with an option to buy, with a sales price set at $5.2 million. AAMG is a for-profit company based in Modesto and is currently managing the hospital for a $100,000 monthly fee.

The District, which owns the hospital, will explain the deal to the public over the next two weeks at a half dozen town hall meetings scattered throughout West County.* SEE BELOW 

On March 5, voters living in the District will go to the polls to approve or disapprove the lease, then sale. Under state law, voters must approve the contract because the District is a governmental entity, with a publicly elected board.

Board members seemed happy and relaxed during the hour and a half discussion about the contract, apparently relieved that five months’ negotiations with AAMG had at last borne fruit.

The District is selling the hospital because the District can’t afford to keep it open, explained Alanna Brogan, the District’s executive director, in a power point presentation. She said the District had no money to pay for deferred maintenance, no reserves to keep the hospital operation, and had been unable to operate the hospital without sustaining losses.

The District is in its second bankruptcy and $28 million in debt.

The Board voted 4 to 1 to approve a resolution adopting the lease/sale contract, over the objections of Board Member Jim Horn, who argued that the Board could and should have held out for a better lease payment and sales price.

The appraisals, which stretched over a two-year period, valued the hospital building at zero dollars because of the amount of deferred maintenance, so the sales price reflects essentially the value of the land. “I don’t believe the District is getting fair market value in this lease and sale,” Horn said.

The appraisal included the $2.3 million value of hospital equipment, but the $2.3 million is not included in the sale price because the equipment is entangled in a bankruptcy by the former hospital manager, Sonoma West Medical Center Inc., Horn said. That bankruptcy is separate and independent from the District’s two bankruptcies.

Board Member Gail Thomas favored the sale, and reminded listeners that the District would have had to close the hospital last fall, had AAMG not stepped in. She said AAMG would keep the hospital open. “I want a hospital, and I think the community wants a hospital,” she said.

The hospital, now named Sonoma Specialty Hospital, is transitioning to a long term acute care hospital that primarily treats extremely frail patients referred by other hospitals. The emergency room has been closed, with an urgent care center expected to open soon.      



DETAILS OF THE CONTRACT

Under the current management agreement, the District pays American Advanced Medical Group (AAMG) $100,000 a month to run Sebastopol’s hospital. AAMG has a 10-year management contract and the exclusive right to buy the hospital any time during that period.

The new contract approved by the Board on February 4 gives AAMG a two-year lease with option to buy the hospital, now namedSonoma Specialty Hospital. The lease can be renewed twice for two years each time, for a total of six years.

Instead of making lease payments to the District, worth an estimated $275,000 a month, AAMG will plow that money back into hospital maintenance, including deferred maintenance and day-to-day maintenance.

Under the lease part of the contract, AAMG assumes full responsibility for the hospital, and the District no longer has any responsibility to maintain it, buy new equipment or pay management fees to AAMG. The hospital license will be transferred to AAMG.

If AAMG buys the hospital within the first two years of the lease, as anticipated, it will pay $5.2 million for the hospital-- $4 million in cash and $1.2 million in a promissory note due at the end of 10 years.

If AAMG does not buy the hospital within the first two years of its lease, a new appraisal and a new sales price will be determined.

If AAMG keeps the hospital and an urgent care center open during the 10-year period of the promissory note, the note will be forgiven and AAMG does not have to pay the $1.2 million.

If AAMG closes the hospital or sells it within the 10-year period, the $1.2 million plus interest is immediately due and payable.

Assuming the hospital is sold within the first two years of the lease, the District will use the $4 million to pay off the General Obligation bonds issued in 2002 and secured by the hospital building and property.

That’s the smaller of the two taxes that are levied by the District and appear on property tax bills. That tax vanishes when the General Obligation bonds are paid off.

The remaining $15.2 million in outstanding hospital bonds would be refinanced, according to William Arnone, the District’s attorney. These bonds were sold to investors as tax-free because the hospital was a non-profit. Since AAMG is a for-profit company, the bonds must be refinanced as taxable bonds, Arnone said.

These bonds are represented by the $155 parcel tax that appears on property tax bills.That amount will not change with the sale of the hospital.



Palm Drive HCD TOWN HALLS

The District would like to inform you about the sale agreement. We will provide education and information about the purchasers American Advanced Management Group. Learn about health services that remain available to you in West County: Urgent Care, Surgery, Lab, Radiology, and Hospital Care.

INFO: Cheri R. Taub  (707) 823-3586 ASK ANY QUESTION YOU WANT

2/5: 6 – 8pm
Sebastopol Grange, 6000 Sebastopol Ave, Sebastopol

2/6: 6 – 8pm
Salmon Creek Middle School, 935 Bohemian Hwy, Occidental

2/8: 6:30 – 8pm (A League of Women Voters Debate)
Sebastopol Community Church, 1000 Gravenstein Hwy N, Sebastopol               

2/11:6 – 8pm
Graton Fire Station,3 750 Gravenstein Hwy N, Sebastopol

2/13: 6 – 8pm
Sebastopol Community Center, 390 Morris St, Sebastopol

2/18: - 6 – 8pm
Bodega Bay Grange, 1370 Bodega Ave, Bodega Bay

Comments:

Feb 22, 2019
NO on Measure A I would like to have a community-centered hospital close to home, and I voted to pay property taxes to keep the former Palm Drive Hospital open every time it was on the ballot. But I cannot vote for Measure A, for three key reasons. 1. Measure A is more costly than shutting the hospital. Simply closing the hospital would end operating losses, without the added costs of Measure A. - The property was appraised at less than full market value, because of artificial limits the proponents placed on its use. This technically qualifies as “fair market value”. - The proposed buyer pays zero cash rent. Instead the buyer gets credit for refurbishing the buildings, then gets to buy them at a price that valued the buildings pre-refurbishing. This is double dipping. - The buyer pays only $4 million, or about three-quarters of the appraised value of the property, while $1.2 million of the price is “forgiven” if the buyer operates a healthcare facility for ten years. This $1.2 million is an unearned bonus, for a service the buyer already committed to perform under an exclusive ten-year management contract. 2. Measure A fails to deliver a community-centered hospital. - The emergency room is gone. The facility is being converted to a “long-term acute care” hospital that caters to large hospitals from out of the area and their patients, also from out of the area. - The proposed buyer has already turned away local doctors who performed surgery at the old hospitals, Palm Drive and Sonoma West MC, because they don’t get patients in and out fast enough to meet profit margins. - At the League of Women Voters forum on Feb. 8, the panelists who negotiated with the buyer’s representatives reported the buyer is willing to walk away if Measure A does not pass. 3. Measure A denies the community the opportunity to decide on future uses for the property driven by community benefit. - For example: partnering with West County Health Centers, creating workforce housing or assisted living facilities, and open space uses. - Nothing prevents the buyer from selling or developing the property. Given its prime location in Sebastopol adjacent to the Laguna, private developments could include: luxury hotel, high-end housing, corporate or commercial complex. Please vote NO on Measure A. Stop the losses AND keep this irreplaceable property dedicated to serving the community.
- Elizabeth McCarthy

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