Local hospitals try to sew up new surgery centers

(Rigo Moran)

Kaweah Health and Adventist Tulare both have plans to build surgery centers in Visalia to suture financial losses

VISALIA – Surgeries are the lifeblood of hospital revenue and Tulare County’s two largest healthcare centers are both maneuvering to open surgery centers in Visalia.

Kaweah Health CEO Gary Herbst is meeting with public hospital’s board members May 15 to discuss building a new surgery center – likely on land the district owns in the Sequoia Gateway property on Caldwell on Highway 99 – in a partnership with private physicians.

The hospital already has a partnership with surgeons Sequoia Surgery Center (SSC), a California limited liability company formed on August 1, 2010 after a merger between Cypress Surgery Center and the Center for Ambulatory Medicine & Surgery (CAMS). SSC operates a four-suite ambulatory surgery center on Akers in Visalia where they performed approximately 5,600 outpatient surgeries and endoscopic procedures during 2023, 8.3% more than in 2022.

Surgery services include orthopedics, general, gynecological, urological, plastic, podiatric, pain management and ENT. SSC gastroenterologists also perform a significant number of endoscopic procedures at the Center, primarily colonoscopies, which account for approximately 40% of all case volume. SSC is owned by 13 surgeons (69.4% of the company) and Kaweah Health (30.6%). Currently SSC’s primary competition for outpatient surgery includes Kaweah Health, Sierra Pacific Orthopedic Center (Fresno), and private physician offices.

In the past, SSC investors had decided not to expand their Akers center to attract more business. But now there is concern that a rival may beat them to the punch and build a new surgery center in what Kaweah views as its territory. They figure that this could hurt Kaweah Health and their partners.

In a staff report Herbst says “The biggest strategic initiative being considered right now by SSC, CyCo and Kaweah Health is the construction of a new 28,000 square foot ambulatory surgery facility at the Sequoia Gateway project site located at Caldwell and Highway 99; a joint venture with SSC and other interested physicians, local investors and a private equity company (Montecito); initial plans recommend eight operating rooms and three procedure rooms.” CyCo is an entity they set up to own real estate.

Last year Montecito Medical acquired the 32,300-square-foot five story medical office property on Willow across from the hospital which Kaweah Health has been leasing.

The hospital has contracted with a consulting firm by the name of Amblitel to perform a financial feasibility study of the proposed surgery center. They study is now complete and ready to review with interested physicians and other investors.

(Rigo Moran)

Adventist plan

“We are aware that Adventist Health has also hired a consultant to evaluate the feasibility of developing a competing ambulatory surgery center in Visalia,” the Kaweah staff report continued. “They have reached out to many local surgeons to see if they would be interested in investing in and utilizing an Adventist Health ambulatory surgery center (ASC)” that focuses on providing same-day surgical care, including diagnostic and preventive procedures.

“It is our understanding that Adventist Health has historically not allowed physicians to be owners in their facilities but with respect to this proposed ASC they are considering allowing physicians to own up to 49% of the joint venture. The 13 surgeons who are currently invested in SSC are prohibited from investing in any other ASC so long as they are investors in SSC. All but one of Visalia Medical Clinic’s surgeons are investors in SSC.”

The two healthcare giants have faced off in the past few years after Adventist Health, already dominant in Hanford and Kings County, moved into the city of Tulare to take over operations of the former Tulare Regional Medical Center. They also became the owner of the Bakersfield hospital with a site in Delano.

In 2021, Kaweah Health ventured into Tulare and opened a new medical clinic there that would funnel patients to Kaweah.

Last year Adventist returned the favor, taking over operation of the Visalia Medical Clinic in partnership with their physicians, and removing a large pipeline that had provided decades of patients who formerly got all their care at Kaweah. Over 60 physicians work out of the practice. Kaweah Health and Visalia Medical had been partners since 2015. 

OB closure

Adventist Health can be described as a significant player in health care in California and substantially wealthier than Kaweah Health, a public healthcare district. Adventist says it is “a faith-based, nonprofit, integrated health system serving more than 100 communities on the West Coast and Hawaii with over 440 sites of care, including 28 acute care facilities. Founded on Adventist heritage and values, Adventist Health provides care in hospitals, clinics, home care, and hospice agencies in both rural and urban communities. Our compassionate and talented team of more than 38,000 includes employees, physicians, medical staff and volunteers.”

Kaweah Health has about 5,000 employees at eight campuses.

Adventist may be hurting in terms of revenue too after the recent news it will be closing its birthing center in June. The closure will mean laying off obstetrics staff who will now likely work at Kaweah – a loss for Adventist on both the baby and mom side of the business.

On the other hand, the nonprofit network of hospitals is clearly in an expanding mode with the news Adventist Health just bought Sierra Vista Regional Medical Center in San Luis Obispo, Calif. and Twin Cities Community Hospital in Templeton, Calif. for $550 million in February from for-profit Dallas-based Tenet Healthcare. The purchase also included two imaging centers and 11 primary care and specialty clinics.

For Kaweah, the surgery side of their business is critical to maintaining a positive cash flow because it serves a large Medi-Cal and Medicare population that does not offer good profit margins.

While the number of patients getting care at the Visalia hospital is down in the past year, revenues from outpatient services continue to outperform inpatient revenue. Management is concerned that the 713 surgeries in the district as of March 2024 is down from 961 from March 2023.

Still, Kaweah Health has just come out of many months of red ink in their operations as they have only recently recovered from the overwhelming expense and impacts of the Covid pandemic. The fact that the Kaweah board is taking up this matter this week in a public forum indicates they are likely wanting to move forward on this project.

Meanwhile, Adventist Health will likely build in town near Visalia Medical Clinic where a cluster of medical services are.

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