Dec. 12, 2011 | The Eden Township Healthcare District notified financially-strapped St. Rose Hospital last week it was in default of a $2.35 million loan the elected body provided the Hayward private hospital last fall.

The Dec. 6 letter to St. Rose from the District was followed a day later with an offer by its CEO Michael Mahoney for a repayment schedule calling for weekly payments ranging from $167,000 to $200,000 through the beginning of next March. The District is expected to approve the plan at its monthly meeting on Wednesday.

The District loaned the struggling hospital $3 million last August after a botched computer system conversion prevented St. Rose from billing Medicare for services rendered.

Speaking before the Eden Township Board of Directors last month, Mahoney said the hospital’s billing procedures had been fixed and regular cash flow and been re-established.

Terms of the initial $3 million loan called for a quick remittance of the balance once the hospital’s billing situations was abated, along with 8.25 percent simple interest.

According to correspondence between the District and Mahoney, the hospital had partially paid down some of their debt with a single $650,000 payment on Oct. 31, but had not made another payment or agreed to a re-payment schedule for the remaining $2.35 million until Dec. 7.

The burgeoning alliance between the District and St. Rose comes with mutual benefits, both sides agree. Earlier this year, Mahoney approached the District with a proposal that would allow them to absorb St. Rose into the health care district as a means to secure the viability of both San Leandro Hospital and St. Rose. By combining the two facilities, Mahoney says, the district will benefit from larger economies of scale that can be converted into more generous federal grants and subsidies.

The future of St. Rose and the tenability of providing health care at the county level is currently at a tipping point, according to Mahoney and other county health care officials.

“We’ve stopped digging the hole deeper,” Mahoney said to the board last month. “Now its a matter of making sure we fill it in and hit our targets.” In addition, the hospital is monitoring its cash flow on a daily basis, Mahoney said, and does not foresee any dire financial straits, at least, for the next few months.

An outside consultant hired by the county was brought in last summer to review the financial situation at St. Rose. Mahoney says many of the recommendations have been put into place and have led to immediate savings. Within a month, he says, a case management consulting firm reduced the average length of stay at the facility from 5.8 days to 4.3.

“This is a risky time in health care,” said Mahoney, who along with a county health care administrator urged the District to quickly move forward with discussions to merge with St. Rose. “We remain concerned about how St. Rose and the District could come together,” he said. “We are optimistic, but if we move forward on this, we realize this will be a risk venture.”

Alameda County Health Care Services Director Alex Briscoe said regardless of the District’s pending lawsuit over the fate of San Leandro Hospital, it needs to go forward with merger talks. “Mov[ing] with great haste to execute the merger between the District and St. Rose,” said Briscoe, “makes sense on multiple levels regardless of the lawsuit’s outcome.”

A staff member representing Alameda County Supervisor Nadia Lockyer also asked for a quick and positive resolution to merger talks between the two sides.

One of the main benefits of adding St. Rose to the Eden Healthcare District involves a greater opportunity to increase tax revenue through the ballot box. Theoretically, the District would have greater leverage in passing potential bond measures to shore up funding for operation at facilities in Hayward and San Leandro.

The outcome of the District’s appeal of a prior ruling by a Alameda County Superior Court judge earlier this year granting title of San Leandro Hospital to Sutter Health could be handed down as early as January.

Sutter sued the District in 2009 for control of the facility after the District blocked the transfer of title to the Sacramento-based non-profit chain. The District counter sued saying the a conflict of interest existed within its previous board of directors and CEO at the time of a 2008 agreement meant to rebuild Eden Medical Center in Castro Valley and allow two more years for San Leandro Hospital to become financially viable.

At the time, the CEO of Eden Medical Center held the same position at the health care district. Attorney’s for the District also contend one member of the previous board maintained dual loyalties to Sutter and the District as a practicing anesthesiologist with ties to Eden Medical Center.