Tri-City cedes market share to Palomar

North County's two flagship public hospitals are locked in a fierce business struggle, with Tri-City Medical Center losing money and patients to competitors while Palomar Medical Center surges ahead, a North County Times special report shows.

Tri-City's plight is not the result of its rivals delivering measurably better medical care. To the contrary, the quality of care at Oceanside-based Tri-City is as good as, or in some categories, better than that offered at Escondido's Palomar Medical Center and at the county's 24 other general acute-care hospitals, two independent reviews show.

But Tri-City is in turmoil, with a growing number of caregivers, health experts and local residents asking whether the hospital's board leadership has impeded its financial success and stability. They watch arguments by elected board members at televised meetings and read a drumbeat of newspaper and blog-site reports that convey the image of an institution in trouble.

Now, after the board's role in the recent firing of the hospital's eight top executives, even many doctors -- led by Tri-City's medical chief of staff -- are contending that the governance structure of the hospital may be fatally flawed.

Ă‚ This afternoon, an overflow crowd is expected at North County's largest medical center as the Tri-City board debates whether to study other models of government -- even if that means taking the public hospital private.

So why does Tri-City appear to be in leadership chaos? Can it survive, and if so, in what form?

To find answers, the North County Times partnered with the nonprofit, nonpartisan Center for California Health Care Journalism to study North County's major hospitals and examine state data on their patient history and financial performance.

The project team looked at hospitals countywide, focusing on Palomar Pomerado Health Care District, or PPH, which owns 298-bed Palomar and 95-bed Pomerado hospitals; and on the 397-bed Tri-City facility, owned by the Tri-City Health Care District.

Tri-City's problems stood out. In dozens of interviews over four months, health care leaders, physicians, and Tri-City's own employees told the NCT that they fear a competent hospital is being taken down by mismanagement, an outmoded, 1950s-era governing structure and an unruly, publicly elected board.

So tense are district board meetings that some members have been accompanied by security guards paid for by the district.

To provide perspective, the Center spent two months analyzing records from the state Office of Statewide Health Planning and Development, which collects information on California's hospitals.

What the data reveal is that Tri-City's difficulties are not new. Over the period of 1995-2007, the hospital was beset by downtrends in patient growth and financial health -- in striking contrast to the growth shown by PPH over those same years.

Specifically, the analysis shows:

- Tri-City patient admissions grew just 3 percent over the 13-year period, compared with a 44 percent leap in admissions at Palomar and its sister facility, Pomerado Hospital in Poway. The average growth rate for all San Diego County hospitals in the same period was 15 percent, and it was 44 percent at Scripps Encinitas, which Tri-City considers its biggest competitor.

- Tri-City has steadily lost patients to competitors in two critical money-making areas -- cardiology and the treatment of injuries and poisoning -- while gastroenterology procedures, another high-revenue area, barely grew. Palomar Pomerado has increased the number of patients in all three.

- Tri-City's income from in-patient or overnight care -- another strong indicator of a hospital's financial health -- dropped from 77 percent to 64 percent of total revenue. Palomar Pomerado boosted its in-patient income from 77 percent to 78 percent of its revenue, bucking county and state trends toward less-expensive outpatient care.

- Palomar's net income -- the money it made after all expenses were tallied -- averaged $7.4 million a year over the period 1995-2007, nearly 15 times greater than the $497,830 average netted by Tri-City. The county's other hospitals, on average, reported an annual net income of $5.8 million for the same period. Palomar's sister hospital, Pomerado, netted an average of $1 million a year.

- Tri-City has lost the largest number of its potential patients -- more than 2,100 -- to the neighboring, publicly owned Palomar Pomerado district, not to the large private nonprofit hospitals to the south that its staff commonly identifies as archrivals.

Larry Anderson, Tri-City's interim chief executive officer since January, did not dispute the findings.

"This hospital has to do a better job of recognizing the competitive environment it is in," he said in an interview.

Anderson, whose contract recently was extended to Oct. 31, sharply criticized his chief competitors, PPH and Scripps Memorial Hospital Encinitas, for what he called taking more than their share of patients from the Tri-City area. A public hospital cannot sit idly by "and let it be picked apart by competitors …" Anderson said.

He said the numbers reflect many years of following a different approach: "Tri-City's philosophy hasn't been to grow, raid or compete with other hospitals," he said.

That mind-set arises in part from Tri-City's role as a public district hospital run by an elected board of directors. Other local hospitals include private nonprofit and for-profit models.

Still, Tri-City's inability to change course to meet the challenges of a 21st-century health care marketplace stands in marked contrast to Palomar, North County's other large public hospital district with the same governance model.

Palomar appears to have found the formula for success that has eluded three consecutive Tri-City CEOs and seven board chairmen over 13 years.

Palomar Pomerado Health has been led for six years by President and CEO Michael C. Covert, a seasoned hospital administrator with national experience, and by a board of largely experienced members who typically work as a team. Under their watch, the district has expanded its patient base, strengthened community support and begun construction of a new hospital.

Leadership Woes

Tri-City's leadership continues to founder.

A newly elected board majority met in December, fired the district's attorney and placed on leave the hospital's eight top administrators -- including 10-year CEO Art Gonzalez -- and launched an internal investigation. The board has refused to make public the probe's results and never explained the cause of the shakeup, which caught the attention of health executives nationwide.

In just the past five weeks, the Tri-City board demoted its chairwoman and formally fired Gonzalez, who could receive up to $1 million under a severance agreement. His replacement, Anderson, fired the other seven top executives. Earlier this month, the chief nursing officer and the district's interim law firm gave notice of their plans to resign.

"Almost on a daily basis, my patients in cardiac rehab ask me if things are OK here," nurse Terri Hueners told a standing-room-only crowd at a dramatic April 30 board meeting.

At the meeting, an estimated 250 doctors, nurses, aides and even auxiliary volunteers urged the board to study a radical change, such as converting from public to private ownership. The board will take up that question again Thursday.

For the 850,000 residents of North County, experts say, the result of the turmoil could be Tri-City's lease, sale or merger with another hospital -- or even its shutdown. Such changes could reshape North County's health care landscape, forcing many residents to search for new doctors or travel farther for treatment.

Compounding those challenges, Tri-City is just one of many Southern California hospitals confronting the effects of economic downturn and fierce competition.

More patients are not paying their bills. Some were stripped of insurance when they lost their jobs; others with insurance can no longer afford heftier deductibles and co-payments. Others are putting off elective surgeries -- a profit center for hospitals -- because they don't have the money.

And like most businesses, medical centers have seen their investments shrink.

Credit markets aren't loaning money for expansion and upgrading. Like some of their patients, many hospitals don't have the cash to make ends meet.

Ambition at Palomar

While Tri-City roils in uncertainty, Palomar Pomerado, under Covert's leadership, has embarked on ambitious new ventures.

"When you come to our place," Covert said in a recent interview in his office, "do you think you deserve anything less than you'd get at the best hospitals in the country?"

Yet pressures are also mounting at PPH. After learning the construction costs of its ambitious $773 million "hospital of the future" in western Escondido had soared far above projections, the district's board was forced in recent months to slash nearly $30 million from the budget, with more cuts possible.

Board members must decide whether to outsource a proposed $60 million energy plant to a private firm, and they are reconsidering plans for a $91 million new medical tower at their Pomerado facility.

In another sign of potential trouble, the board decided in April not to grant a bonus to Covert or any other hospital employees this year. The reason given: failure to meet district performance goals.

Despite the new Palomar hospital's budget woes, its steel skeleton is rising quickly above the Escondido landscape, a symbol of how successfully PPH leaders corralled nearly 70 percent of voters' support in 2004 to approve funding its construction.

Another hospital district, privately managed Sharp Grossmont east of San Diego, persuaded 77 percent of voters to approve a $247 million bond for expansion in 2006.

Once again, Tri-City has had a different outcome.

It has failed repeatedly to convince enough voters that it needs a new hospital. Three times in the past four years, the district asked them to approve bonds to fund a new hospital and to meet a 2013 state seismic deadline. All three times, more than a third of voters said no, enough to kill the plan.

Tri-City voters say 'No'

The last bond measure in August 2008 won 62.5 percent of the vote, well shy of the two-thirds margin required for passage.

To add to the hospital's darkening financial future, Tri-City faces an $8.8 million loss for the fiscal year ending June 30. It has been unsuccessful in persuading lenders to refinance variable-rate loans that turned toxic when financial markets imploded in late 2008. With interest rates now at about 13 percent, the hospital is paying about $700,000 per month in unbudgeted interest costs.

Tri-City's image was tarnished further in January by a widely publicized state report showing above-average patient death rates in 2007, the most recent year studied, in three of eight key measures of care.

Tri-City officials call those results a mistake and accept much of the blame, explaining that hospital employees submitted incorrect information on data surveys submitted to the state, and that a state letter asking them to proofread the material never made its way to the appropriate administrator's desk.

On the other hand, in a recent success, the district persuaded state officials to reclassify Tri-City's south tower, giving the district until 2030 to either retrofit or replace the structure to meet tough new standards for earthquake resistance. Now officials are lobbying for a similar reprieve for the central tower, which still faces a 2013 deadline.

In addition, Tri-City has won high marks for quality care in two surveys of hospitals, one spearheaded by Medicare ( and one by the California HealthCare Foundation and UC San Francisco researchers ( The Center for California Health Care Journalism, which partnered with the NCT on this story, is funded by the foundation but operates independently under the auspices of the University of Southern California.

The UC scorecard, for instance, measures care for the five most common reasons to be admitted to a hospital: heart attack, heart failure, heart bypass surgery, pneumonia and maternity. With one exception, Tri-City equals or exceeds the scores given other regional hospitals in those categories.

"For years, Tri-City has been successful in spite of itself," said Dr. Richard Burruss, the hospital's medical chief of staff and leader of the physicians, nurses and others calling for a study of governance reform.

If the quality of medicine practiced at Tri-City matches that of the county's other hospitals, why is a greater share of patients going to other hospitals? The answer may be that Palomar Pomerado has transformed the 1950s-era form of public governance into a working model for the 21st century. Tri-City, so far, has not.

Rural Origins

Tri-City and Palomar sprang up among cow pastures and flower fields half a century ago, products of rural residents' determination to provide community-owned acute health care close to their homes and farms.

On sites only 16 miles apart, they both grew and matured to serve an increasingly suburban North County. That growth has helped turn Tri-City and Palomar into two of the most prominent district hospitals in the state.

Of California's 430 acute care hospitals, the majority are private nonprofit and for-profit facilities. Only 46 are owned and managed by health care districts.

Dozens more district facilities across the state have been leased, sold or closed in the past 20 years, many of them victims of the financial pressures bearing down on hospitals nationwide.

Among them are medical facilities owned by the county's two other public hospital districts. Fallbrook Hospital now operates under a 30-year lease with a for-profit chain, Community Health Systems of Tennessee.

Grossmont Hospital became Sharp-Grossmont Medical Center, when the private, nonprofit Sharp HealthCare took over management in 1991, also on a 30-year lease.

Now, some wonder whether Tri-City will follow suit, or worse, shut down altogether, worsening access to health care in North County.

Dr. Bruce Haynes, the county's medical director of emergency services, is among the officials who are concerned.

"It makes me very nervous," Haynes said. "Obviously, there's been a lot of turmoil, and that instability, we really don't like to see."

Tri-City's emergency department, for instance, is the third busiest in San Diego County for patients transported by paramedics, behind Sharp Grossmont and Scripps Mercy.

'Must Survive'

"We believe Tri-City must survive," said Chris Van Gorder, president and CEO of Scripps Health, the private nonprofit system that operates four hospitals in San Diego County. "We hope that they do survive and they can work through their challenges."

Covert took a similar view: "Do we as an organization have an appreciation for them as a district and the challenges they face? The answer is yes."

Five hospitals and four emergency rooms have closed in the county since 1997, and Van Gorder said the county cannot afford to lose any more. Even now, he said, "There are times in this county where there are no ICU beds to be found."

Experts note that North County's district hospitals are key to maintaining the region's economic safety net at a time when the jobless rate is soaring. Those hospitals are among the largest employers in the area.

Palomar Pomerado employs 3,600 people, largely at its two hospitals and two skilled nursing homes, and has 733 credentialed doctors. Tri-City's staff totals 2,250, with 566 credentialed physicians.

Now, nervous Tri-City employees fearful of losing their jobs say that the hospital is handicapped by its ongoing leadership crisis.

A striking symbol of the crisis: the line of white-coated Tri-City physicians at an April 27 press conference, announcing that they had lost confidence not only in the board but also in the district governance system.

They are urging the board to study changing to a different system, such as the more common private nonprofit model that governs the Scripps and Sharp systems in southern and central San Diego County.

"When I saw the photos, with all the doctors in a row, that's a real problem," said Dr. James Dunford, the City of San Diego medical director and a UC San Diego professor of emergency medicine. "When those types of people stand up and talk about it, there's an issue. … It must be the tip of the iceberg when you see the physicians actually this concerned."

Several longtime physicians and health care officials lay the blame firmly on the shoulders of the Tri-City board of directors, saying it has failed to promote modern business practices or make sure its executive staff was meeting specific goals.

"The physicians have always talked about problems with the board, whether they've been here 22 years or 5 years or 35 years," said Burruss, who has spent 22 years as a physician in the Tri-City emergency department.

The Case for Proximity

Tina Knight of Vista, a mother of two, credits Tri-City with saving her life in 1999, when she was 37, after her body went into septic shock from complications from a kidney stone. She said she still believes that she would have died if the hospital weren't located a short drive from her home.

"I was that close to dying," she said. "If I had had to drive out of the area, I would not be here." She became the face of the hospital's first bond campaign in 2006, appearing in local television commercials.

Others are less satisfied with their Tri-City experience.

Jerry Lanyon, 70, of Oceanside recently spent two weeks at Tri-City for a hernia rupture and unrelated plastic surgery. He says he is not going back.

He said he detected a bad attitude among the staff, and his confidence was eroded by observing the turmoil on the hospital board broadcast on a local cable station.

Lanyon's concern about "atmosphere" dovetails with the findings of the UCSF study. While Tri-City performs well on quality of specific procedures, it repeatedly falls below average in "patient perception."

Mulling the bond defeats

Some Tri-City officials blame perceptions like Lanyon's on the lack of money to build a new hospital.

Not only did the defeats of the three bond measures doom plans for the new building, they also conveyed the image of a public hospital without public support.

The hospital's public persona was not helped, Tri-City officials now acknowledge, by its campaign tactic of touting the hospital's physical shortcomings -- such as leaky roofs in some departments -- in an attempt to convince residents in 2006 that the building needed to be replaced. They also rue conducting a tour to show reporters the mold growing inside the hospital walls.

Yet Tri-City's campaign consultants limited the marketing of positive facts about its patient care during the bond campaigns, fearful that voters would get the impression that all was well and that a new hospital was unnecessary, said Jeff Segall, Tri-City's chief of marketing and public affairs.

In sharp contrast, Palomar Pomerado officials during their successful 2004 campaign focused on the need for a new hospital to take the fast-growing region into the future. For instance, they invited reporters to the Palomar hospital's emergency department on a Friday night to witness a busy staff in need of more room, said PPH spokesman Andy Hoang.

And in a column in the North County Times in October that year, Palomar Pomerado CEO Covert talked about massive growth expected in the region.

"How will we care for these people? Where will we put them?" he asked readers. "To me, the region is on the precipice of crisis."

This year, the Palomar Pomerado marketing budget is between $1.6 million and $1.8 million, including payments to San Diego Chargers star LaDainian Tomlinson as part of his five-year, $2 million contract to promote PPH, district officials said.

According to Segall, Tri-City has budgeted $1.8 million for much of its marketing for this year, a total that does not include community affairs marketing costs.

Tri-City Steps Up Marketing

Tri-City officials plan to step up their marketing with more competitive mailings and with a complete upgrading of the hospital Web site. Such sites have burgeoned in importance as consumers comb the Internet to study nearby hospitals and choose among them.

But some doctors and other staff say that Tri-City's marketing failures are symptoms of a larger problem: a lack of effective leadership. Burruss and others say they have chafed for years at what they call inept management besmirching their efforts to maintain quality care.

This spring, doctors from the hospital have been meeting quietly with administrators at rival hospitals -- including Scripps, Sharp, Palomar Pomerado and Hoag Memorial Hospital Presbyterian, a respected medical center in Newport Beach -- to study their systems, talk merger and test the waters for change.

At Scripps, Van Gorder said he would be interested in talking with Tri-City, but he said Tri-City board members have not signaled a desire to join with another acute care system.

"We have not gone up there and knocked on their door as others have," he said. "I don't see any reason if the board's not interested."

Michael W. Murphy, president and CEO at Sharp Healthcare, said that the doctors have met with his staff as well. He also called a Tri-City-PPH merger "certainly a possibility." That would depend on whether the Tri-City board would entertain the idea, he said.

In fact, the Palomar Pomerado board did approach Tri-City. It recently sent a letter to board members at Tri-City, suggesting that the two districts study how to share programs. That led to one meeting to date, officials at both districts confirm.

"Our board left it open for other discussions with their board," Covert said. "I think the ball is in their court in terms of how they see their organization and what they would like to do."

Not everyone sees it that way.

When asked about Covert's comment, Dr. Madeline Rodriguez, the newly elected Tri-City chairwoman, responded, "I have never talked to them and I don't know anybody on the board who has ever talked to them. So I don't know what they're talking about."

North County Times reporter David Garrick contributed to this story.

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