Council tempers flare over hospital plans

Compromise leads to vote for $5.2 million to medical firm

This story appeared in the Antelope Valley Press September 28, 2000

By BOB WILSON
Valley Press Staff Writer

PALMDALE - A compromise proposed Tuesday by Councilman Rod Penner paved the way for the unanimous vote required to allow the city to continue working with Prospect Medical Holdings Inc. toward a new hospital.

Penner's compromise bridged the gap between Mayor Jim Ledford, who supported moving ahead with Prospect Medical, and Councilman Mike Dispenza, who adamantly opposed working with the medical organization because of described financial instability.

Dispenza pointed out that Prospect had refused to provide the city's consulting firm, the Camden Group, with data reflecting the organization's financial status since June 30, 1998.

The councilman also pointed out that Prospect's public stock, first traded in 1999, had fallen from $5 a share in December 1999 to at least $1.25 as of last report; that the firm had only built up $5 million in shareholder equity since being formed in 1993; and that its net profit margin was, at last report, 1%.

Dispenza asked Prospect representative D. Anthony Mize how the company planned to raise the $60 million needed to build its proposed hospital at Fifth Street West and Palmdale Boulevard when its net profit for 1998 was only $376,000.

According to Mize, Prospect is the business arm of a group of about 350 physicians whose personal assets were not reflected in the numbers presented by Dispenza.

Those physicians have millions of dollars in personal assets and are planning to invest between $2 million and $5 million in risk capital to develop a project they feel will be worthy of consideration by other investors and lenders.

Mize's answer did not satisfy Dispenza, who wanted specific information on how Prospect intended to raise the remaining money; how it would attract physicians, nurses and patients; and how it would cover potential operating losses.

"This is a no-brainer for me, guys," Dispenza said, placing a small pink plastic model of a human brain on the ledge of the dais for all in attendance to see.

"I think you have to go back and work off all these cons, give us a 1999 financial statement and give us a business plan," he told Mize. "If you go to any bank or anybody else, I guarantee that is what they are going to tell you, and that's what I am telling you tonight, and you will not get my vote."

Ledford said the steps laid out in the city's development agreement would address all Dispenza's concerns in due course.

"If you're unwilling to ask the questions, how do you get the answers?" the mayor queried.

At Ledford's request, Palmdale housing manager Mike Adams listed the obligations Prospect would have to fulfill before the city would transfer $2.5 million worth of property to Prospect for its project.

Those requirements included Prospect to submit, among other things:

evidence of project financing and a $200,000 "good-faith" deposit that would be returned upon presentation of that evidence;

a $5 million promissory note payable to the city in the event the medical organization failed to build the hospital or allowed the hospital to close, a note that would be accompanied by the return of the property;

the names and qualifications of its development, architectural and engineering consultants;

basic concept drawings to the city and, eventually, full plans to both the city and the Office of State Health Planning and Development, the state agency that oversees the construction of health-care facilities; and

an environmental review of the location.

At that point, Penner jumped into the discussion, saying he wanted the project to move ahead "because I think it is the closest thing we have to actually seeing a (real) hospital."

Despite that, he harbored some of the same concerns as Dispenza.

To resolve those concerns, Penner suggested approving the development agreement after including more safeguards for the city, namely, that before the city closes escrow on the property, Prospect must provide:

financial statements for its most recent 24 months;

a business plan showing how it would finance and operate the facility;

information showing whether the hospital would have the ability to treat pediatric patients; and

a guarantee that the hospital would not be operated as an HMO facility strictly for members of Prospect's medical groups, which include the Antelope Valley, Sierra and Pegasus groups locally.

Penner also requested the matter be slated for reconsideration by the council before the close of escrow, when the body could halt the project if any member remained dissatisfied.

"I find that to be a process that I could support," Ledford said.

"I think our residents deserve better than just blowing this group out" because of opposition from, among others, representatives of Antelope Valley Hospital, the mayor said.

"They deserve better than this," Dispenza interjected, slapping Prospect's financial information on the dais.

"The questions you raised, Mr. Dispenza, could be answered in Mr. Penner's proposal," Ledford rejoined.

When those questions are answered, "It's going to look worse, I'll guarantee you that one," Dispenza countered.

"If it's no good and we don't like it, then we don't have to vote for it," Penner replied.

"Let's entertain Mr. Penner's motion and get a close look at Prospect that meets our satisfaction. And if it doesn't, Mike, I'll stand with you and say, 'Please go away,' " Ledford said.

"I don't want them to go away. I would like for them to really come back in here and give me something I could hang my hat on," Dispenza said.

Ledford asked Penner to add yet another condition, one that would require Prospect to show its expertise in managing and operating such a facility in addition to funding it.

With that addition, the motion proposed by Penner was approved.

Before the panel's final deliberations and vote, an array of people seeking to fill the remaining two seats on the council stood before the podium, offering their views on and questions about the matter.

The parade of office-seekers prompted Ledford to opine that if the issue were to be resolved, "You guys will have scramble to find a real issue, because this is the only one that's left in the election."

Among those offering opinions were single-year candidates Richard Loa and Jason Zink and threeyear contenders Rick Norris and John Mayfield.

Also in attendance but not speaking was single-year contender Alan Lee.

Loa asked whether the council's approval of the agreement would halt efforts by AV Hospital to construct a new medical clinic at 40th Street East and Palmdale Boulevard.

Ledford said the deal with Prospect would not interfere with AV Hospital's existing efforts and pointed out that the hospital had announced no plans to build anything except its clinic in the near future.

As the south Valley grows, there will be room for at least two if not three new hospital facilities, the mayor predicted.

Loa also asked why the matter had to be resolved immediately.

"People's lives will not wait until the election is over," Ledford replied.

Norris said the city should withhold its support of a westside project and provide support only for a proposal for construction on the eastside.

"If they're asking us for $5 million to assist them in acquiring this site and building this hospital, then we should be able to tell them, 'This is where our need is, and we'll get some land over there on the east side if we don't have any," Norris said.

"And (Prospect) certainly would have the ability to say, 'Thank you, but I will leave and take my $50 million with me,' " Ledford responded.

Zink said he was very disappointed in the lack of action by AV Hospital and asked the council to lead a charge to convince the hospital's board of directors to build in Palmdale.

Meanwhile, he urged the council to move ahead with Prospect's proposal, as did Mayfield.

Also offering an opinion was Mary McTaggert, a resident of the Impressions senior citizens housing complex in the heart of the city.

McTaggert questioned why the city was considering helping construct a hospital so far away from her and other seniors who live downtown.

Instead, McTaggert encouraged the council to pursue the revitalization of the former home of Desert Palms Community Hospital, near 12th Street East and Avenue S.

Palmdale resident Marta Williamson said not even 100 beds would be enough to accommodate the injured if a major earthquake were to strike the city.

Others voicing support of the project were Planning Commissioner Steve Hofbauer, resident Emily Dotter and former AV Hospital board member Dante Simi.

In the past four years, AV Hospital has spent approximately $50 million improving its facilities in Lancaster, Simi said.

AV Hospital's board has neither the money nor the desire to build a hospital in Palmdale, he said, and suggested the council move forward with Prospect.