Why Kaiser and Dignity Health Decided to Join Forces in Stockton

Dignity Health and Kaiser Permanente have agreed to joint ownership of St. Joseph’s Medical Center in Stockton.

Dignity Health will keep an 80 percent ownership interest in the hospital and related operations. Kaiser will buy a 20 percent interest, the two companies announced Monday. The deal is expected to close in mid-2016.

The agreement creates an unusual partnership that could bolster a hospital in a challenging market, stabilize volume for Dignity Health and allow Kaiser to make a long-term investment in an existing hospital rather than building one itself.

Dignity Health will keep responsibility for day-to-day hospital operations and staff, but the hospital will be governed by a joint board of directors. Dignity Health will have four seats on the board; Kaiser, three. Kaiser doctors will join the medical staff at St. Joseph’s and care for Kaiser patients there.

Kaiser has more than 100,000 members in the Stockton region, but no hospitals. For years, Kaiser has contracted with Dameron Hospital — one of the few independent hospitals left in the state — to provide inpatient care for members in the Stockton area.

Co-ownership with Dignity Health “allows us to make a long-term commitment” to a hospital and to Kaiser members in the area, said Debby Cunningham, a Kaiser senior vice president, in an email. “This partnership between two major health care systems will help ensure a stable, financially strong hospital which will serve the needs of the Stockton community now and into the future.”

Don Wiley, president and CEO at St. Joseph’s, said the two large health systems are teaming up to ensure a strong hospital meets the needs of both partners in what has been historically a challenged community.

“Stockton was the largest city to declare bankruptcy before Detroit,” Wiley said. “Kaiser could have chosen to contract out or build their own hospital but saw an opportunity to get involved and have a role in growing this hospital and not have to spend hundreds of millions of dollars on one of its own.”

Business has been challenging at St. Joseph’s, although the hospital has done well in the last two years, Wiley said. There’s room for more patients. The hospital has 335 usable licensed beds but staffed only 215 this month. Census varies, he added, and has been as high as 270, but “there’s still some capacity.”

Whether the deal is a sign of more joint ventures in the works is unclear. That fact — and who approached whom — are among the topics both sides decided not to talk about, Wiley said.

Kaiser briefly explored partnerships with other health systems in Sacramento in the 1990s when consultants said the area had too many hospital beds — and Kaiser was beginning to craft a strategy for what to do when its Morse Avenue hospital had to close due to earthquake safety problems. Earlier this year, Kaiser announced plans to build a new hospital in the Sacramento downtown railyard to replace Morse, but partnerships could be possible elsewhere.

“Maybe it makes sense in other places, but no other discussions are going on,” Wiley said. “This is a unique program where duplication of resources doesn’t make sense for either party.”

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