Possible Mergers Under Study by South Coast Medical Center

LAGUNA BEACH —  South Coast Medical Center, one of the last two independent hospitals remaining in Orange County, is discussing a possible merger with one of four large health-care organizations.

“We’re getting to a point where we’re nearing a decision,” said T. Michael Murray, South Coast’s president. “We’re very close.”

Trustees of the 210-bed, nonprofit institution will discuss merger possibilities in a Feb. 27 meeting with city council members from Laguna Beach, Laguna Niguel and Dana Point, the three primary communities it services.

Rumors about possible merger candidates and effects on the hospital--Laguna Beach’s largest employer with 650 workers--have circulated in recent days. Rumored partners include St. Joseph Hospital of Orange, Nashville-based hospital giant Columbia/HCA Healthcare Corp. and a hospital organization affiliated with the Seventh-day Adventist Church.

Murray said the hospital is talking to both nonprofit and commercial organizations but declined to say which.

However, he said the hospital will continue providing general, acute and behavioral care. There’s “no possibility whatsoever” that the hospital will close, he insisted.

He said agreements crafted with each potential merger candidate require that the hospital, which is located at the south end of the city, stay open for at least 10 years.

“We’ve been here 38 years and we intend to be here another 38,” he said. “The ultimate preservation of a facility is the financial success of the facility and the acceptance and usage of the community we serve.”

The hospital, marked by its six-story tower overlooking Coast Highway, was launched by the community in the 1950s after a Laguna Beach police officer bled to death of a gunshot wound on his way to an Anaheim hospital. Built on 24 acres of an eroded hillside donated by the Irvine Co., it opened in 1959.

South Coast remained the sole hospital to serve South County residents until the 1970s. It operated with a distinctly small-town flair, staffed by dedicated doctors and bolstered by community volunteers. Offering emergency care, maternity and neonatal care and other general services, it mainly draws patients from Laguna Beach, Laguna Niguel and Dana Point.

Now, however, hospital officials say they simply can’t compete in the rapidly changing medical arena, as government and private health insurers cut their reimbursements and larger health-care organizations exercise clout in negotiating contracts with health plans.

“Standing alone is not very smart” these days, Murray said. “You run the risk of becoming superfluous.”

As is common in cases of mergers involving local hospitals, residents worry about the consequences.

Dana Point resident Tristan Krogius, who was chairman of the hospital board 22 years ago, has had 15 grandchildren born there. “It’s been a lifeblood of the community in many ways,” he said, noting its contribution to the local tax base and employment.

Krogius said that while it’s clear the hospital needs to take steps to affiliate with a larger organization to survive, it’s critical that it remain open.

“If there’s any danger of it closing as a full-service hospital,” he added, “there’s going to be a tremendous backlash.”

Laguna Beach City Councilwoman Kathleen Blackburn, who is on the hospital board, echoed Murray’s sentiments, vowing to keep the hospital open.

She noted that community concerns include what services will be offered and how decisions will be made. “When you merge with a larger group, your voice isn’t as strong as it would be if you were the only voice,” she said.

Yet, South Coast faces enormous pressure from three top nearby hospitals--Mission Hospital Regional Medical Center in Mission Viejo, Saddleback Memorial Medical Center in Laguna Hills, and Columbia San Clemente Hospital and Medical Center in San Clemente--all part of extensive hospital organizations.

As a sign of South Coast’s competitive predicament, Blue Cross recently assigned it a second-rate status as a hospital provider--thereby causing patients to pay a higher deductible to use that hospital than they would pay at the other three, Murray said. In addition, South Coast failed in an effort to negotiate a contract for business with Blue Shield’s health plan.

Last year, the hospital’s surplus fell to $1.6 million from $1.9 million the year before, although revenue rose to $102 million from $92 million.

A merger would leave Hoag Memorial Hospital Presbyterian, up the coast in Newport Beach, as the only remaining independent facility in the county. And Hoag, though it is far bigger and wealthier, also is debating whether to form a strategic alliance with a major medical partner or to continue operating on its own.

Despite South Coast officials’ promises, “there are no guarantees” that such an institution will remain open in the long run, cautioned Michael D. Stephens, Hoag’s chief executive. “There’s a point in all financial organizations where there’s just not enough left to warrant operating it,” he said.

Stephens said that while people generally prefer to be within 10 to 15 minutes of their primary physicians, many will drive substantial distances for hospital care. He noted, for instance, that members of Kaiser Permanente’s health plan are used to driving more than 20 miles to the hospital.