After months in limbo and a mounting debt, St. Rose Hospital in Hayward faces two choices for a new health care operator -- the Alameda County Medical Center or a private company.
Hospital officials will announce their decision -- made during a closed-door session this week -- on Monday. But the front-runner appears to be Lex Reddy, an executive who presided with his brother-in-law over one of the state's most notorious health care companies, Prime Healthcare Services.
St. Rose is running out of time. The private nonprofit hospital, which has operated in Hayward for 50 years, has been losing $1 million or more a month.
The private model is probably "the best option," Interim District 2 Supervisor and former St. Rose board member Richard Valle said Tuesday.
"It's a matter of timing," said Valle, who is still a trustee and helped usher the parties together in a set of meetings kept out of the spotlight.
A community option would take longer to put together, he added, "and time is of the essence."
The question is whether Reddy will continue to operate St. Rose as a "safety net" hospital that provides general acute care to county residents -- many low-income and uninsured.
Reddy stepped down in February 2012 as chief executive from the troubled health care company, which also made a bid for St. Rose. He gave no reason for his departure after 11 years at the helm. He, however, continually defended Prime Services, the target of investigations by the Inspector General of the U.S. Department of Health and Human Services; by the state Attorney General's Bureau of Medi-Cal Fraud and Elder Abuse; and by the California Department of Public Health.
"We did have concerns," said Teamsters Local 856 representative Matthew Mullany, who was aware of Prime's reputation.
It was SEIU-UHW that persuaded Rep. Pete Stark, D-Fremont, to ask the Department of Health and Human Services to look into allegations against Prime of Medicare fraud.
On the advice of former San Francisco Mayor Willie Brown, who represents clients as an unofficial lobbyist, Reddy approached the union. In a meeting with Mullany, he promised to retain the 450 Teamster workers at St. Rose and recognize their contracts.
"We have to deal with who's coming forward," he said.
The hospital's finances have improved by bringing down costs and improving collections even though losses are still steep.
"If the operational improvements sustain, St. Rose will be in a stronger position to serve the community for another 50 years," said Makato Nakayama, interim president and chief executive.
But the possibility of bankruptcy was frightening: closing St. Rose would have a negative ripple effect on other county hospitals, further straining limited resources and emergency room beds. That is why Alameda County has tried to help keep St. Rose from sinking under the weight of an estimated $75 million debt. Supervisors have injected a total of $5 million into St. Rose since January, in addition to the $2.5 million in Measure A tax funds the hospital receives each year.
County officials also helped broker a loan from Kaiser, which will shut down its own facility in Hayward before 2014. That would leave St. Rose with the only emergency department to treat Hayward's approximately 145,000 residents.
Yet the massive debt, $15 million of which comes from unfunded pension liabilities, made St. Rose look like a toxic investment. Even worse, St. Rose administrators hid the state of the hospitals finances until a private firm was hired to assess the problems.
"Given the magnitude of the financial issues facing St. Rose Hospital, our district has determined that it cannot single-handedly take it on," said Gisela Hernandez, spokeswoman for Washington Township Healthcare Services, in August after seeing St. Rose's books.
That left two options: integrating St. Rose with Alameda County's public hospital system, the Alameda County Medical Center, or finding another operator willing to maintain it as a safety net hospital. The St. Rose board of directors met Wednesday to discuss the proposals, which included Prime.
ACMC's offer was a sign that ACMC has emerged from the brink of extinction to become an alternative to a private operator, Alameda County Health Care Services Director Alex Briscoe said.
Whether intentional or not, ACMC may also have helped keep Prime away from St. Rose by providing an option in case Lex Reddy's bid fell through.
State Attorney General Kamala Harris will have final say over the deal. She is already familiar with Prime and Lex Reddy, having blocked the company from taking over Victor Valley Community Hospital in San Bernardino County last year after a routine hearing into the bid. In her denial Harris wrote: "We have concluded that this proposed sale is not in the public interest and will likely create a significant effect on the availability or accessibility of health care services to the affected community."
Prime has faced a number of lawsuits in California although the company defended its record and quality of care.
Lex Reddy did not return calls for comment. His last business address is listed in Southern California as Desert Valley Medical Center, operated by Prime.
But he stood by Prime Healthcare's record during the September attorney general's hearing. He blamed the conditions at Prime hospitals, including one in Encino, on the physicians who testified during the hearing.
"They have taken advantage of this facility financially," Reddy said. "They have brought it to the state of affairs in which it is today."
St. Rose board members could still opt for ACMC, although county supervisors are still wary about the burden of rescuing another debt-ridden facility as they did with ACMC in the 1990s.
"We tried to provide options but now it's up to the St. Rose Board," District 3 Supervisor Wilma Chan said. If the board decides on ACMC, she said, "We'll try to make it work."
Follow Angela Woodall @angelawoodall or Facebook.com/angelawoodall.