UCSD halts negotiations with Tri-City Medical Center. ‘We don’t believe there’s a desire to get this deal done’ – San Diego Union-Tribune

Despite earlier signals that a long-in-the-making partnership agreement between UC San Diego Health and Tri-City Medical Center could be coming to an end, the university announced Friday afternoon that it is ending negotiations with the Oceanside Hospital District.

When the two sides began negotiations in October 2023, they expressed excitement about the two health care providers being able to help each other. Tri-City would get help to shore up operations that had been operating in the red until recently, and UCSD would get a chance to expand into coastal North County, redirecting traffic from overcrowded facilities in La Jolla and San Diego.

A key point in the nine-month due diligence period leading up to Friday’s announcement is a dispute over how much financial risk UCSD should take by adding Tri-City to its health care network, which includes Jacobs Medical Center in La Jolla, UCSD Medical Center in Hillcrest and the recently acquired Alvarado Hospital, which has been renamed East Campus Medical Center.

It was initially assumed that UCSD would assume all of Tri-City’s assets and liabilities, including long-term debt and a significant number of unpaid vendor bills.

But after reviewing Tri-City’s finances and operational details privately, under a confidentiality agreement, UCSD proposed a five-year transition period that would immediately award Tri-City $100 million, increase employee salaries by 20 percent over three years and allow it to begin expanding or restarting programs as soon as possible.

But University of California, San Diego will not assume full financial risk for three to five years after the agreement is signed. The last-minute change, said Patricia Maysent, CEO of the university health system, removed a previous limit on a proposed line of credit that was intended to “cover potential cash shortfalls.”

But Maysent said Friday she had lost faith that the Tri-City board of directors would approve the proposal.

“Based on the conversations we’ve had this week, we don’t think there’s a desire to finalize this deal. We have a lot of other things to do,” Maysent said.

Asked what specifically led her to that conclusion, Maysent cited reports of internal meetings this week — one with employees and another with physicians — in which Dr. Gene Ma, Tri-City’s CEO, called the latest version of UCSD’s proposal insufficient.

Ma wrote in an email Friday afternoon that UCSD Health’s “amended proposal leaves the District vulnerable to insolvency during the transition period, with no viable path forward to resolve this difficult situation.”

“We didn’t view this as (a) good deal or a bad deal, it was simply our interpretation of the transaction risk,” Ma continued. “Our assessment, made with the guidance of our transaction advisors, is that it is not in the best interests of the community we serve, the hospital and its valued employees to accept the proposal in its current form.”

Ma said Tri-City is being advised by James Dutro, a lawyer with the San Francisco firm of Jones Day whose work structuring hospital mergers and acquisitions is widely cited, and Steve Hollis, an investment banker at Goldman Sachs who previously led mergers and acquisitions at the health care consulting firm Kauffman Hall.

Those advisers, he said, advised that Tri-City’s financial situation is much less dire today than it was nine months ago. The hospital, he said, has posted positive earnings before interest, taxes, depreciation, and amortization for five consecutive months, and progress is being made in paying down debts to suppliers.

“Our liabilities have increased to $102 million since September 2023,” Ma said. “Today, we are at just over $79 million, and we are still improving.”

While it is not a complete change, Ma’s advisers indicate that the urgency to conclude a partnership agreement is no longer as pressing.

He added that there is no rationale for Tri-City to exist as an independent health care provider surrounded on all sides by larger systems with multiple hospitals and strong ties to affiliated medical facilities.

“We will find the best deal that makes the most sense for this community,” Ma said.

Would UCSD’s final proposal include a full and immediate the acquisition of all of Tri-City’s assets and liabilities, he said, would likely result in the transaction being approved.

Ma said the Tri-City board, by giving the hospital’s leadership team permission to consider other partnership options, gave him the latitude to consider UCSD’s proposal.

But Tri-City Board President Tracy Younger said Wednesday that the changes UCSD made in its latest proposal likely will be reviewed by principals. Younger did not respond Friday to a request for comment on whether the plan is still for the full board to review UCSD’s latest proposal.

By Friday, my mother was sure that wouldn’t happen.

“Our attorneys have advised that the conditions have not changed and in some ways have worsened,” Ma said in an email. “I know that is not UCSD’s interpretation; I have great respect for Patty (Maysent) and her efforts, so I am not interested in providing our interpretation that would appear to conflict with their view.”

Maysent said she thought the proposal was fair, especially considering the lifting of the previous $30 million limit on the line of credit the university was to grant to Tri-City.

Why didn’t UCSD simply agree to assume all of Tri-City’s assets and liabilities at the outset, as originally proposed? Why was a five-year transition period necessary?

She added that some of the details are covered by a confidentiality agreement between the parties and cannot be referred to publicly.

“We had to stabilize their cash flow and then start adding those services,” Maysent said.

She added that ultimately, UCSD will expand services in North County regardless of whether it partners with Tri-City.

“They think they can wait longer and look for other partners. God bless them; go for it,” Maysent said.

Originally published: Jul 26, 2024 at 8:32 PM