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Sansum CEO Kurt Ransohoff (left) and Cottage CEO Ron Werft

Paul Wellman

Sansum CEO Kurt Ransohoff (left) and Cottage CEO Ron Werft


Cottage and Sansum Merger Talks Announced

South Coast Health-Care Titans Consider Combining Forces


Wednesday, June 19, 2013
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The two chief executives of two of the biggest health-care providers in Santa Barbara County formally announced this Monday what the South Coast medical community has been whispering for the past six months: Cottage Health System is officially exploring merger talks with the Sansum Clinic. Speaking to a packed house of doctors at Cottage Hospital’s Burtness Auditorium, Cottage CEO Ron Werft explained he had signed a letter of intent to incorporate Sansum — with its 23 clinics, 180 doctors, and 1,200 employees—into the Cottage Health System with its three hospitals and rehab institute. Taking the stage with Werft was Sansum CEO Kurt Ransohoff.

By combining forces, the two CEOs said in an interview afterward, Cottage and Sansum can “do a better job” controlling costs while providing better integrated health care at a time when the number of insured patients throughout Santa Barbara County is expected to jump by 25,000 come January 1, 2014, when the Affordable Care Act goes into effect. At that time, the basic economics by which health care is financed in the United States will undergo a drastic sea change. Medical providers will find themselves reimbursed less on the traditional fee-for-service basis, but more by a set dollar amount per patient, otherwise known as “capitation.”

The strategy behind this shift is to give medical providers a powerful financial incentive to focus on the total health of the patients and not so much on procedures provided. To meet this new demand, existing medical institutions must better coordinate the delivery of services, and to that end, Werft and Ransohoff said they signed the letter of intent to come together.

Although Sansum will become part of Cottage, it will retain its name. “Most people won’t even know there’s a difference,” said Ransohoff. Those most likely to feel it, he added, are patients with complicated health challenges requiring numerous hospitalizations coupled with extensive follow-up treatment upon release. By fusing the two institutions, the objective is to offer better “continuity of care” under one roof, economies of scale, better coordination, and better bargaining power with suppliers.

Both Werft and Ransohoff took pains to stress, however, that the merger was not designed to achieve better bargaining power with the insurance companies. “It’s about building a better mousetrap,” said Ransohoff, “not getting leverage.” To the extent they secured better terms with insurance providers, they argued, that advantage would come out of the hides of local businesses that pay their employees’ insurance. “It’s not about driving costs down,” said Ransohoff. “It’s about containing cost escalation.”

Two years ago, Ransohoff noted, there were only two nonprofit health clinics in California not affiliated with a hospital; today, there’s only one: Sansum. Although Sansum weathered the recession reasonably well, most of its clinics are old and in need of serious renovations. In the next five years, Ransohoff said Sansum has $97 million in major capital improvements. Sansum couldn’t hope to pursue such ambitious capital programs while at the same time wooing young new doctors to address what threatens to become a serious shortage of primary care doctors, exacerbated by the implementation of the Affordable Care Act.

But by merging with Cottage — a fundraising juggernaut — it could. Likewise, Werft noted that the state’s most robust and successful health-care systems involve both hospital care and clinics for outpatient treatment. Earlier this year, Sansum explored hooking up with major health-care chains, like Dignity, Sutter, and UCLA, but opted for Cottage. The two institutions share parallel histories dating back almost 100 years, and practically speaking, proximity matters a great deal.

In recent years, Santa Barbara’s health-care landscape has been defined by consolidation, mergers, and attempted mergers. Three years ago, in fact, Sansum and Cottage engaged in a similar courtship dance, but they backed off in the face of intense concern by the South Coast’s independent physicians that they would be excluded from the emergency room referrals upon which their collective clinics so depend. What’s new? “Three years passed,” said Werft. “The Affordable Care Act survived a Supreme Court challenge. We all know now that change is going to happen.”

In that time, Sansum has fused with the Cancer Center and started construction for a new outpatient surgery center that can compete for many of the surgical procedures needing no overnight hospitalization. Sansum managed to snag a new high-powered chief financial operating officer, Vince Jensen, from the City of Hope, and Werft, always a deft political operator, saw the writing on the wall; time to try again. But for round two, he said, some of the more controversial “restrictions” included in the first merger proposal have been deleted in deference to the independent physicians.

The proposed merger can’t help but heighten public concerns about the “M” word — monopoly — since St. Francis Hospital folded several years ago. In that time, Cottage has taken over not just St. Francis’s patient load, but it absorbed the Goleta Valley and Santa Ynez hospitals, not to mention the Santa Barbara Rehabilitation Center. With Cottage undergoing a massive reconstruction project and helicopters flying patients in and out, the hospital’s profile has never been higher, and not always for the better.

Werft makes no excuses for Cottage’s success, explaining that at Cottage, the term used instead of monopoly is “sole provider.” And as a sole provider, he noted, Cottage has managed to preserve the health-care missions of all the institutions it’s absorbed, while cutting the costs to make them economically viable. In the process, he added, employees have been retained and reassigned even as their positions have been eliminated.

Even with the merger, Ransohoff added, Cottage and Sansum will both remain nonprofit organizations run by their independent boards of directors. (A portion of each board will also serve on a new super-board.) Each, he said, would be made up of citizen volunteers “responsive to the local community, telling us what to do.” If the merger is ultimately approved — October is the target date — Ransohoff stressed, Sansum is not going anywhere, and it will still be called Sansum.

Comments

Independent Discussion Guidelines

"In the process, he added, employees have been retained and reassigned even as their positions have been eliminated."

Uhhhh, I'm confused.

Can we get comments from some docs outside of the Matrix?

This sounds like Walmart-speak.

banjac (anonymous profile)
June 19, 2013 at 7:25 a.m. (Suggest removal)

@banjac ...an employee moved from one position (that was eliminated) to a different one.

EastBeach (anonymous profile)
June 19, 2013 at 8:11 a.m. (Suggest removal)

By all means let's make this discussion only about job protections, and not improved health care outcomes. Then it can be as effective as California public education.

foofighter (anonymous profile)
June 19, 2013 at 9:32 a.m. (Suggest removal)

Hasn't Sansum over time matched in health care a reputation as sterling as that enjoyed by the Mayo Clinic? I seem to recall it attracting patients from all over the United States as well as abroad.

salsipuedes (anonymous profile)
June 19, 2013 at 10:58 a.m. (Suggest removal)

That's Sansum Diabetes, not Sansum Clinic that used to draw people from all over the world; to a lesser extent they still have a broad patient base. Wholly and completely separate entities with different reasons for existence. This merger is inevitable as California moves away from traditional private practitioners to a foundation model for health care.

italiansurg (anonymous profile)
June 19, 2013 at 12:23 p.m. (Suggest removal)

Monopoly is as monopoly does.

John_Adams (anonymous profile)
June 19, 2013 at 1:11 p.m. (Suggest removal)

Agreed. I can't see this making it past laws against monopolies.

SezMe (anonymous profile)
June 19, 2013 at 2:15 p.m. (Suggest removal)

The general practitioner doctor shortage is your biggest health problem. Doctors are not slaves; required to work for any health care system imposed upon them.

Until you fund medical education in return for indentured service, "health care" in the US is now officially on its way to non-existence.

Stay well; the best antidote. Don't smoke anything.

foofighter (anonymous profile)
June 19, 2013 at 4:45 p.m. (Suggest removal)

I'm not sure about the "indentured service" part of your post Foo but I agree that we need to fund medical education.

I have watched good doctor after good doctor get worked to death (figuratively speaking) in the Sansum system. I won't name names, but one of my doctors was 45 minutes late getting me in (nothing new) and he was apologizing nonstop for this and I looked at him and said "relax, I get it, I see what they are doing to you". He looked at me as if to say "thank God someone gets it". I went on to explain to him that between frivilous lawsuits (Thank you Democrats for being in the pockets of trial lawyers) and the intractable ignorance of Republicans who absolutely oppose any suggestion of mixing government with the medical industry, (per my belief that it's foolish to saddle doctors with years of debt once they get out of medical school) we are ALL in a no-win situation. Pretty soon doctors are going to be having to make "Sophies Choice" where they have to decide who gets treated and who is left to die in the waiting room.

billclausen (anonymous profile)
June 19, 2013 at 7:01 p.m. (Suggest removal)

Why should we pay for the education of a doctor to do face lifts in Beverly Hills? Of course, they will have to be indentured, just like the military does now.

Doctors should have been the most active voice in this entire equation, yet even the AMA (unionized medical care providers and the medical industry) sold out the private practitioner a long time ago.

Doctors practicing "defensive" medicine for profit is far more costly than any myth about "frivolous" lawsuits. We have tort reform in California and Jury Verdicts Weekly invariably show a win for the defense in medical malpractice cases.

Doctors need to cure themselves of their fear of lawyers first before we see any change in that cause for higher medical costs.

No sure this is a partisan issue, as you describe. Republican doctors came to love federal Medicare. And military medicine is a reasonable model to emulate if we go to a quasi-socialised medical care delivery system. Don't draw lines in this issue where you don't need to.

The system makes choices every single day who dies and who lives. This is built into the system and no amount of money will ever relieve it of this burden of responsibility.

I hear sound bites from you BC, but not boots on the ground insights. Mayo Clinic reported today 70% of Americans take at least one drug. Ever think we have a public health problem and not a medical care delivery problem? Spend some time with that thought. There are answers.

Just say no to the medical industry and learn what good health is all about, and what it is not. Pouring more money into what we have today is just plain stupid; which makes Obamacare mandated insurance a really stupid detour right now.

But his stated goal was to create a system so bad that we would beg for single-payer health care. Some of us were begging for single-payer already because we have seen where it works just fine among our neighbors to the north.

foofighter (anonymous profile)
June 19, 2013 at 10:33 p.m. (Suggest removal)

If you knew anything about medicine you'd know that plastic surgeons aren't the same as an ortho surgeon or a heart surgeon or a a doctor in general practice. Most people know this.
God forbid we ever have to live in a world governed by someone of your arrogance and stupidity.
Congrats you've earned the "g"

Ken_Volok (anonymous profile)
June 19, 2013 at 10:51 p.m. (Suggest removal)

Errr...I was talking about doctors who save lives Foo. I guess I should have made that official in writing.

billclausen (anonymous profile)
June 20, 2013 at 1:32 a.m. (Suggest removal)

At least put it in a sound bite.

Ken_Volok (anonymous profile)
June 20, 2013 at 1:40 a.m. (Suggest removal)

BC: You are talking about creating a new national health care policy - you do need to be precise in your terms.

"Doctors who save lives" is a good one. Flesh that out a bit more too. Doctors over-prescribing expensive but unproven drugs as "prevention". Do they count too? Or are you just talking about trauma care physicians. ER doctors? Just surgeons, and not primary care docs?

Run with me. I said I am in favor of a single-payor plan. Work up from there.

foofighter (anonymous profile)
June 20, 2013 at 9:06 a.m. (Suggest removal)

"But his stated goal was to create a system so bad that we would beg for single-payer health care."
-- foofighter

foo, I agree with most of your posts here but the above is just nonsense. "Stated" goal? Really? I'd like a cite for that.

SezMe (anonymous profile)
June 20, 2013 at 3:07 p.m. (Suggest removal)

Wall Street Journal 8/18/2009:

QUOTE FROM WSJ ARTICLE:
"Then there's Mr. Obama's now famous 2003 remarks: "I happen to be a proponent of a single payer universal health-care program. . . . But as all of you know, we may not get there immediately."

foofighter (anonymous profile)
June 20, 2013 at 5:26 p.m. (Suggest removal)

REALCLEARPOLITICS

Link to video of Obama making these remarks before the AFL/CIO on June 30, 2003:
http://www.realclearpolitics.com/vide...

foofighter (anonymous profile)
June 20, 2013 at 5:29 p.m. (Suggest removal)

The Daily KOS ground game for single-payer health care ....eventually: http://www.dailykos.com/story/2009/06...

foofighter (anonymous profile)
June 20, 2013 at 5:43 p.m. (Suggest removal)

Minnesota physicians group moves beyond what they see as the obvious flaws built into in Obamacare to finally reach single-payer health care: http://blackagendareport.com/content/...

foofighter (anonymous profile)
June 20, 2013 at 9:28 p.m. (Suggest removal)

Foo: My comments are self-explanatory. If you can't decipher my plain talk, I cannot help you.

I am not Foo.

billclausen (anonymous profile)
June 21, 2013 at 12:54 a.m. (Suggest removal)

The merger is wonderful news for all the people of the Central Coast. Sansum and Cottage are focused on the highest quality of care for people - not profits for shareholders. In the very complex world of medical care, we are extremely well covered and the merger is a smart move in today's economic and social landscape.

loganwc (anonymous profile)
June 21, 2013 at 6:23 a.m. (Suggest removal)

BC: Let's hope 100% of all doctors "save lives".

Therefore we in turn need to fund all doctors education and require they return service in kind to the state. This may have to happen and needs to be an added cost to any state health care package.

Today's costs for medical school are counter-productive to any service return to the public.

foofighter (anonymous profile)
June 21, 2013 at 6:52 a.m. (Suggest removal)

no one is foo, BC, he's an amalgam of Tea Party aficionados.

DrDan (anonymous profile)
June 21, 2013 at 8:21 a.m. (Suggest removal)

I would like to see the Cottage organization offer the equivalent of a single-payer HMO system which we can buy into directly; like a Kaiser Permanente plan which has a very good quality reputation.

foofighter (anonymous profile)
June 21, 2013 at 8:41 a.m. (Suggest removal)

"But his stated goal was to create a system so bad that we would beg for single-payer health care."
-- foofighter

cannot be inferred from this...

Then there's Mr. Obama's now famous 2003 remarks: "I happen to be a proponent of a single payer universal health-care program. . . . But as all of you know, we may not get there immediately."

That's intellectually dishonest, and yes I have read the complete speech.

whitecrow (anonymous profile)
June 21, 2013 at 1:56 p.m. (Suggest removal)

whitecrow is right. Your cites fail to support your statement. Now, that may be YOUR interpretation of his remarks, but you would be wise to not confuse yourself and reality.

SezMe (anonymous profile)
June 21, 2013 at 2:47 p.m. (Suggest removal)

Both Sansum and Cottage provide excellent quality medical care. However, to think that this is not a process largely, if not entirely, driven by financial considerations is naive. Whether that is good or bad remains to be seen. If it helps improve patient care and helps hold down costs then it is good. If it merely makes more profit ( yes I know that Sansum is a "not for profit corporation" but that really just means that profits go toward higher salaries rather than to shareholders, the actual shareholders are the physicians) and allows for higher salaries then not so much. I'd like to know how much Werft and Ransahoff earn.

Noletaman (anonymous profile)
June 21, 2013 at 3:24 p.m. (Suggest removal)

Whitecrwo, yes it was intellectually dishonest because I embellished the quote. I appreciate being asked to quote the exact reference so we can re-set the discussion to the exact statement and not the inference I placed upon it. I agree, single payer is the way to go. Obama had 10 years, but he still could not pull it off by 2013. Stay tuned because the movement continues.

foofighter (anonymous profile)
June 21, 2013 at 3:59 p.m. (Suggest removal)

Cottage attempted to own the central coast through economy of scale. They are behind the curve with regards to moving towards a foundation based medical plan and with the combination of Obama Care and a generally changing medical environment their old model is not sustainable.
Neither of these organization provides fantastic care, they are no better or worse than in any small town, but Cottage is purchasing an in-place business model by usurping Sansum, and Sansum needs the breadth and depth of Cottage to survive.

italiansurg (anonymous profile)
June 24, 2013 at 6:46 a.m. (Suggest removal)

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