MarinHealth Surgery Center Sews Up New Deal

MarinHealth Medical Center and UCSF Health are joining forces on an outpatient surgery center.

The Marin Specialty Surgery Center is one of three outpatient centers operating in Marin County. The centers are often able to do surgeries at a lower cost than hospitals because they perform more routine procedures that require less-expensive equipment.

For MarinHealth and the Marin Specialty Surgery Center, whose owners include 11 local physicians, it is a reunion after a messy divorce.

Up until the end of 2018, MarinHealth owned a piece of the surgery center along with 20 doctors and Surgical Care Affiliates, an Illinois company that operates more than 300 ambulatory surgery centers and surgical hospitals nationwide.

Then the hospital and the surgery center went their separate ways.

“We sold our interest because that is what the physician-owners preferred,” Lee Domanico, MarinHealth’s chief executive officer, said at the time.

Domanico expressed concern that the surgery center would lure away patients who have private insurance that pays healthy reimbursements, leaving the hospital the majority of the Medi-Cal and Medicare patients, whose government reimbursements often fail to cover the cost of care. Last year, MarinHealth performed 6,249 outpatient surgeries while surgery center did about 2,400.

Under the newly announced alignment, the surgery center will continue to have tripartite ownership, but Surgical Care Affiliates has bowed out of the picture.

Dr. Brian Su, an orthopedic surgeon, the surgery center’s chairman and a Marin Healthcare District board member, said MarinHealth and the University of California at San Francisco Health have purchased equity stakes in surgery center from Surgical Care Affiliates.

“So now, the surgery center is co-owned by MarinHealth, UCSF Health and the physicians,” Su said.

Neither the surgery center nor MarinHealth were willing to disclose how large a share each holds or any other financial details of the arrangement, but Elizabeth Fernandez, a spokeswoman for UCSF, said UCSF Health holds a 20.4% share.

As for why the physicians decided to swap partners, Su said, “It’s easier to recruit physicians to the surgery center because of this consolidation.”

“SCA is an independent surgery center management group,” he said. “They’re not affiliated with any physician groups locally, and while they’re very good at building and operating the center, it’s a challenge to grow the center when you don’t have collaboration with a local health system.”

Under the new arrangement, UCSF physicians will also begin treating patients at the surgery center.

MarinHealth’s chief strategy officer, Mary Friedman, said she didn’t know if MarinHealth lost revenue because of competition from the surgery center during the intervening years.

“The reason we’re doing this deal now is because we have grown so much and we need more capacity,” Friedman said. “We’ve been looking for an opportunity to gain additional surgical capacity, and this surgery center was perfect for that.”

The time that MarinHealth and the surgery center spent apart was a difficult one for both parties.

In May 2020, just as COVID-19 was arriving in the U.S., the surgery center expanded, moving from a 5,000-square-foot space at 505 Sir Francis Drake Blvd. in Greenbrae, where it had been located for about 15 years, to its current 14,400-square-foot location at 1 Thorndale Drive in Terra Linda.

“COVID was horrible all round, for the hospital and the surgery center,” Su said.

He said, however, that with the help of a federal Paycheck Protection Program loan and various other strategies, the surgery center made it through the darkest days of the pandemic without laying off any employees.

MarinHealth reported losses of $22.2 million in 2020, $6.9 million in 2021 and $4 million in 2022. Friedman declined to say whether the hospital was profitable in 2023.

In 2023, the hospital issued $100 million of revenue bonds. During a presentation on the bonds at an April meeting of the Marin Healthcare District board, Dr. David Klein, MarinHealth’s current chief executive officer, said the hospital’s balance sheet had been adversely affected by the pandemic and the cost of installing the hospital’s new Epic computer system.

At the time MarinHealth and the surgery center parted ways, Domanico said the hospital had plans to open its own outpatient surgery center in the next few years, in a new building that would be constructed adjacent to the new hospital’s wing, which opened in September 2020.

The Marin County Planning Commission reviewed the hospital’s plans for a five-story, 100,000-square-foot ambulatory services building and a six-level, 20,000-square-foot parking garage in March 2021. At that time, MarinHealth representatives told the commission that a fifth of the building would be occupied by UCSF physicians.

During meetings of the Marin Healthcare District board in early 2023, Klein said that finance planning was underway for the new ambulatory services building with a goal of beginning construction by early 2024. At that time the project was estimated to cost about $200 million.

In August 2023, however, Klein informed the health care district board that plans for the ambulatory services building had been placed on hold.

“I started thinking about potential additions to our structure, where would be the best place for that to be,” Klein told the board members, “and it may actually be the site where we had planned to do the ASB. So we may have to shift the ASB to a different location depending on what we think our needs are going to be in 2030.”

Friedman said Thursday, “We are basically determining all of our space needs for the whole health system so that could be related to patient demand, to growth, and to seismic.”

MarinHealth’s Redwood Pavilion, which contains the hospital’s pharmacies, food service and 120 patient beds, must be retrofitted to meet state seismic regulations by 2030. The building was built in 1952.

The roof of the planned ambulatory services building is also one of three locations that MarinHealth is considering locating a helipad. In December 2022, the health care district board passed a resolution requesting that MarinHealth develop a proposal for an emergency helipad.

A consultant was hired to do a preliminary study and Klein reported to the health care district board on options for the helipad at its February 2023 meeting. The other locations under consideration are the hospital’s parking lot and the roof of Oak Pavilion, which houses the new hospital wing.

Klein told the district board members that approval of a helipad would require an environmental study, the approval of the Federal Aviation Administration and community support.

“It’s going to take a whole public relations campaign,” Klein said. “But I do think the sentiment of the community has changed. I think we can get this done.”

In the past, neighbors have objected to landing helicopters at the hospital. Currently, helicopters land infrequently at Hal Brown Park, which is across Bon Air Road from the hospital.