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Cottage Hospital May Sell Off Santa Barbara Outpatient Surgery Center

Officials identify retention of the facility as a potential roadblock to the completion of a proposed merger with Sansum Clinic

The Santa Barbara Outpatient Surgery Center, at 2403 Castillo St. across from Santa Barbara Cottage Hospital’s emergency room, handled 2,500 operations in 2014. Click to view larger
The Santa Barbara Outpatient Surgery Center, at 2403 Castillo St. across from Santa Barbara Cottage Hospital’s emergency room, handled 2,500 operations in 2014. (Bill Macfadyen / Noozhawk photo)

Cottage Health System announced Monday that it will explore the sale of its Santa Barbara Outpatient Surgery Center.

The divestment is intended to alleviate Federal Trade Commission unease about the hospital system’s proposed merger with Sansum Clinic.

In June 2013, the two nonprofit health-care providers unveiled plans to develop an integrated health system that would unite Cottage, the South Coast’s only inpatient hospital, with Sansum, the region’s largest outpatient clinic.

Almost from the start, however, the FTC expressed concerns over the proposed merger’s effect on local competition.

In a Monday afternoon phone interview with Noozhawk, Cottage President/CEO Ron Werft and Sansum CEO Kurt Ransohoff said 18 months of discussions with the FTC’s Bureau of Competition began to focus on the competitive overlap of the off-campus outpatient surgery center.

The center, at 2403 Castillo St. across Junipero Street from Santa Barbara Cottage Hospital’s emergency room, has four surgical rooms and employs 40 people.

In 2014, the center handled 2,500 operations — for everything from orthopedic to gynecological to pediatric procedures, according to Maria Zate, Cottage Health System’s communications director.

Last August, Sansum opened a spacious, state-of-the-art medical and outpatient surgical center at 4151 Foothill Road. It, too, has four surgical suites and is adjacent to the offices of a number of Sansum physicians who work in the complex.

Werft said Cottage Health System has retained Cain Brothers & Co., a New York City-based investment banking firm that focuses exclusively on the health-care industry.

“Cain Brothers will approach ambulatory surgery companies around the country about the possibility of acquiring the center,” he said.

The Santa Barbara Outpatient Surgery Center has four surgical suites and a workforce of 40 employees. (Bill Macfadyen / Noozhawk photo)
The Santa Barbara Outpatient Surgery Center has four surgical suites and a workforce of 40 employees. (Bill Macfadyen / Noozhawk photo)

The search for prospective buyers likely would take “about six months,” he said.

Typically, he added, companies interested in the purchase would seek to identify potential physician investors from the area.

“The FTC requires that the buyer must be independent, and that they will continue to be viable competition,” Werft said.

“They want the same level of competition, or more.”

He declined to speculate on a purchase price or possible buyers, but noted that there are a number of companies that specialize in running outpatient surgery centers.

Werft said the sale of the surgery center makes sense now because Sansum’s new Foothill Road clinic was designed and built in an integrative manner. The 2010 Patient Protection and Affordable Care Act encourages such efficiencies and partnerships, he added.

He also emphasized that Cottage currently has 24 operating suites in its Santa Barbara, Goleta and Santa Ynez Valley hospitals. When the new Goleta Valley Cottage Hospital opens later this year, it will add two more to the mix.

Should the Sansum merger be approved, Sansum’s four outpatient operating suites would replace the divested ones, and Cottage Health System’s net gain would be two.

Werft said a sale of the outpatient surgery center would be contingent on the approval and completion of the Cottage-Sansum merger. He expected that Cottage would retain ownership of the free-standing building, which includes doctors’ offices on its second floor and off-street parking.

Noozhawk publisher Bill Macfadyen can be reached at .(JavaScript must be enabled to view this email address). Follow Noozhawk on Twitter: @noozhawk. Connect with Noozhawk on Facebook.

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