New hospital partnerships are good for health care in Monterey County.

To understand why two CEOs of local hospitals shaking hands is a big deal, you have to go back a few years.

In 2012, Memorial Hospital was searching for a partner, courting two private hospital chains and potentially being bought. Both Vanguard and the Hospital Corporation of America backed out. That left just one prospective partner, Natividad Medical Center. The Memorial board unanimously rejected Natividad’s offer to team up. In subsequent years, the hospitals battled to become the county’s trauma center.

When talks about a potential partnership resurfaced a year later, Pete Delgado had taken over as CEO of Memorial. And he didn’t see a need for help. “We have the right momentum and leadership that we can do this alone,” he told the Weekly.

While the two Salinas hospitals bickered, the Community Hospital of the Monterey Peninsula largely sat on the sidelines, reinforcing the chilly feeling between area hospitals. So when Delgado and CHOMP CEO Dr. Steven Packer announced their institutions were going into business Nov. 18, it marked a thawing of relations, and a crossing of the so-called Lettuce Curtain.

After 18 months of closed-door talks, CHOMP’s parent company, Montage, and Memorial joined forces. They became co-owners of Aspire Health Plan, a Medicare insurance plan CHOMP launched in 2013, and of Community Health Innovations, which employs health outreach specialists to communicate between doctors, caregivers and patients. (Montage has a 51-percent stake, to Memorial’s 49 percent, and governance is shared.)

While patients are unlikely to see immediate changes, it’s setting a path forward for a smarter way of thinking about how we pay for health care. Hospital executives have long talked about “heads in beds,” the morbid calculator for how hospitals get paid: by treating the sick or injured in hospitals beds. The idea of programs like CHI, with outpatient support and an emphasis on dispensing information rather than prescriptions, is to keep patients out of the hospital entirely.

“We want to be paid for keeping people well,” Packer says.

“It’s obviously the right thing to do,” Delgado says.

Here’s the thing about the right thing: It’s not always good business. If hospitals keep patients healthy, they don’t have a clear way to bill those patients. But both hospitals now double as insurers by offering Aspire, a variation on the federal government-offered Medicare.

Since launching Aspire in 2013, CHOMP has been losing money on it – about $3 million a year – but compared to the hospital’s overall budget of $500 million a year, that’s negligible.

The current enrollees, about 2,400, are split evenly on both sides of the Lettuce Curtain, and that number is projected to keep growing. In California, on average, some 40 percent of seniors are enrolled in Medicare Advantage plans, rather than straight Medicare; that 2,400 represents 5 percent of Monterey County’s Medicare-eligible population, and hospital executives think it’s just a matter of time until we reach the state average.

The good news for CHOMP and Memorial is that paying for basics like the IT systems and staff is fixed no matter how many people are enrolled. “It’s a scale play,” Packer says. “It makes no sense for us to both develop the infrastructure.”

Dr. James Gilbert worked as an OB-GYN for 28 years before leaving clinical medicine last year to serve as the president of the Monterey Bay Independent Physician Association. He remembers those 18 months of talks leading up to a business deal. “Some of this is about saying, ‘How many times did I say, only the insurance companies are smart enough to dothis?’” Gilbert says. Now they’ve realized they’re smart enough to play by those rules, too. (Delgado, Packer and Gilbert are all optimistic those changes will survive an Obamacare repeal.)

Ironically, it’s partly the insurance companies who deserve credit for changes. By penalizing hospitals with lower payouts for patients who’ve been readmitted, for example, insurers encourage hospitals to prevent patients from coming back.

Now that two local hospitals are insurers too, they’ve got a financial dog in this fight like never before. It’s patients who stand to win.

SARA RUBIN is editor of the Weekly. Reach her at sara@mcweekly.com.