Stanislaus County could have cut its health care losses significantly by going with St. Joseph's instead of Tenet Healthcare Corp. as a contractor, the civil grand jury says.

Instead, the public health care system is bleeding red ink. The 2002-03 grand jury's report, released to the public Tuesday evening, cites losses of close to $30 million at the Health Services Agency since late 1997 when the county struck its deal with Tenet.

Under the deal, the county closed Stan-islaus Medical Center in Modesto, and started sending poor people and those with acute ailments to Tenet's Modesto hospital, Doctors Medical Center.

The grand jury report asserts that Stockton-based St. Joseph's Regional Health System, a division of Catholic Healthcare West, offered a better deal. St. Joseph's also had the endorsement of the county's negotiating committee.

St. Joseph's would have absorbed any losses for 12 years, and it had a plan for improving clinics and for a gradual phase-out of inpatient services at Stan-islaus Medical Center.

Instead, the county closed the Scenic Drive hospital on Nov. 30, 1997, a month after inking the Tenet deal. The county retained control of its community clinics, and got a one-time, $12 million payment from Tenet.

County Supervisor Pat Paul, who was on the losing side of the board's 3-2 vote to go with Tenet, said St. Joseph's promised more time in deciding what to do with inpatient services.

Paul said the grand jury report supports her view that the board made a mistake 6 1/2 years ago.

"I think that is the worst decision that we have ever made," she said. "I wanted to keep the county hospital intact. I know we have an advisory board (overseeing the Tenet contract), but I have never felt we had any input on that board."

Losses expected next 2 years

The grand jury, which carried out a miniaudit, cited a $26.1 million loss at the Health Services Agency since the contract took effect, and estimated an additional $3.7 million when accounting is finished for the fiscal year that ended June 30.

The grand jury expects the agency to break even in 2003-04, and then to post losses of $7 million to $9 million in the next two years.

The grand jury urges leaders to assemble a team of the "best and brightest" to develop alternatives.

Wednesday, Board of Supervisors Chairman Ray Simon issued a brief written response: "The board is continually looking for ways to operate the county's health care system within the limited funds available."

He contested one of the grand jury's claims -- that the county had not used Tenet's $12 million payment to reduce losses.

In truth, the 2003-04 county budget applies $8 million of Tenet money to the debt.

A policy in the new budget demands that the Health Services Agency stop operating in the red, said Patty Hill Thomas, assistant county executive.

The county has 90 days to file a formal response to the grand jury. Officials plan to give more background on the decision to go with Tenet and all the proposals that the county considered at the time, Hill Thomas said.

County control was a priority

County board members who rejected the St. Joseph's bid said in 1997 that they wanted to retain county control of the public health care system. St. Joseph's wanted to create a nonprofit corporation and would have taken over the outpatient clinics.

Hill Thomas said officials were concerned that the St. Joseph's plan would have required major improvements to county facilities.

"It's more fair to look at all of the conditions that the two parties suggested, not just to focus on one," she said.

Representatives of Doctors Medical Center declined to comment on the report.

Gary Spaugh, Catholic Healthcare West's vice president of business development and a lead person in the 1997 county talks, stopped short of gloating about the report's conclusions.

"Our proposal was some time ago, and we are not knowledgeable enough on the situation in Stanislaus County at this time," he said.

Beverly Finley, former Human Services Agency director, said she believed then that St. Joseph's proposal was superior to Tenet's.

"It's easy to be a Monday morning quarterback," she said Wednesday. "But it's hard to say if we would be better off today. It's speculation and that is not productive."

Bee staff writer Ken Carlson can be reached at 578-2321 or kcarlson@modbee.com.