Affiliation deal in the works for one of region’s oldest medical groups

Jul. 17--Founded in 1932, Graybill Medical Group has maintained its independence for nearly nine decades. But the realities of a modern health care system that rewards the ability to care for large populations of patients has finally pushed the stalwart North County institution to affiliate with Palomar Health, the main hospital operator it has worked closely with since the 1950s.

Graybill and Palomar recently released a joint statement announcing that they are exploring an agreement that is expected to result in Palomar purchasing Graybill's assets, from real estate leases to equipment, to be managed by the same medical foundation that manages Arch Health Partners Medical Group.

Floyd Farley, Graybill's chief executive, said the group will maintain its independence through its own governing board as is required by state law but is eager to explore a tighter integration with Palomar.

"We're excited about this affiliation agreement, because it brings a lot of very good and talented people much closer together with much more information available to provide the kind of care that we have been dedicated to for more than 80 years," Farley said.

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Founded in downtown Escondido by Dr. Martin Graybill during the Great Depression, Graybill has grown significantly with 12 office locations, more than 60 doctors and 20 nurse practitioners and physician assistants. Arch, which once drew criticism from Graybill due to the large operating subsidy it received from Palomar every year, has about 80 doctors working in five inland North County medical offices.

Bringing these two organizations together, executives emphasize, dramatically increases their collective footprint. Both organizations operate in Escondido, Valley Center and Ramona while Arch has a strong presence in Poway and Rancho Penasquitos. Graybill reaches much further west with offices in San Marcos, Vista and Oceanside and much further north, serving patients in Fallbrook, Murrieta and Temecula.

While the combined size of the new group would still be significantly smaller than those built by the region's largest players such as Scripps Health, Sharp HealthCare and especially Kaiser Permanente, roughly doubling the number of providers is expected to deliver greater efficiency, especially once everyone is using the same electronic medical records system.

Closer communications through shared systems, said Diane Hansen, Palomar's chief executive officer, should mean a smoother experience for patients when they need to transfer from a family doctor to a specialist or receive hospital care.

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"We expect that it will give us the ability to do a better job of helping patients manage their health and their care from the time they step into a physician's office to the time they may need acute care in a hospital," Hansen said. "It will absolutely help us operate more efficiently, decreasing duplication in areas like testing and imaging and making sure that patients are receiving follow-up care."

Graybill has been in this more holistic mode of care since it first started working with health management organizations 35 years ago, Farley said. Today, the organization staffs a team of physicians who work full time at Palomar Medical Center Escondido, taking care of about 50 hospitalized patients per day. Another team works in nursing homes to continue caring for Graybill patients after they're discharged from the hospital.

Teaming up with Palomar, he said, provides an opportunity to grow larger while still maintaining some independence. California's corporate practice of medicine laws forbid most hospitals from directly employing doctors, so Graybill physicians, through their own governing board, will still have autonomy. While medical contracting may behoove them to send patients to Palomar-affiliated specialists and hospitals, there is no requirement for them to do so.

With its larger size and scope, Farley said, it should be easier to grow.

"Palomar Health can invest in recruitment efforts at a larger scale than what Graybill alone could do," the executive said.

The two sides are still in talks about exactly how much Palomar will pay for Graybill's assets. Palomar's elected board of directors recently cried foul at the millions that it spent subsidizing Arch's continued operations, a cash commitment that led to an ongoing reorganization effort of the medical group.

Hansen said that she does not expect that combining Graybill and Arch operations and overhead costs will suddenly achieve an economics of scale that will suddenly put the combined organization in the black. Most health systems, she said, do end up having to subsidize the operations of affiliated medical groups. But in the end, she said, it's worth the money.

"Across the nation, physician groups that are brought into a network model like this do require subsidies," Hansen said. "The idea is that the benefits to the health system of having an aligned medical group far outweigh the investment that's made in the medical group itself."

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Talks will include operating under a new name, Hansen and Farley said. While no one should expect them to go with "GrayArch" or "ArchBill", both executives said they believe there needs to be a stronger emphasis on the Palomar Health brand name in order to emphasis the connection to Palomar's hosptials in Escondido and Poway.

But there is an equal commitment, both said, to including the Graybill and Arch names to keep continuity with existing patients who, in Graybill's case, have in some cases been working with the company across multiple generations.

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