CC20 — Rancho Mirage City Council, July 18, 2024

AGENDA ITEM #

STAFF REPORT
TO: Mayor and City Council DATE: July 18, 2024
FROM: Isaiah Hagerman, City Manager
SUBJECT: Tenet Lease with Desert Healthcare District and the Non-Compete Provision that Restricts Taxpayer Funds and Elected Boards Over the Next 30 Years

SPECIFIC REQUEST OR RECOMMENDATION
That the City Council take whatever action they deem appropriate.

JUSTIFICATION OR INFORMATION
On June 20, 2024, the City Council adopted Resolution No. 2024-41, formally objecting to any proposed Desert Healthcare District Tenet lease “non-compete” provisions, and directing the Mayor to draft a letter to the Desert Healthcare District Board, with the assistance of the City Manager, objecting to the proposed Tenet lease “non-compete” provisions.

On July 8, 2024, the Mayor sent a letter to the Desert Healthcare District Board objecting to the proposed Tenet lease “non-compete” provisions, along with a copy of City Council Resolution No. 2024-41.

A copy of the draft Tenet lease, as of July 16, 2024, is attached. The Desert Healthcare District will have hosted two community meetings by the time of our city council meeting, which staff will have participated in.

This staff report was written on the current version of the draft lease as of July 16, 2024, and examines the non-compete provision publicly available. The District has indicated that this non- compete language will continue to be negotiated. Tenet is requiring the District to include a non-compete provision. The impacts of the non-compete would be District-wide and through May 30, 2057. The two primary concerns on the non-compete is that it restricts the Desert Healthcare District/Foundation from doing a wide range of healthcare related activities, without obtaining Tenet’s written approval. It also places a heavy restriction on the use of taxpayer funds by the Desert Healthcare District/Foundation and gives Tenet the final authority to approve or reject the use of taxpayer funds over the District’s elected board, as more fully explained below.
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DATE: July 18, 2024 Page 2 of 3
Tenet Lease with Desert Healthcare District

JUSTIFICATION OR INFORMATION CONTINUED
AGENDA ITEM #
Non-compete lease language that prevents the Desert Healthcare District/Foundation from performing healthcare related activities, without Tenet’s approval:

Accordingly, and in order to promote the objectives set forth in Recital G above, after the Commencement Date and during the entire term of this Agreement, neither Lessor nor any Affiliate, including Desert Healthcare Foundation (the “Foundation”), will directly or indirectly own any interest in, manage, or operate (i) any hospital or other health care facility, provider, or business within the geographical boundaries of District or which may otherwise at any time be competitive with any present or future Desert Businesses or newly created health care system affiliated with the Desert Businesses, or (ii) any other health care related business conducted with or supporting the Leased Premises including, without limitation, ownership or management of physician practices, without Lessee’s prior written consent (which Lessee may withhold in its sole and absolute discretion).

This language clearly restricts the District’s ability to engage in any healthcare related activity that may compete with current and future Tenet services, without Tenet approval. This would prohibit the District from using a public/private partnership anywhere in the boundaries of the District, without Tenet approval, which Tenet may withhold in its sole and absolute discretion.

Non-compete lease language that prevents the Desert Healthcare District/Foundation from using taxpayer funds without Tenet’s written approval:

Lessor and its Affiliates will not be prevented from participating in activities that promote health care services for residents of District’s community, so long as they do not provide financial support to another acute care hospital within District’s boundaries or act as a provider of health care services themselves. Notwithstanding the foregoing, nothing in this Agreement shall prevent District from collaborating with or jointly funding with other acute care hospitals (each such hospital, a “Grant Hospital”) within the boundaries of District in support of projects designed to improve access to healthcare for District residents so long as such projects are outside the scope of the Grant Hospital’s licensure and are provided free of charge to the community or otherwise do not generate revenue that is reflected on the financial statements of such Grant Hospital. Lessor shall provide written notice to Lessee of any potential activity, program, or service which has been formally submitted to Lessor through the grant application process which Lessor considers to be in violation of the covenants in this Article XII, which notice shall include applications and other written materials submitted to Lessor. Lessee shall have 30 days from receipt of said notice to review and grant or withhold consent in writing to the proposed activity, program, or service.
“Notwithstanding the foregoing” is a legal way of saying what is about to be said overrules what was just said when there is a conflict. Therefore, the only taxpayer financial assistance that can be given to another “acute care hospital,” without obtaining Tenet’s pre-written permission, is one that operates outside their licensure, provides the service for free, or otherwise does not generate revenue that is reflected on their financial statements. 20-2

DATE: July 18, 2024 Page 3 of 3
Tenet Lease with Desert Healthcare District

JUSTIFICATION OR INFORMATION CONTINUED
AGENDA ITEM #
What types of healthcare services are considered “acute care hospital”? The draft lease in Recital A appears to define acute care hospital as: Lessor is the owner of Desert Hospital, also known as Desert Regional Medical Center (the “Hospital”), an acute care hospital located at 150 North Indian Canyon Drive, Palm Springs, California, licensed to operate 360 beds for acute care, which facility includes all related real and personal property and assets owned by the District, as more particularly defined herein. The Hospital and all associated District owned outpatient centers, clinics, physician practices, medical office buildings, and any other activity or business related thereto, as the same may change from time to time, are hereinafter referred to as the “Desert Businesses.”
This definition appears to significantly expand the definition to a wide range of healthcare services (outpatient centers, clinics, physician practices, medical office buildings, and any other activity or business related thereto), not just a hospital. Now under this greatly expanded definition, if the Desert Healthcare District/Foundation would like to grant taxpayer funds to a broadly defined range of healthcare services and/or providers, that could possibly compete with anything Tenet does or might do in the future within the District boundaries. The District/Foundation is required to seek written approval from Tenet, which Tenet can grant or withhold. The only exception to this requirement is if the following are met; so long as such projects are outside the scope of the Grant Hospital’s licensure and are provided free of charge to the community or otherwise do not generate revenue that is reflected on the financial statements of such Grant Hospital.

Government/elected boards make decisions very differently than for-profit companies with shareholders. As this non-compete does, taking a final decision by an elected board to grant taxpayer funds, including our property tax dollars, according to the goals and mission of the District/Foundation, and giving a for-profit company based in Texas the final decision to withhold or grant the elected board’s decision, is rightfully generating concern.

The current non-compete provision in the existing lease, per Amendment #5, only applies to the original District boundaries and not to the current District boundaries, as expanded in 2018.

The current draft lease would apply the non-compete provision across the entire boundaries of the District.

ATTACHMENT(S)

1. Non-Compete Section of Draft Tenet Lease, as of July 16, 2024

2.Letter from Rancho Mirage Mayor to Desert Healthcare District Board, Dated July 8, 2024.

3. Full Draft Tenet Lease, as of July 16, 2024
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ATTACHMENT 1

NON-COMPETE SECTION OF
DRAFT TENET LEASE, AS OF JULY 16, 2024
(SEE ATTACHED)
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20-8

ATTACHMENT 2

LETTER FROM RANCHO MIRAGE MAYOR TO
DESERT HEALTHCARE DISTRICT BOARD, DATED JULY 8, 2024
(INCLUDING RANCHO MIRAGE CITY COUNCIL
RESOLUTION NO. 2024-41, ADOPTED JUNE 20, 2024)
(SEE ATTACHED)
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RESOLUTION NO. 2024-41

A RESOLUTION OF THE CITY OF RANCHO MIRAGE, CALIFORNIA, FORMALLY

OBJECTING TO ANY PROPOSED DESERT HEALTHCARE DISTRICT TENET LEASE "NON-COMPETE" PROVISIONS, AND DIRECTING THE MAYOR TO DRAFT A

LETTER TO THE DESERT HEALTHCARE DISTRICT BOARD, WITH THE

ASSISTANCE OF THE CITY MANAGER, OBJECTING TO THE PROPOSED TENET LEASE "NON-COMPETE" PROVISIONS
WHEREAS, at the June 6 , 2024 , Regular Rancho Mirage City Council meeting , the City Council considered providing City staff direction regarding any proposed Tenet Lease with Desert Health Care District which includes any "non-compete " provision , which restricts taxpayer funds and elected Board 's over the next 30 years ; and WHEREAS , by way of background , the Desert Healthcare District (the "District") Board 's May 28 , 2024 , Agenda included an item for the District to consider the revised lease proposal for Desert Regional Medical Center (the "Lease "). Tenant's presentation to the District Board included a reference for a 30 year lease, and would allow Tenet Healthcare, a Dallas -based entity, to take ownership of the hospital at the end of the 30 year lease, which would include a non-compete provision similar to what is included in the existing lease . If approved by the District, the item would be put on the November 2024 ballot for District's voters to weigh in on; and
WHEREAS, as reported in the Desert Sun on May 27 , the Lease has drawn opposition from many nurses at Desert Regional Medical Center; and WHEREAS , at the June 6 , 2024 , City Council meeting, the City Manager provided a powerpoint slide directly from the Tenet presentation given to the District Board , which provided for "Additional Provisions of the Proposed New Lease." In relevant part, in included that "The New Lease would contain a non-compete clause similar to what exists in the current lease, with a territory matching the District's current Boundaries "; and WHEREAS , as referenced immediately above, the existing version of the Tenet lease includes a "non-compete" clause , which are generally set forth in Article XIII (Additional Covenant of Lessor) of the May 30, 1997 Hospital Lease Agreement by Desert Hospital District as Lessor and Tenet Health System Desert, Inc., as Lessee ; however, presumably due to the District expanding its boundaries during the term of the existing lease, the existing lease was amended causing some potential ambiguity respecting District's ability to perform certain potentially competing actions within the District's expanded territory. Based off of Tenet's-own powerpoint, it appears the new proposed lease would eliminate any ambiguity regarding whether the non-compete restrictions apply in the expanded territory, and clearly restrict such activities within the entirety of the current (expanded) boundaries of the District; and WHEREAS, at the June 6 City Council meeting, the City noted that the non compete provision (1) "restricts the activities of the District within District boundaries ", and (2) "restricts the use of taxpayer funds within the District boundaries and requires Tenet's prior written consent, which Tenet may withhold in its sole and absolute discretion"; and
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WHEREAS , as highlighted in the City Manager's June 6 presentation , the City Manager concluded that he recommends : 1) the Desert Healthcare District Board needs to remove this non-compete provisions from the new lease , 2) this non-compete provision harms the communities that lack adequate medical services the most, 3) don 't allow for-profit Tenet to restrict Desert Healthcare District activities and taxpayer funds for the next 30 years , 4) allow future elected District Board Members to determine what is best with taxpayer funds , and 5) the Desert Healthcare District should be responsible to residents and not the for-profit shareholders of Tenet; and WHER EAS , at the June 6, 2024 , City Council meeting, the City Council voted 5- 0 in favor of (1) directing the Mayor to draft a letter to the District, with the assistance of the City Manager, objecting to the non-compete clause within the Lease (the "Letter"), and providing said Letter to the District Board ; and (2) that the City Clerk place on the June 20 , 2024 , Regular City Council meeting Agenda, a Resolution detailing the City's objections to the non -compete provision of the Lease.

NOW, THEREFORE, THE CITY OF RANCHO MIRAGE, DOES RESOLVE, DECLARE, DET ERMINE AND ORDER AS FOLLOWS:

SECTION 1. RECITALS AND INCORPORATION BY REFERENCE.

That the recitals set forth above are true and correct and any and all documents referenced herein are hereby incorporated herein by this reference .

SECTION 2. DIRECT THE MAYOR TO DISPATCH A LETTER TO THE

DISTRICT BOARD OBJECTING TO THE NON-COMPETE
PROVISION WITHIN THE TENET LEASE.

That the City Council hereby directs the Mayor, on behalf of the City , to draft and dispatch the Letter to the District Board , detailing the City's objections and concerns to any non-compete provision within the Tenet Lease, with the assistance of the City Manager.

SECTION 3. OBJECTION TO TENET LEASE NON-COMPETE
PROVISION.

That the City objects to any non -compete provision of the Lease , including those objections highlighted at the June 6 , 2024 , City Council meeting , including but not limited to:
(1) That the Lease would restrict "the activities of the District within District boundaries";
(2) That the Lease would restrict "the use of taxpayer funds within the District boundaries and requires Tenet's prior written consent, which Te net may withhold in its sole and absolute discretion";
(3) That "Desert Healthcare District needs to remove this non -compete provisions from the new lease";
(4) That "this non-compete provision harms the communiti es that lack adequate medical services the most";
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(5) Not to "allow for-profit Tenet to restrict Desert Healthcare District activities and taxpayer funds for the next 30 years ";
(6) That the District should "allow future elected District Board Members to determine what is best with taxpayer funds";
(7) That the Desert Healthcare District should be responsible to residents and not the for-profit shareholders of Tenet"; and
(8) That the City questions what the District will do with its funds if the District is restricted from using funds in such a significant manner.

SECTION 4. SEVERABILITY.

That the City Council declares that, should any provision , section , paragraph , sentence or word of this Resolution be rendered or declared invalid by any final court action in a court of competent jurisdiction or by reason of any preemptive legislation , the remaining provisions , sections, paragraphs, sentences or words of this Resolution as hereby adopted shall remain in full force and effect.

SECTION 5 . REPEAL OF CONFLICTING PROVISIONS.

That all the provisions heretofore adopted by the City that are in conflict with the provisions of this Resolution are hereby repealed .

SECTION 6. EFFECTIVE DATE.

That this Resolution shall take effect immediately upon its adoption .

SECTION 7. CERTIFICATION.

That the City Clerk shall certify to the passage and adoption of this Resolution and enter it into the book of original resolutions .
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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PASSED, APPROVED AND ADOPTED this 20th day of June , 2024 . 7 ATTEST:
~ ~cvv""~
Kristie Ramos, City C lerk
APPROVED AS TO FORM:

Colin Kirkpatrick, City Attorney
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STATE OF CALIFORNIA

COUNTY OF RIVERSIDE

CITY OF RANCHO MIRAGE
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CERTIFICATION
I, Kristie Ramos, City Clerk of the City of Rancho Mirage , California , do hereby certify that Resolution No . 2024-41 was duly adopted by the City Council of the City of Rancho Mirage, California at a regular meeting thereof held on the 20th day of June 2024 , by the following vote:

AYES :

NOES:

ABSTAIN:

ABSENT:

Mallotto , Marker, O'Keefe, Weill.

None.

Downs.
5 ~~<Yvv-&-
Kristie Ramos
City Clerk
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ATTACHMENT 3
FULL DRAFT TENET LEASE, AS OF JULY 16, 2024
(SEE ATTACHED)
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Rancho Mirage City CouncilJuly 18, 2024

Rancho Mirage City Council
July 18, 2024