$1 million public grant will help DAP Health absorb Borrego Health after sale

DAP Health will receive a $1 million grant from the Desert Healthcare District to aid the Palm Springs-based health care provider during its first year of acquiring Borrego Health clinics.

During Tuesday's Desert Healthcare District board meeting, five directors (Director Arthur Shorr abstained and Director Carmina Zavala recused herself from the vote) unanimously voted to provide DAP Health a $1,025,778 grant to "fill the expected gaps in operating revenue during the first year of the DAP acquisition," according to district documents.

Borrego Health filed for Chapter 11 bankruptcy protection in September following a number of changes and legal troubles in recent years. In November, its Board of Trustees announced it had begun a formal process to explore options for transferring operations of clinics to a "like-minded" federally qualified health center. These centers receive funds from the federal government to provide primary care services in underserved areas.

On Feb. 15, Borrego Health Board of Trustees announced it had selected DAP Health to acquire Borrego Health clinics in Riverside and San Diego counties, and a few weeks later, a U.S. bankruptcy court approved the $50 million sale of Borrego Health to DAP Health on March 1.

Related: Kickbacks and sham contracts: How Borrego Health says ex-insiders stole millions

DAP Health CEO David Brinkman explained that the nonprofit is expected to end of the first year of the acquisition in the red. Additionally, DAP expects the licensing and transfer of all Borrego Health clinics to DAP to take between three and six months before DAP can collect for services.

"The revenue that will come in post-close at first will be money that belongs to the creditors and bankruptcy because it will be services that are delivered now. But the payer, the insurer, will not pay for 60-90 days," Brinkman explained to the board. "For a period of time, we'll be making payroll on nearly 600 new employees, and we will not be getting any of the revenue associated with the services they provided."

"Changing contracts, changing licensing, reaccrediting all of the providers and HRSA making the transition from Borrego Health as a (federally quality health center) to DAP as the new parent organization — all of that will take two to six months to accomplish," Brinkman continued. "During that time, we operate in the red, still retaining all employees, ensuring access to patient care and bringing on 24 new providers in the first year. When you bring on a new provider, it takes up to six months ... so there's another loss at that time."

More than $932,000 of the grant funds will go toward staffing costs, according to district documents. DAP Health will also provide $1.5 million in retention bonuses to Borrego Health employees, divided evenly among them. They will receive the first half on the day of the sale close and the second half six months later.

Within six months, DAP plans to hire 24 additional clinicians to reach "appropriate staffing levels." By the end of the grant year in June 2024, the clinics are expected to operate at full clinician-patient caseload capacity, which varies by site, according to the nonprofit.

Director Les Zendle and Shorr expressed concern over whether DAP Health would eventually get reimbursed for the requested grant amount. Brinkman said DAP will not recover those funds, and that money is needed to "operate and break even in the first year."

DAP Health, which provides primary care, mental health, dental and HIV specialty care, has a main campus in Palm Springs and opened a sexual wellness clinic in Indio last year. Additionally, Innercare, a private nonprofit federally qualified health center operating health care centers, dental clinics and Women, Infant, and Children Programs in Imperial and Riverside counties; and Neighborhood Healthcare, which operates health centers in San Diego and Riverside counties, will provide operational and administrative support.

Borrego Health has 18 clinics, two pharmacies and six mobile clinics in Riverside and San Diego counties, according to a Sept. 27 court filing. In the valley, the nonprofit's clinics include Centro Medico in several cities, Palm Springs Family Health, Stonewall Medical Center in Cathedral City and the Coachella Valley Community Health Center that opened in Coachella last July.

DAP will provide fiscal oversight of all the clinics and operational oversight to clinics in the Coachella Valley region, while Innercare and Neighborhood will oversee program service delivery operations of the clinics within their geographic areas.

Borrego Health provided approximately 386,000 patient care visits to more than 94,000 patients in 2021, according to court documents, and employed approximately 700 people. Its tax filing for the year ending June 30, 2020, shows annual revenue of almost $342 million, though revenue has fallen drastically since then.

By contrast, DAP Health saw more than 8,000 patients in 2021, according to a community impact report, and there are nearly 300 employees. Its tax filing for the year ending June 30, 2021, shows annual revenue of nearly $66 million. Brinkman said on Tuesday that its annual revenue is approximately $90 million.

Approximately 138,000 patient visits are projected to occur over a 12-month period, according to district documents.

"We're putting everything we have on the line because that's what our founders would expect us to do, to protect and ensure health care access," Brinkman said.

What's to come

The CEO announced that over the next five years, DAP Health plans to invest $65 million "back into the Borrego Health system" to bring in additional outpatient drug treatment and nutrition programs and develop affordable housing units. He emphasized developing affordable housing or a new clinic in Thermal — or both — because "that community deserves better," adding many households do not have access to clean drinking water or electricity.

Before all that work can get started, the next step in finalizing the transaction is for the sale to receive regulatory approval from the U.S. Health Resources & Services Administration. In the meantime, leaders from Borrego Health, DAP Health, Innercare and Neighborhood Healthcare have been collaborating on how to ensure a smooth transition that "does not interrupt patient care or team members’ careers," a March press release states.

On the date of closing, all of Borrego Health’s assets and employees will officially become the assets and employees of DAP Health. No estimate was provided as to when regulatory approval would be finalized.

Ema Sasic covers entertainment and health in the Coachella Valley. Reach her at ema.sasic@desertsun.com or on Twitter @ema_sasic.

This article originally appeared on Palm Springs Desert Sun: $1M grant will help Palm Springs’ DAP Health absorb Borrego Health