Elk Grove hospital plan faces backlash over lofty economic promises, ‘bad neighbor’ fears

More than a decade ago, Dr. Alvin Cheung saw a gap in higher education and took a shot at trying to fill it.

Pharmacists were sorely needed nationwide, so Cheung, a pharmacist himself, assembled a group of local doctors and investors to start California Northstate University. The for-profit school began operating in Rancho Cordova in 2008 as a pharmacy college and later expanded its campus to Elk Grove as Cheung’s ambitions extended into medicine and other health professions.

He now wants to take on an even bigger challenge: opening a teaching hospital in the region’s second-largest city with as many as 400 beds and a helicopter pad to support trauma services. The project has generated an unusual amount of criticism and scrutiny among nearby residents who are still trying to piece together basic details about the endeavor more than two years after it was announced.

The project will face a key vote this week when it comes before the Elk Grove Planning Commission. The five-member body will decide whether to approve an environmental impact statement and grant a variety of other entitlements, zoning amendments and permits that would push the medical center plans to the City Council for final approval.

Cheung wants to construct a 13-story hospital tower east of Interstate 5, an outpatient clinic, a student dorm and two parking garages. It will rise above the Stonelake subdivision where the project has generated the most angst and neighbor the Stone Lakes National Wildlife Refuge.

CNU has moved aggressively in recent weeks to push out its message, sending direct mail to homes and appearing on TV news. Cheung authored an op-ed for the Sacramento Business Journal last December citing the hospital’s potential benefits. One of the mailers accused unnamed critics of “waging a disinformation campaign.”

When the project is evaluated by Elk Grove’s Planning Commission on Thursday, officials are girding for several calls. Although the hospital project is the only item on the agenda, the meeting could last for hours.

At least one board member, Andrew Shuck, told The Sacramento Bee that he will recuse himself because close family members live near the project in Stonelake. Shuck said in an email that he does not feel he can be neutral.

“This one is fairly controversial; I would say more than most,” said George Murphy, vice chair of the Planning Commission and one of its longest-serving members. “This is the first time we have actually heard the whole project formally. (But) I don’t think any of us haven’t heard about the project socially.”

Taxes and job benefits overstated, economist says

Financial benefits to Elk Grove and beyond are a key part of the school’s hospital pitch.

An economic impact study completed in December 2018 when the project was first announced concluded the hospital would create $4 billion in “economic output” for the Sacramento region, including San Joaquin County. The firm Varshney and Associates, which conducted the study, also found that it would create more than 24,000 jobs and generate some $113 million in indirect business taxes.

The findings became the basis for the school’s talking points to local lawmakers and community members. Those claims have since been disputed by a University of the Pacific economist who reviewed California Northstate’s economic impact report at the request of a lawyer working for the Stonelake Homeowners Association.

Jeffrey Michael, who directs the school’s Center for Business and Policy Research, found a number of the claims to be misleading or “exaggerated.” Michael noted that he was not able to replicate the study, which used an economic model known as IMPLAN, because he did not have the data. But he took issue with the interpretation of the results.

The 24,000 jobs, for example, actually represent “job years,” Michael said. That means the project will create and sustain about 2,400 jobs over ten years. But it was stated as if each were individual positions.

Michael said he also found the assertions on tax revenue benefits to the city to be highly inflated.

“It seems to be equating all potential tax impacts on all state and local governments to benefit the city itself, and in fact, only a small share of that would be,” he said. In general, development projects can create tax revenue for cities, but less so with nonprofit hospitals, as the California Northstate facility may end up being, he said.

“There are lots of good reasons to want a hospital in your community but generating lots of tax revenue is not one of them,” Michael said.

Sanjay Varshney, who noted that Michael agreed with the $4 billion finding, referred questions to the university. California Northstate officials said they stand by the findings.

“He agrees with the overall result that we have,” Varshney said of Michael’s white paper. “He’s obviously disagreeing with some of the aspects of our methodology and that’s his opinion.”

CNU trustee co-authors economic impact report

A footnote in Micheal’s report showed that one of the authors — Andrey Mikhailitchenko — became a trustee for California Northstate shortly before the economic impact study was completed.

Mikhailitchenko, who teaches marketing in the College of Business at Sacramento State, was appointed to CNU’s board of trustees in July 2018. The impact study was published in December 2018. But that relationship was not disclosed in the final version of the report delivered to the City Council.

When reached, Mikhailitchenko denied that there was a conflict of interest because the board of trustees is an academic advisory group separate from the board of directors which makes financial and strategic planning decisions.

He said his new affiliation with the school was noted in the resume he submitted to the City Council when the study results were presented. What’s more, Mikhailitchenko said his work as a trustee does not relate to any commercial activity and that he does not have any incentive linked to the project’s failure or success.

Mikhailitchenko said he had worked for Varshney and Associates before and that’s who paid him for his contribution to the study.

“The bios, the resumes, they were all submitted as materials along with the study. If there were any conflict of interest, we would have obviously brought it up, but there was no conflict of interest,” Varshney said. “It’s unfortunate. I think people are nitpicking on this.”

A ‘bad neighbor’?

In the eyes of residents, though, the revelation is another reason to mistrust the school.

Few people doubt that the city of Elk Grove, brimming with more than 170,000 people, could use a new hospital. In fact, Dignity Health also plans to open a hospital in the city, closing and relocating nearby Methodist Hospital of Sacramento.

Resistance to the hospital’s planned location has led residents to ask even more consequential questions about the proposed facility.

Who is going to operate it? Will it be a for-profit entity? And is California Northstate the right institution for the job?

The questions kept coming at a recent Town Hall meeting hosted online by Mayor Bobbie Singh-Allen last week. At turns, residents accused California Northstate of being a “bad neighbor” and spreading “inaccurate” information about the hospital. Some took issue with the economic growth claims in the mailers, declaring that they had been “debunked.”

“They’re talking about us critics of the hospital waging a disinformation campaign against them. Nothing could be farther from the truth,” said resident Gary Sibner. “What we’re talking about are facts.”

To other residents, California Northstate never recovered from the initial rollout of the hospital plan which took some by surprise. And every misstep since — big or small — has been duly noted.

“CNU has been a bad neighbor since 2018,” said Amrit Sandhu, another resident, accusing the hospital of putting out false information. “Why would the city want to act in favor of a bad actor, a bad neighbor? Do we want somebody that is willing to throw everybody under the bus to get his dream hospital put up?”.

When the project makes its way to the City Council, only three lawmakers will vote on it. Two of them — Darren Suen and Pat Hume — were advised to recuse themselves from the decision because their spouses work in the health care industry, albeit in different counties.

That leaves the decision up to council members Kevin Spease, Stephanie Nguyen and Singh-Allen, who also lives in Stonelake.

“I am leaving no stone unturned,” Singh-Allen said at the town hall. “I am accessing all the information so that I can make the best decision with everything.”

This story was originally published February 18, 2021 at 5:00 AM.