Two high-profile medical entrepreneurs could go up against each other later this month to buy loans made to Santa Ana-based hospital operator Integrated Healthcare Holdings Inc.
Kali P. Chaudhuri, a Riverside doctor who owns about half of Integrated, is expected to bid on the loans in a receivership auction.
He could face a rival bid from Prem Reddy’s Ontario-based Prime Healthcare Services Inc., which runs four local hospitals.
A court-appointed receiver for Integrated’s defunct lender, Medical Capital Holdings Inc. of Tustin, is selling the loans.
Medical Capital was sued by the Securities and Exchange Commis-sion and went into receivership last year.
Chaudhuri, who de-clined to comment for this story, is expected to bid $55 million for the loans, according to a court document.
Reddy would have to offer a minimum of $57 million based on an overbid procedure designed to shop the loans to other bidders.
Prime Healthcare is considering whether to bid on the loans and is likely to know what it will do by March 15, said Michael Sarrao, the company’s vice president and general counsel.
The loans originally were made in 2005 and were refinanced in 2007 for about $90 million. They now have a balance of about $74 million, according to court documents.
The debt is backed by Integrated’s hospitals. The company operates Western Medical Center-Santa Ana, Western Medical Center-Anaheim, Chapman Medical Center in Orange and Santa Ana’s Coastal Communities Hospital.
In a Securities and Exchange Commission filing, Chaudhuri said he would work with Integrated to refinance the debt if he ends up as the winning bidder.
Prime is considering bidding on the Integrated loans “because it’s always looking for investment opportunities in particular in healthcare because we understand healthcare, we understand hospitals and what the collateral base is,” Sarrao said.
Prime’s OC hospitals are West Anaheim Medical Center, Garden Grove Hospital and Medical Center, Huntington Beach Hospital and La Palma Intercommunity Hospital. It runs eight others.
The deadline for Prime to submit materials to receiver Thomas Seaman is March 17, according to Sarrao. He said he wasn’t aware of any other parties that could be planning to bid on the loans.
U.S. District Judge David Carter, who is overseeing the Medical Capital case, has a hearing on the sale set for March 22. Receiver Seaman, of Irvine-based Thomas Seaman Co., said in a court filing he expects the sale to close around the end of March, pending court approval.
Integrated, which declined to comment for this story, said in a January press release the sale would bring it “a step closer to resolving its core financing issues.”
Troubles
Integrated has struggled financially and seen fighting among shareholders, doctors and prior management.
It posted a net loss of $1.8 million on revenue of $94.6 million in the three months ended Dec. 31. The company was profitable in the three months ended in June and March.
Integrated, which trades on the low-profile Bulletin Board exchange, had a market value of $10 million last week.
The company was founded in 2005. It accounts for about 10% of Orange County’s hospital beds and serves some of the county’s poorest residents.
Medical Capital financed Integrated’s 2005 buy of four hospitals from Dallas-based Tenet Healthcare Corp., which sold off many of its California hospitals as it was dealing with a federal probe into suspected Medicare fraud.
Reddy and Chaudhuri have seen their share of controversy as they’ve built their medical enterprises.
Chaudhuri’s involvement with Integrated has raised concerns among doctors because of his acquisition and closure a decade ago of a chain of OC healthcare clinics, which left some 300,000 people without healthcare and many doctors unpaid.
A group of doctors at Integrated’s hospitals that owns about 30% of the company as Orange County Physicians Investment Network LLC initially fought Chaudhuri’s efforts to become a major shareholder.
Chaudhuri later bought more shares in the struggling company with little open resistance from the doctors.
William Thomas, a company director and Chaudhuri’s lawyer, said in a prior interview that Chaudhuri has sought to stabilize Integrated with his investment.
“It’s a very strong hospital system,” Thomas said in 2008. “It’s well located, has good doctors (and) really excellent investment potential. But it seemed to be kind of at war with itself.”
Reddy and Prime
As for Reddy and Prime, Attorney General Jerry Brown quashed the company’s attempt to buy the then-Anaheim Memorial Medical Center in 2007, citing concerns about the bidding process for the hospital.
AHMC Inc., a privately held hospital operator from Alhambra, eventually bought the Anaheim hospital from Fountain Valley-based MemorialCare Health System last year.
Prime’s also locked horns with various private insurers over contracts—it is known for canceling managed care contracts when it buys a hospital.
In 2008, the California Department of Managed Health Care sued Prime in Orange County Superior Court over its practice of billing patients for medical costs that weren’t fully paid for by their insurers.
The case is proceeding, said Lynne Randolph, a department spokeswoman.
