The fate of four Orange County hospitals sold by Tenet Healthcare Corp. has been closely watched by local observers since they were picked up last year by Integrated Healthcare Holdings Inc.
The early returns show that revenue is up and losses are down at two of the hospitals. The other two saw results dip a bit during the past year.
The four hospitals in Costa Mesa-based Integrated’s $70 million buy: Western Medical Center-Santa Ana, Western Medical Center-Anaheim, Coastal Communities Hospital in Santa Ana and Orange’s Chapman Medical Center. They each reported an operating loss for the 12 months ended Sept. 30 (see related story, page 32).
“We’ve worked to stabilize the operations,” said Larry Anderson, Integrated’s president. “These hospitals were not profitable when Integrated purchased them.”
Anderson declined to discuss any specific financial numbers, referring to Integrated’s regulatory filings and data from the Office of Statewide Health Planning and Development.
Integrated posted a net loss of $8.3 million on revenue of $91.6 million for the quarter ended Sept. 30. The company, whose shares trade on the low-profile bulletin board exchange, counted a market value of $44 million at recent check.
State figures show that Western Medical-Santa Ana’s net patient revenue rose 15% to $150 million for the year through September. Coastal Communities’ net patient revenue posted a 2% gain to $51.3 million.
Two of Integrated’s hospitals had net patient revenue declines: Western Medical-Anaheim’s revenue fell 9% to $57.8 million, and Chapman’s revenue was off 18% to $34.4 million.
“When Tenet announced the divestiture, (the hospitals’) assets became impaired and it caused a significant revenue reduction,” Anderson said.
The 12-month results aren’t entirely under Integrated’s watch. The company’s acquisition of the hospitals closed last March.
Major Strides
The biggest turnaround on the earnings front has been at Western Medical-Santa Ana. In addition to its revenue gain, Western Medical-Santa Ana saw its loss narrow to $2.7 million in the 12 months ended Sept. 30, versus a loss of $18.6 million a year earlier.
Anderson said that Integrated has put in its own payroll system, created an insurance and benefits program and secured financing to operate the facilities.
“The only (Tenet) legacy is the information systems,” he said.
Anderson said Integrated plans to eventually install its own technology systems at the four hospitals.
Integrated was considering a potential buy of a hospital in Cleveland when the OC opportunity came up, Anderson said.
Tenet put the OC hospitals up for sale in January 2004. Tenet was in sell-off mode in the wake of charges that the company, which eventually moved its corporate offices from Santa Barbara to Dallas, boosted its earnings by taking advantage of loopholes in the Medicare billing system.
Tenet still operates five hospitals in OC, including Fountain Valley Regional Hospital and Medical Center, its biggest local facility.
Integrated bought the four Tenet hospitals in partnership with a group called Orange County Physicians Investment Network LLC, a group of doctors led by Dr. Anil Shah, a Santa Ana cardiologist.
Controversial Offer
The Orange County Physicians Investment Network took a prominent role in the purchase after Integrated came under fire because of its original majority shareholder,Dr. Kali Chaudhuri.
Chaudhuri bought and later closed a chain of OC medical clinics earlier this decade, leaving some 300,000 people without healthcare. Doctors faced unpaid bills.
The clinics, operating under KPC Medical Management Inc., imploded amid management problems and protracted squabbling with health plans over payments.
Public pressure, including hearings by state Sen. Joseph Dunn, D-Garden Grove, and the county Board of Supervisors, followed, and Integrated rescinded its original deal with Chaudhuri.
Eventually, the Orange County Physicians Investment Network took over Chaudhuri’s role in the partnership.
“Having done our research, we knew that there would be a chance that (involving Chaudhuri) would be problematic, but we were told that that was likely not possible,” Anderson said. “That was not the case.”
Chaudhuri owns about half the land the hospitals sit on.
Anderson said Integrated wanted the hospitals’ management teams to remain intact.
“Initially, we kept all the CEOs. We courted the CEOs,” Anderson said. “It was in our interest to maintain the senior management team because there were only three of us,myself and two partners.”
Since the deal closed, two of the hospitals have new leaders.
Veteran OC hospital executive Craig Myers took over as Coastal Communities’ chief executive from Jack Chubb. And Casey Fatch, a former chief executive of Hollywood Community Hospital in Los Angeles, succeeded Patrick Rafferty as Western Medical-Anaheim’s chief executive.
Daniel Brotman and Doug Norris remain as chief executives of Western Medical-Santa Ana and Chapman, respectively.
