Los Angeles Business Journal

Special Report: Troubling Symptoms

By Deborah Crowe Monday, November 10, 2008

"We have a health care nonsystem in this country and the effects are most clearly seen in Los Angeles," said Lott. "Fifty-seven percent of the hospitals do well if you consider a positive bottom line that exceeds 3 percent doing well. And then you have 43 percent of the hospitals with negative margins approaching 5 percent, many them for going on two years. That's unsustainable."

Lott said he won't be surprised if at least two more facilities file for either Chapter 7 liquidation or Chapter 11 reorganization by the end of the year.

Heavier load

To get a feel for how the industry turmoil is played out every day, consider Ken Strople, chief executive at 508-bed Downey Regional Medical Center in the southeast county. Its busy emergency room treats about 140 patients each day on average.

Strople, who's run the non-profit community hospital for five years, kept a partially completed set of Chapter 11 forms in a desk drawer through most of the summer. The state budget stalemate prevented hospitals from receiving crucial Medi-Cal reimbursements for two months before they finally came through. Medi-Cal is the state's version of the federal Medicaid program that pays for care for qualifying low-income patients.

Some of Downey's financial travails were of its own making, Strople admits. Previous management had become lax in monitoring costs, billing insurers and keeping track of who actually paid. But he blames much of the problems on the closure of surrounding private and public hospitals.

Downey has been particularly hurt by the closure of Martin Luther King Jr. hospital, a county facility that was engulfed in scandal after repeated patient deaths and other care problems. Federal inspectors finally pulled the funding plug and the hospital shut its doors in August 2007. Its 537 licensed beds largely served patients without any insurance or those who qualify for Medi-Cal, which pays hospitals less than private insurance for care.

The county did agree to provide Downey and some of the other hospitals closest to MLK a stipend to help make up for the increased load of Medi-Cal patients, but it hasn't been enough.

Downey loses roughly $1,000 each day for every bed occupied by a Medi-Cal patient. The hospital has been able to get by over the past decade by drawing down on a $100 million investment fund. And it has improved its billing, cost containment and other management procedures. However, MLK's closure boosted Downey's Medi-Cal patient load, and the hospital now expects to rack up $4 million in additional annual losses.

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