BIOTECH & HEALTH CARE: Victorville firm saw little benefit in acquiring Doctors Hospital.
When news broke that troubled Century City Doctors Hospital would close its doors by Aug. 29 unless a white knight could be found, some in the hospital community turned their eyes toward Victorville.
That’s the headquarters of Prime Healthcare Services, where founder Dr. Prem Reddy and his brother-in-law, Chief Executive Lex Reddy, have for the past few years been buying the most promising faltering hospitals in L.A. and Orange counties.
Many of those facilities were former Tenet Healthcare Corp. hospitals acquired by doctor-led investors groups that mistakenly thought they could do a better job than the Dallas-based chain. Prime’s recent acquisitions include Inglewood’s Centinela Hospital Medical Center – bought last year from just such a group – and the Encino campus of Encino-Tarzana Medical Center, acquired from Tenet itself.
Was Century City Doctors Hospital promising to Prime? Not so much, Lex Reddy admitted in a phone interview last week.
“There are a lot of other failing or faltering hospitals in L.A. more in line with our model that we are keeping our eyes on,” said Reddy, adding his company never seriously considered the 176-bed Century Park East boutique surgical hospital.
Doctors reopened in 2005 after renovations that cost $100 million. It had hoped to attract higher-income patients who wanted elective procedures performed in the latest high-tech surgical suites and then be able to recover in plush private rooms offering Wolfgang Puck-inspired cuisine.
But the hospital ended up competing for the same business that often goes to UCLA and Cedars-Sinai medical centers, both of which have opened new facilities since.
Prime facilities tend to be scrappy community hospitals that the Reddys hope to turn profitable through tough cost controls, often canceling inadequate commercial insurance contracts.
Indeed, inadequate reimbursement rates, particularly from Medicare and Medi-Cal, were a leading cause of Doctors’ financial distress, according to those familiar with the facility’s operations. The new owners, lead by Beverly Hills-based managing partner Salus Surgical Group, were never able to pull in enough revenue to cover both operational costs and $60 million in debts stemming from the massive renovation.
With the hospital’s owners leasing the building, Reddy said there really was little to acquire even if Prime had wanted to buy it.
“Its equipment is owned by the lender and the property is owned by the landlord,” he said. “There’s really nothing to buy.”
Hospital officials indicated last week that they had been talking with one potential interested party, but no announcement had been made by the Business Journal’s deadline. Salus officials did not return calls last week, and the hospital’s interim management could not be reached for comment.
Article By: Deborah Crowe of Los Angeles Business Journal