Downey Regional Medical Center Files for Chapter 11 Reorganization

Downey Regional Medical Center Files for Chapter 11 Reorganization

Downey Regional Medical Center-Hospital, Inc. (DRMC or Hospital) today announced that it has filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code.

The Hospital’s Board of Directors unanimously took the action to file Chapter 11 reorganization after concluding that such action was in the best long-term interests of the Hospital, the community, the Hospital’s employees, physicians, patients, vendors, and other stakeholders.

DRMC will continue normal operations throughout the reorganization process, and plans to re-emerge from the process within a year.

“Today’s necessary actions will allow us to clean up the remainder of the financial morass that the current management team inherited that was over a
decade in the making, and that we have been working to fix for two years. We are confident in our long-term prospects for success. I want to reassure our patients, our employees, the physicians, and the community that DRMC and its services will be fully open during this process, that excellent patient care will continue to be provided, that payrolls will be met, and that operations at the Hospital will continue normally,” said Kenneth Strople, President and CEO of Downey Regional Medical Center.

Filing for reorganization immediately provides Downey Regional financial stability, the tools for crafting a very successful future, and immediate protection from lawsuits and creditors’ actions. The Hospital is working with its senior lenders to provide an immediate return to liquidity.

The Hospital has been feverishly working to fix literally thousands of problems with its financial systems at the same time it was transitioning to a new business model during the past two years. The magnitude of the issues with the financial systems is illustrated by the loss tens of millions of dollars, annually, over a decade, until the past year. Fixing these issues, together with the business model change, added over $25 million in one-time costs, but they were the investment needed to ensure the end of the annual operating losses of the past and a successful future. Absent taking the measures to fix the systems and exit the prior business model, the Hospital would have failed and been closed.

DRMC’s immediate issue has been liquidity. With no cash reserves since March of 2008, and with the credit markets in a free fall for the past year, DRMC has struggled with liquidity as it was making these monumental changes. Filing for reorganization actually allowed the Hospital to access new lending markets that have committed to providing DRMC with needed cash during the bankruptcy process.

When the Hospital emerges from bankruptcy, its new business model will be fully implemented, and its financial systems will be fully fixed. Operations under the new model are proven to be fully self-supporting and will provide ongoing liquidity to ensure a very successful financial future.

Under the reorganization plan to be filed in the Chapter 11 case, DRMC expects to resume cash flow surpluses in the next quarter and thereafter rebuild its investment reserves while repaying its accumulated debts over the next several years. In fact, since the new management team has been in place, the Hospital has seen a dramatic financial turnaround. The new management team has corrected the historical financial issues of the organization and has reversed a $20 million annual loss rate. Soon after emergence from bankruptcy, it should be
possible to begin replenishing the depleted endowment.

As the reorganization is implemented, the Hospital will seek to ensure that current employees do not experience adverse impacts. The Hospital has petitioned the Bankruptcy Court to keep wages, salaries and all benefits unchanged. Certainly, patients and physicians will not notice any changes in DRMC’s traditionally high level of quality service.

Downey Regional Medical Center has long history in the community. It opened its doors in October of 1920 with six beds and two physicians on the second floor of
the former Downey Hotel. Less than two years after opening, a violent explosion at a popular service station killed 9 and injured over 20 people. This disaster demonstrated the need for a larger hospital. Ever since, DRMC has grown to meet the expanding needs of the local community.

As it enters its 87th year of continuing operations, DRMC looks forward to continuing its service to the local community. For more information on the hospital, please visit

Article By: Downey Regional Medical Center, Eric Rose

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