Hospital Remaps Goals 5 Months After Chapter 11 : Lake View Seeks Ways to Compete With 27 Other Valley Facilities

With a yellow highlight marker in one hand and a ZIP code map in the other, Joani Haff walked into the office of the Lake View Medical Center administrator a few days ago, wondering how far south the hospital’s first direct-mail advertisement should be sent.

“Should we go as far as North Hollywood?” she asked.

Richard Pierce, the newly named administrator, nodded.

Neither would say, however, what this advertisement would announce. They were afraid that premature publicity could prompt other Valley hospitals to come up with a bigger or better program.

Millions of Dollars in Debt

Five months after Lake View Medical Center filed for reorganization under Chapter 11 of the federal bankruptcy code, the small hospital is preparing to compete with the Valley’s 27 other hospitals.

Whether it will be able to survive depends on how well it performs in the next six to eight months, bankruptcy attorneys say. The hospital must be able to turn enough profit to prove it can repay millions of dollars in debts.

Under the bankruptcy code, the hospital must work out a court-approved plan to pay debts and show it has reorganized its management to prevent future financial troubles. While the hospital is being reorganized, creditors cannot sue or foreclose on its properties.

“We are really waiting to see whether it can make a profit,” said Alan Pedlar, the hospital’s bankruptcy attorney. “If it can’t, at some point it would have to close down.”

Holding Its Own

Pierce said that, during the first five months since filing for protection under bankruptcy laws, the hospital has been able to hold its own and pay its $150,000 monthly fixed costs.

By filing for bankruptcy in October, the 24-year-old Lake View Medical Center became part of a long list of U.S. nonprofit community hospitals to fall victim to the nationwide budget squeeze on health care.

The hospital’s debt had reached between $13 and $15 million, while its patient census dropped to an all-time low, with fewer than 30 patients in its 145 beds. Most of the debt consisted of $9.6 million in bonds issued to rebuild the hospital after an earthquake in 1971.

Also reflecting a national trend, the management of Lake View Medical Center was turned over to a large for-profit hospital corporation, Dallas-based Republic Health Care Corp.

Republic Gets Management Fee

Pierce, 33, a Republic manager with a master’s degree in health services management, was named hospital administrator.

The former administrator, John J. Simmons, a 67-year-old Lutheran minister, retained his position as executive vice president of the hospital’s board of directors.

Under an agreement approved in bankruptcy court, Republic is paid a management fee of $15,000 a month, which includes Pierce’s salary.

Republic owns or manages 37 general acute-care hospitals, four nursing facilities and 25 hospitals for drug addicts, alcoholics and mental patients. It also operates 15 psychiatric and “substance abuse” units for other hospitals.

Under Republic management, Pierce said, the hospital has reduced operating costs by participating in the corporation’s national purchasing program. The bankruptcy code allows the hospital to break leases to eliminate those that the administration believes are burdensome.

At Lake View, thousands of dollars a month have been saved by eliminating items ranging from a copy machine that rents for $145 to a bacterial detection system that rents for $469 a month, according to court records.

“We are the new kids on the block and don’t know the politics behind a lot of these items,” Pierce said. “We can look at them more objectively to determine what is really needed.”

Greatest Challenge

Perhaps the greatest challenge facing the hospital is what Haff, the new marketing director, called “positioning” the hospital in the community.

“Rather than have a bad image or a poor image, this hospital has a non-image,” Haff said. “I’ve talked to new vendors who are coming here now and they say they didn’t even know the place existed.

“I think the hospital did a good amount of public relations, on the level of community-health-fair types of things. But that’s along the lines of the old concept that hospitals don’t have to do anything but be there” to attract patients.

The number of patients has been in the 40s for about two months, Pierce said. To increase it, the operators have their eyes on the brisk housing and industrial development in the northeast Valley.

Surveying the Market

“There are a lot of people moving into this area that have to be earning at least $40,000 a year to buy homes,” Pierce said. “We are hoping to let them know that we are here from day one to provide high-quality health care.

“We are not going to do anything earth-shaking. We are not going to attract big executives but young working families who need services for themselves, a place to have children, a place to take their children in emergencies.”

Pierce also sees a market in industrial-health services such as emergency room care and pre-employment physicals. Haff said she has begun talking with nearby industries, trying to set up programs.

The hospital will open a 19-bed psychiatric unit at the end of this month. “Other Republic facilities will be able to make referrals to this one,” Pierce said.

Creditors Optimistic

In the meantime, several of the largest creditors holding unsecured claims against the hospital expressed optimism about the facility’s ability to pay back debts.

“I have some expectations that the system will turn around,” said Dr. Otto Klinger, who contracts laboratory services to the hospital. Court records show that the hospital owes his Stat Lab Inc. $79,504.

“I think that they will survive this, but in a kind of diminished utilization,” said Dr. Ezekiel Freed of Western Roentgenologic Associates, a radiology firm that the hospital is said to owe $235,341.

Scott Shields of American Hospital Inc., a medical supply firm that sold the hospital items such as bed sheets and surgical trays, said that, months before the hospital filed for bankruptcy, debts had begun to mount. The company is owed $34,299, according to court records.

“We are still serving the hospital,” Shields said. “We didn’t suddenly want to pull out after years of service.”

Labor Relations

He added that the firm no longer is extending credit to the hospital. “Basically they give us a check and we give them goods,” he said.

A spokesman for Local 399 of the Service Employees International Union, which represents 150 employees at Lake View Medical Center, from licensed vocational nurses to housekeepers, described labor relations as “uneasy.”

“In layman’s terms we’re virtually in limbo” while the hospital is in bankruptcy proceedings, said Robert Tiernan, the union spokesman. He said the current contract expires in September and that talks would normally begin in July.

“Until the court situation is cleared up, we cannot enter into bargaining,” he said.

Main Concern of Union

Tiernan said the union’s main concern is that the new administration will cut costs by reducing the labor force.

When Republic assumed management of the hospital, 50 union employees were laid off. Since then there have been no further layoffs, Tiernan said.

Pierce said the hospital is studying its staffing. He said he anticipates no more layoffs but favors adding temporary and part-time employees as the patient census grows. Their are now 265 full- and part-time hospital employees, he said.