Arterburn Seeks ‘Second Chance’ for Westworld
Though Stephen F. Arterburn presides over a much smaller company than did his predecessor, the recently installed president and chief executive officer of Westworld Community Healthcare Inc. nevertheless has his work cut out for him.
The task is daunting indeed: the 33-year-old Texan must salvage a workable company from the shambles created by soured expansion plans, crushing debt and consumer revolts that spread like a brush fire and practically emptied some hospitals operated by the Lake Forest-based company.
Once one of the hottest players in the health care field, Westworld grew rapidly from its founding in 1982, expanding to 38 rural hospitals and dozens of specialty clinics in 15 states by early last year.
Today Westworld is half as large as it was a year ago, and next month it expects to report its first-ever yearly loss.
Change Was Overdue
Arterburn, who had been Westworld’s chief operating officer since May, was thrust into the spotlight by the surprise resignation last month of Michael Dunn, the company’s controversial founder. Though Arterburn praises his former boss as a visionary, he admits that changes were overdue.
Among the new regime’s first acts is the shedding of Westworld’s stillborn health maintainence organization. The HMO was to have been operational in 15 states by the end of 1986. But by the end of last year, it had only about 1,000 members in four states.
In exchange for a fixed payment, HMO members would receive unlimited services at Westworld hospitals and clinics. The company hoped the HMO would improve its cash flow by allowing it to get paid up-front, rather than waiting for reimbursements after treatment was provided.
Winning regulatory approval to offer the plan in additional states was more difficult than Westworld expected, but Arterburn said the company’s reputation in many areas was a major factor behind the HMO’s failure.
“The real issue was that the people in our communities didn’t trust us enough to turn their total health care dollar over to us,” Arterburn said. “We looked at it and decided that we don’t have the time or the money to turn it around.”
Although Westworld was hard hit by mounting expenses compounded by lower Medicare reimbursements and depressed rural economies, the company also suffered because of its reputation for greedily charging whatever the market would bear.
For example, Westworld once charged a patient in Missouri $19 for a single Tylenol table so his bill would total the $1,050 a day it targeted for all patients. Although Westworld admitted that the daily charges were high, it defended the practice because the lengths of stay were shorter, bringing the total bill into line with other hospitals.
Undoing Its Legacy
Last year, Westworld became the target of a pair of civil suits filed in Missouri by that state’s attorney general, who accused the company of “instituting and failing to disclose fraudulent billing practices” at two facilities it that state. But, today, Westworld is trying to recapture hearts and minds in rural market by undoing its legacy of corporate arrogance.
Indeed, much of Arterburn’s time is spent stumping for a “second chance” for Westworld. During his first month on the job, Arterburn spent two weeks on the road visiting some of Westworld’s hospitals. And this week, he plans to tour some of the company’s facilities in California.
Westworld this month scrapped an unusual billing system that was patterned after the Medicare “diagnosis related-group” system. Unlike traditional hospital billing systems, Westworld’s system, instituted last year, charged a fixed amount based on a patient’s ailment, not on services rendered.
The system confused insurance companies and irritated patients, many of whom believed it was designed to cover up excessive billings. As a result, Arterburn said, many insurance companies refused to pay for services provided by Westworld. “It destroyed our cash flow,” he said.
Coming Into Line
Susan Thomas, president of the Bear Valley Community Hospital District, which oversees the a Westworld-run hospital in Big Bear Lake, said that charges at the facility are rapidly coming into line with other hospitals in the area.
Because Big Bear Lake is so close to San Bernardino and Redlands, both of which boast large, well-equipped hospitals, many residents have refused to use the local hospital because of what they said were excessive charges.
Although she hopes the new Westworld will be able to attract local residents back to the hospital, Thomas said Monday that it’s still too early to tell. “I’m still a little distrustful because of the past,” she said. “But, you have got to give them a chance.”
As previously reported, West world lost $1.8 million during the nine months ended Sept. 30. That loss compares with net earnings of of $2.7 million a year earlier. Because of a “substantial” write-down associated with the scaling back of Westworld’s operations, the company will report a loss for the quarter and year ended Dec. 30.
Swapping a New Debt
And, unable to pay the interest on $35 million in debentures, West world this week hopes to begin swapping a new debt and equity package for those bonds. During the first nine months of 1986, interest payments totaled $9.5 million, a 186% increase from a year earlier.
Although details of the bond swap are not final, Westworld spokesman Glenn Caster said that the holders of more than $65 million in subordinated debentures and notes will most likely accept the swap.
However, if the deal cannot be pulled off, a Chapter 11 bankruptcy could be possible, he said. In such an event, the bondholders could be among the biggest losers, Caster said.
