Presbyterian Medical Center in Jeopardy on Unpaid Bond Payment

The survival of the financially troubled Hollywood Presbyterian Medical Center in Los Angeles has been jeopardized by the hospital’s recent failure to make a multimillion-dollar payment on state-guaranteed bonds, The Times has learned.

The medical center failed to make a $2.75-million debt payment due July 1 on a $56-million bond issue, according to Larry G. Meeks, the director of the Office of Statewide Health Planning and Development. The “very serious” situation raises the possibility of a state takeover of the hospital, he said in a telephone interview. Hollywood Presbyterian’s next payment is due Jan. 1 and Meeks said: “Right now, it looks like they cannot afford it.”

The hospital’s board chairman, Milton J. Brock Jr., said he is uncertain whether the hospital will be able to make its next debt payment. “Needless to say, they (state officials) are concerned because they insured the bonds.”

For the fiscal year ending in June, Hollywood Presbyterian suffered a net loss of $11.1 million on net operating revenues of $66.1 million, according to unaudited figures released by the Office of Statewide Health Planning and Development, which guarantees the bonds. For the two previous fiscal years, the hospital had an additional total loss of $11.6 million, according to audited figures released by the state.

The deepening debt of the 64-year-old institution may adversely affect the hospital’s ability to provide quality health care for tens of thousands of Central City residents, including the indigent, the elderly and the uninsured.

“I am not interested in talking about it (the hospital’s financial status) with you at this juncture,” said Allene Nungesser, the medical center’s chief executive officer.

But Nungesser confirmed that hospital officials have been “in discussions with the state on where we are, relevant to our payments.” She also said “things have improved” financially since July 1, but she provided no details.

“The hospital is not bankrupt; we are three months in arrears (on our payments),” Nungesser said. “The state has been very gracious and cooperative. We have every intention of creating a positive circumstance with the bond.”

Possibility of Merger

Meeks said the state has been working with officials of the 395-bed nonprofit facility “for a good six months” to try to restore its financial health and avert a state takeover. “We have people in there constantly poring through their books,” Meeks said. “They (hospital officials) are looking at the possibility of merger, a possibility of selling and a possibility of increasing the revenues for the hospital.” He added that private consultants have been studying the hospital’s operations as well.

According to Meeks, Hollywood Presbyterian is now in “technical default,” because of its failure to make the required debt payment. If the hospital does not regain an ability to meet its payments, Meeks said he could then consider the hospital to be in a “Big D default” and move to take control of the institution. But at the present time, he said it is “not to the state’s advantage to do something like that.”

He explained: “We are working with the facility to try to keep it viable. If it is shown that the facility cannot make a go of it, something is going to have to be done on a permanent basis.”

The gravity of the situation was underscored in August when the 15-member executive committee of Hollywood Presbyterian’s medical staff took an extraordinary vote of “no confidence” in the hospital’s leadership to condemn what they said were cost-cutting measures and misguided priorities that were jeopardizing the quality of patient care. In interviews, physicians described shortages of such basic supplies as operating tables and suturing kits, as well as long delays in maintaining and upgrading key equipment due to financial restrictions imposed by creditors.

Some of the doctors later agreed to a joint statement with hospital trustees that called some of the doctors’ complaints “inaccurate and exaggerated.”

Hollywood Presbyterian was founded in 1924 and soon developed a reputation as a high-quality facility serving the famous and affluent community of Hollywood. But it has fallen on hard times in recent years.

The hospital is owned by Hollywood Presbyterian’s Olmsted Memorial Trust and is controlled by a board of governors that includes a number of prominent Presbyterians.

Board Chairman Brock said the hospital’s “basic problem” lies with its patient population. Changing demographics have brought the hospital waves of indigent and uninsured patients. About 75% of the hospital’s patients are insured through Medi-Cal or Medicare.

In addition, an expensive building program has saddled the facility with a large debt. But most of the time about half of the hospital’s beds are empty.

In April, 1986, the medical center opened what officials described as a “state-of-the-art” 10-story building, known as the Lillian and Burton E. Greene Patient Tower, that contains new hospital rooms and key patient care services. The construction cost more than $56 million.

In early 1987, the medical center was forced to close its trauma center, citing financial losses totaling about $5 million during its two-year operation. The hospital also said it is losing about $3.5 million a year on its 24-hour-a-day emergency room.

$59.6 Million in Liabilities

As of June 30, 1988, Hollywood Presbyterian had total long term liabilities of $59.6 million, including the $56 million in bonds, as well as current liabilities of $17.3 million, according to unaudited figures released by the state. It had total assets of $102.6 million.

To pay for the new building and consolidate Hollywood Presbyterian’s other outstanding debts, $56 million in bonds were issued on behalf of the medical center in December, 1985, according to Meeks.

The 30-year bonds, which carry the highest bond rating of AAA, are guaranteed by the California Health Facility Construction Loan Insurance Program, which is part of the statewide health planning and development office. Because of this guarantee, the bondholders are not in danger of losing their investment, Meeks said.

One of the requirements of the state loan insurance program is that a participating hospital, at the time its bonds are issued, place one year of debt payments in reserve. The money in that account is under the control of the loan insurance program, not the hospital.

These reserve funds were used to meet the medical center’s July 1 payment so the state “has yet to incur financial liability,” Meeks said. “I have assured the bondholders that I will not allow a lapse in payment.”

Over the last decade, the California Health Facility Construction Loan Insurance Program has guaranteed $952 million in constructions bonds for 76 projects, Meeks said. Only three of these projects, Hollywood Presbyterian and two smaller facilities, have experienced financial difficulties.

FINANCIAL WOES AT HOLLYWOOD PRESBYTERIAN

Hollywood Presbyterian Medical Center, a 395-bed facility, has reported substantial losses for the last three fiscal years. Last year’s $11.1-million loss was attributed to large numbers of indigent and uninsured patients as well as the construction of a $56-million addition, right, completed in 1986.

Fiscal Year Operating Revenues Net Gain (Loss) (ended June 30) 1988 $ 66.1 million $ (11.1 million) 1987 72.6 million (1.7 million) 1986 65.1 million (9.9 million) 1985 64.2 million 3.2 million

Current and Total Assets Long-Term Liabilities 1988 $ 102.6 million $ 76.9 million 1987 105.7 million 73.0 million 1986 110.7 million 74.8 million

Source: Office of Statewide Health Planning and Development. 1988 figures are unaudited.