Hospital Merger Will Close Aging Queen of Angels

Financially troubled Hollywood Presbyterian Medical Center intends to merge soon with nearby Queen of Angels Medical Center in an attempt to ensure the two hospitals’ ability to provide medical care to tens of thousands of Central City residents.

Under the tentative agreement announced Thursday, Queen of Angels will close its aging 404-bed facility overlooking the Hollywood Freeway and move its doctors, patients and administrative personnel a few miles north to Hollywood Presbyterian’s newly modernized 395-bed facility on Vermont Avenue. Both hospitals are suffering from less than 50% occupancy rates.

“We haven’t had the luxury of time to think about what we’ll do with the old building other than turn out the lights,” Richard Smith, chief operating officer at Queen of Angels, said at a press conference announcing the merger, expected to be completed within 30 days.

The merger, coincidentally, will bring together the two religious groups that own the hospitals--Presbyterians and Catholics.

“We’re both Christian groups,” said Milton Brock Jr., chairman of the Olmsted Memorial Trust that owns Hollywood Presbyterian. “We both serve mankind and the community.”

The merger was assessed by a UCLA health care economist, Glenn Melnick, as a “lucky and . . . rational solution, for once, in that this brand-new facility (Hollywood Presbyterian) will be productively used.” He said that in an era of increasing competition among hospitals, he expects more local hospitals to merge in a further “consolidation of excess capacity.”

Letter of Intent

Brock said that hospital officials plan to immediately sign a letter of intent securing the merger plans. “Money will be put down this coming Monday,” he said.

The Franciscan Sisters of the Sacred Heart, the Catholic order that owns Queen of Angels, will gradually assume Hollywood Presbyterian’s $50-million debt, incurred by recent construction. Eventually, the Olmsted Trust and the Franciscan Sisters will jointly own the newly formed Queen of Angels/Hollywood Presbyterian Medical Center, Brock said.

Both hospitals had been suffering from high vacancy rates.

“They’re 40% occupied and we’re 45% occupied,” Brock said. “It makes sense to bring us together.”

Brock described the planned merger as “a sign of the times. We’re just the first. Los Angeles is overbuilt with hospital beds.”

Increasingly, hospitals are facing tough financial pressures, partly from new fiscal restrictions in the Medicare and Medi-Cal programs designed to increase hospital efficiency, but also from big building debts and competition from other health facilities, like outpatient clinics and health maintenance organizations. Inner-city hospitals serving a disproportionate share of poor or uninsured patients have been especially hard hit.

This summer the financially strapped California Medical Center in downtown Los Angeles became part of one of the biggest health care mergers in history, when its parent organization, LHS Corp., merged with HealthWest to form Unihealth America.

Hollywood Presbyterian officials have blamed their financial losses in part on the hospital’s shifting patient base: As the number of uninsured and under-insured patients has increased, wealthier patients with private health insurance have gone elsewhere.

“We have gotten to the point where we cannot service the debt that’s on this building,” Brock said.

In July, the hospital failed to make a $2.75-million debt payment and fell into technical default on $56 million in state-guaranteed bonds, state officials said. The state has been working with the hospital to try to restore its financial health. As part of the proposed merger, the state has agreed to defer payment on a “a minor amount” of the hospital debt, Brock said.

Because the hospital’s financial status had gotten to “the point where something had to be done,” Brock said the hospital recently solicited merger proposals from four Los Angeles hospitals: Queen of Angels, Orthopaedic Hospital, Childrens Hospital and Cedars-Sinai Medical Center.

Hollywood Presbyterian’s governing board received formal proposals on Monday from Queen of Angels and Childrens, as well as from a group of Hollywood Presbyterian physicians.

The board decided to “focus merger efforts” on Queen of Angels, Brock said, because this offer was “the most comprehensive in terms of meeting the needs of our patients, our doctors, our staff and our other financial requirements.”

Both hospitals were founded in the mid-1920s and catered for many years to famous members of the Hollywood community. In recent years, however, both have fallen on hard times.

For the fiscal year ending in June, Hollywood Presbyterian experienced a net loss of $11.1 million on net operating revenues of $66.1 million, according to unaudited figures released by the state health planning office. 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.

Queen of Angels, on the other hand, has faced the tremendous obstacle of having to modernize its 60-year-old facility.