Charter Health Facilities Post Big Yearly Loss


In a sign of continuing hard times for the troubled $8-billion private psychiatric hospital industry, Charter Medical Corp., a 95-hospital chain with seven hospitals in Southern California, announced Wednesday that it lost $130 million in the fiscal year ended Sept. 30.

The company also said it was moving forward with a plan for a “prepackaged” Chapter 11 bankruptcy filing in early 1992.

Charter Medical, along with Southern California-based rivals National Medical Enterprises and Community Psychiatric Centers, has been hard hit by cutbacks in employee benefit plans covering mental health care.

In an attempt to slash skyrocketing health costs, employers and insurers have steadily reduced the amount of inpatient psychiatric care they will pay for, leaving beds empty and profit margins shrinking.


Macon, Ga.-based Charter owns nine psychiatric hospitals and two general hospitals in California, including Charter Hospital of Long Beach and Charter Hospital of Thousand Oaks. As part of a restructuring plan announced in October, Charter said it would sell, lease or close 11 psychiatric hospitals and three general hospitals in some of the 28 states in which it operates.

Spokesman Andrew Brimmer said the company will not reveal the locations of hospitals to be spun off, but said “California operations, though in a difficult reimbursement environment, are performing well.”

Although Charter Medical lost money last year, its results were better than expected, with losses shrinking from $311 million on revenue of $1.3 billion in 1990 to $130 million on revenue of $1.2 billion in 1991. In October, the company announced that it was planning a major restructuring and would file for a “prepackaged” Chapter 11 bankruptcy. That kind of plan would allow it to emerge from the bankruptcy as a viable company within a period of months.

Charter’s problems, which began when it took on massive debt for a management-led buyout in 1988, presaged those of National Medical Enterprises and Community Psychiatric.


After outperforming the rest of the industry despite a tough market, the two Southern California-based chains’ profits have been hit by declining patient days, and their stock prices have tumbled. In addition, they were accused of billing fraud in Texas and other states earlier this year.

The hard times have come suddenly to the companies. Community Psychiatric, which operates 50 hospitals in 18 states with 5,100 beds, was doing well enough in March to launch an unsolicited $1.1-billion bid for Charter, which was rebuffed.

Next, Community Psychiatric announced plans to buy two Texas health care companies for about $350 million. It dropped those plans after its third-quarter earnings plunged 98%.