Triage Comes First for New CEO : Hospitals: Colleagues say Jeffrey Barbakow can handle what ails National Medical Enterprises, but some wonder if a selloff is one prescription.
Next month, Jeffrey C. Barbakow will become chief executive of one of the country’s largest hospital companies. And he knows next to nothing about running hospitals.
He’ll have plenty of time to learn, he says. Later.
For now, National Medical Enterprises needs him for other jobs. Like patching the cracks in its reputation, untangling its psychiatric group from dozens of malpractice and insurance fraud lawsuits, grappling with federal investigations and lifting a stock price that has fallen nearly as low as employee morale.
Those are things he can handle, say people who know Barbakow. Whether he’ll eventually learn the nuts and bolts of hospitals or sell the facilities off, they say, is another matter entirely.
For most of his career, Barbakow has been an investment banker and a deal maker, not a hands-on manager. But he says he has signed on to National Medical for the long run, and insists that he wasn’t called in to engineer a sale.
Many insiders say that’s just what he was hired to do at the last company he ran, MGM/United Artists Communications. Just two years passed between his arrival at the ailing studio and its sale to Giancarlo Parretti in November, 1990.
Then, with his take from that sale, estimated to be more than $20 million, Barbakow retreated to Santa Barbara and what he offhandedly calls a large house, and returned to investment banking.
He is not planning to move closer to National Medical’s Santa Monica headquarters. He’ll commute some of the time, and spend the rest with his family while conducting business through the wires--telephone, fax and telex.
Such things have some people wondering just how committed 49-year-old Barbakow is to National Medical.
“There’s pain and misery” to come, said an executive at another company that has been through a turnaround. “If I were him, I don’t know that I’d work 12 to 15 hours a day, seven days a week to turn it around.”
But Barbakow “has a way of making things look easy,” said another executive. Even in the midst of precarious deals worth hundreds of millions of dollars, “he was always relaxed.”
It was during his 17 years with Merrill Lynch that Barbakow acquired a reputation as an enormously likable person. Working with numerous entertainment companies, he stood out in a business that is not taken with kindness--even his competitors could walk away on the losing end of a deal and like him.
It was also during his investment banking days at Merrill Lynch that he met MGM’s owner--and his future boss--Kirk Kerkorian. And where he came to know National Medical Enterprises and the three men--Richard K. Eamer, Leonard Cohen and John C. Bedrosian--who founded it in 1969.
Over the years, Eamer built the company into a $4-billion goliath, and also built a relationship with Barbakow that went beyond that of banker and client. They socialized often. Says Barbakow: “I think the world of him.”
That’s part of the reason why he won’t talk about how Eamer is handling all of the changes at National Medical, except to say that the last several months have been difficult for everyone at the company.
It was just two years ago that Eamer, who has been master of National Medical since its founding, proclaimed that he would not retire at the arbitrary age of 65. Even when it was time for him to go, he boasted, no single individual could replace him. He resisted any notion of a succession plan.
But then a string of setbacks sent Eamer and his company reeling. Insurance companies sued, saying they had paid millions of dollars in fraudulent claims to some of the firm’s psychiatric hospitals, and former patients are also suing.
State and federal agencies have been investigating allegations that bounties were paid for mental health patients. A settlement with one state cost National Medical $9 million. Criminal indictments in others could come this summer, investigators say.
Eamer, now 65 and in frail health, had to loosen his grip on the company or chance wringing the life from it. He had to give up the chief executive’s job. And he was forced to sell nearly 2.5 million shares of stock in the company. Nervous lenders, who held the stock as collateral for personal loans that bankrolled Eamer’s thoroughbred horse farms, ordered the sell-off when they saw the collateral lose two-thirds of its value.
Eamer is left with the title of chairman of the board and only 12,000 shares in the company--shares that last year were selling as high as $25 apiece but are now trading in the $8 to $9 range.
By last month, it was all coming together--and falling apart--for Eamer.
On a Friday night in early April, he called Barbakow and asked to meet with him the next day. Barbakow wasn’t surprised by the call; he had joined National Medical’s board in 1990 and was long used to his role as an adviser.
That Saturday afternoon, Barbakow sat in his den with his cocker spaniel, Ray, and faced Eamer, Cohen and Bedrosian. He took nearly an hour to offer his assessment of where the company stood.
The conversation continued for a while--and then Eamer asked Barbakow to take over as National Medical’s chief executive. Barbakow said that took him by surprise.
“He’s rarin’ to go,” said attorney Terry Christensen, who is representing Barbakow and Kerkorian in a suit filed by Parretti’s main lender in the MGM sale. “I think he’s built up a nervous energy.”
It’s an occupational hazard, said David Dennis, managing director of Donaldson, Lufkin & Jenrette, who helped lure Barbakow to DLJ after MGM was sold. After advising other people on how to run a company, bankers get the itch to try it themselves, he said.
Barbakow said anyone would have grabbed the chance to head the company, especially with someone else running the hospitals. That’s Michael Focht Sr., who will replace co-founder Cohen as chief operating officer. Health care analysts warn, however, that the company does not have a solid foundation in managed care--the one health care delivery system expected to flourish after national health care reform.
Investors haven’t been enthusiastic about the executive changes; the stock has moved up little since the announcement April 28. By the same token, Wall Street gave little credence to one analyst’s prediction last month that National Medical was headed for bankruptcy. Cash flow from the company’s 134 hospitals remains strong.
Wall Street doesn’t quite know what to think, one investment banker said. While the directors signaled a re-evaluation of the business by appointing Barbakow, investors also recall that “whatever the company has said so far has been wrong” regarding the severity of its problems, the banker said.
So far, Barbakow isn’t saying much about the company’s problems or his plans to fix them. But he’s frank that the hospital operations are “clearly not” where he’ll start.
First, he said, he’ll look at finances, plans, investments, capital structure, cash flows--”areas I have background in.”
NME’s Ailing Stock
Beleaguered by lawsuits, criminal investigations and its deteriorating relationship with insurance companies, National Medical Enterprises’ stock has plummeted nearly 66% since hitting its two-year high of $24.88 in March, 1991. Two-year high: $24.88 Wednesday’s close: $8.50*
*partial period
Source: Dow Jones News Retrieval; Researched by Dallas M. Jackson / Los Angeles Times
Jeffrey C. Barbakow
Title: Managing director, Donaldson, Lufkin & Jenrette Securities
Career Highlights: As head of MGM/UA, he engineered the studio’s sale to Giancarlo Parretti in 1990. Previously, he was managing director of Merrill Lynch Capital Markets.
Richard K. Eamer
Title: Chairman and CEO, National Medical Enterprises
Career Highlights: Founded NME in 1969. Previously, as an attorney, was a partner in the firm of Eamer, Bell & Bedrosian. He also worked as a CPA for L.H. Penney & Co.
