Ailing Hospitals Have Costly Deal With Ex-Leader

While state officials help two San Fernando Valley hospitals meet operating expenses, the nonprofit company that owns them is paying its former president $25,000 a month--plus a monthly car allowance of $1,575--and is obligated to do so for the next three years.

The contract that Stuart J. Marylander negotiated when he set up Triad Healthcare Inc. contains a termination clause that requires the company to pay him three years salary--a total of $900,000--in monthly installments.

One year’s salary--$300,000--constitutes severance pay and Triad owes the remainder because it failed to give Marylander two years notice of termination, according to a copy of the employment contract obtained by The Times.

Marylander did not return phone calls to his office and his lawyer seeking his comment.

Sanford Weiss, chairman of the board of Triad, declined to comment directly, but in a statement through a company spokeswoman he said “discussions are under way that would reduce the value of the contract.”

During Marylander’s tenure, Triad defaulted on a $167-million state-insured loan, leaving taxpayers potentially on the hook for the debt and clouding the future of the two hospitals--Sherman Oaks Hospital and Health Center in Sherman Oaks and West Valley Hospital and Health Center in Canoga Park.

The default also led to the suspension of Cal-Mortgage, a state loan guarantee program that has aided much of California’s hospital construction in recent decades.

The size of Marylander’s salary and his severance package far exceed industry standards, according to compensation experts and health care executives.

“It is an astutely negotiated contract, and excessive in my opinion,” said Charles King of William M. Mercer Inc., one of the nation’s largest consulting firms specializing in compensation and benefits.

King said salaries for chief executive officers of mid-size community hospitals in metropolitan Los Angeles run about $150,000. And the range of severance arrangements runs from a high of one month’s salary to a low of one week’s salary for each year of service.

Marylander was Triad’s president for three years before he resigned under pressure in November. His resignation came four months after Triad defaulted on the loan--the largest ever guaranteed by the state’s 25-year-old Cal-Mortgage program.

If Triad is unable to resume loan payments, a Cal-Mortgage loan guarantee requires the state treasury to cover the debt.

The cost of Marylander’s severance package comes on top of bills and debt obligations Triad must meet in order to save its two hospitals from bankruptcy or foreclosure.

Last week Cal-Mortgage authorized the transfer of $1.5 million from Triad’s bond proceeds to help the company meet operating expenses. State officials requested that the money be wired to Imperial Bank after the bank canceled a line of credit that Triad used to cover payroll.

The state is working closely with Triad to get the company in a position to resume loan payments. Cal-Mortgage Manager Dennis Fenwick said the shift of $1.5 million from a construction account to Triad’s operating budget was intended keep the hospitals open and generating revenue.

Fenwick said state officials are aware of the money being paid out by Triad to Marylander, and said the former chief executive’s contract is “one of the many issues that we’re looking at.”

But he declined to comment on whether state officials planned specific action on the contract, which Marylander negotiated with Triad’s board of directors in 1990.

King, of William M. Mercer Inc., said the salary level was especially high for a nonprofit company operating community hospitals.

Only nonprofits can qualify for state loan guarantees. Triad was formed specifically to buy the two hospitals from a failing commercial chain, Nu-Med Inc., that is now in bankruptcy. Marylander and two other officers of Triad were also Nu-Med executives at the time the Office of Statewide Health Planning and Development, Cal-Mortgage’s parent agency, approved the loan guarantee.

Triad officials have given conflicting accounts about the nature of Marylander’s continuing relationship with the company.

A company spokeswoman said earlier this month that Marylander had resigned as an officer and director and was continuing to receive payments from Triad as a consultant.

But in a subsequent interview with The Times, company officials acknowledged that payments to Marylander are being made as part of his termination agreement and that he is not doing consulting work.

“He is not a member of management and I have not used him as a consultant,” said Douglas Drumwright, Marylander’s replacement as chief executive of Triad. Drumwright said the company is obligated to pay Marylander under a contract negotiated with Triad’s board “before my time.”

In addition to guaranteeing Marylander three years salary, the contract requires Triad to pay health and disability benefits, plus a monthly car allowance of $1,575, until November, 1996.

Despite the cost of Marylander’s contract, Drumwright said the company’s overall revenues are improving and corporate expenses are down. Among other cost-cutting moves, Drumwright has moved Triad’s executive offices from a penthouse on Ventura Boulevard in Encino to a basement suite.

Drumwright said it will be several months before he knows when or if Triad will be able to resume payments on its state-guaranteed loan.

Cal-Mortgage managers appointed by Gov. Pete Wilson are scrutinizing the Triad deal, which has been sharply criticized by other state officials.

After a Times article earlier this month, Assembly Health Committee Chairman Burt Margolin (D-Los Angeles) last week called for an investigation, saying the Triad deal was “a disastrous decision for which the state will pay the consequences.”

Margolin said he had not “personally heard of a more flagrant example of conflict of interest.” Among the Triad problems he cited:

* The role of a member of Cal-Mortgage’s advisory loan committee, Vincent F. Forte, a vice president of Goldman Sachs & Co. According to records and interviews, Forte acted as Triad’s broker on the loan, helping his firm earn $2.4 million in commissions. At the time, there was no policy against loan committee members representing clients and Forte abstained from the vote on Triad. Forte has declined comment, but Goldman Sachs has said his conduct was ethical.

* Marylander’s dual role as an executive of Triad and of the company selling the hospitals, Nu-Med. A Cal-Mortgage staff analyst alerted the loan committee to this link, warning that the Triad proposal was “not an arm’s length transaction” and recommending that it be turned down. The loan committee voted unanimously in Triad’s favor, and the loan guarantee was approved by the parent agency’s director. Marylander subsequently resigned from Nu-Med.