Triad Hospital Loan Default Spurs Reform Bill

Motivated by what he termed the “Triad hospital loan disaster,” Assemblyman Burt Margolin (D-Los Angeles) has introduced legislation that would bar state employees and appointees from representing clients before their agencies.

Margolin, chairman of the Assembly Health Committee, introduced the bill following a committee hearing last week on the process by which Triad Healthcare Inc. of Encino obtained a $167-million loan guarantee from the state’s Cal-Mortgage program--the largest in the 25-year-old program’s history. Triad defaulted last July, forcing state officials to suspend the program, which has helped many health care institutions qualify for low-interest loans.

The hearing was triggered by a Times investigation last December, which found that Triad’s loan guarantee was approved over the objections of a Cal-Mortgage staff analyst and with the help of a Cal-Mortgage advisory loan committee member who also acted as broker on the loan.

The loan committee member, Goldman Sachs & Co. Vice President Vincent F. Forte, abstained from voting on Triad’s application in December, 1990, as Cal-Mortgage rules required at the time. But Margolin said at the Feb. 22 hearing that Forte still violated public expectations of ethical conduct on the part of state officials.

Rejecting Forte’s defense that he acted in accordance with state law and program policy at the time, Margolin called his role in the Triad deal “a rather clear and vivid ethical breech.” Goldman Sachs netted $2.4 million in commissions as underwriter on Triad’s original loan and the subsequent $167-million refinancing. The company has said Forte’s conduct was ethical.

Triad’s default last July leaves Cal-Mortgage’s reserve fund, and potentially state taxpayers, on the hook for the debt. The company, which owns Sherman Oaks Hospital and Health Center in Sherman Oaks, and West Valley Hospital and Health Center in Canoga Park, has since filed for federal bankruptcy protection.

Margolin’s bill, AB 3444, would apply to both paid state officials and citizens serving voluntarily on state commissions, boards or committees. They would be barred from appearing before the commissions either as paid representatives of the applicants or as employees of an applicant.

“We need to learn fully the lessons of Cal-Mortgage’s (Triad transaction) and ensure that similar programs in state government also understand the lessons of this experience,” Margolin said Monday.

The Assembly Health Committee plans to hold another hearing on Triad to take testimony from Larry G. Meeks, the head of Cal-Mortgage’s parent agency at the time Triad’s loan was guaranteed. Meeks currently is on leave from the agency, the Office of Statewide Health Planning and Development (OSHPD).

State officials now in charge of the Cal-Mortgage program said they have already implemented the conflict-of-interest safeguards in Margolin’s bill. But Margolin said such safeguards should be a matter of state law, not agency-to-agency administrative policy.