Cash-Strapped Owner Seeks Buyer for West Valley Hospital

Triad Healthcare Inc., the Encino firm whose bankruptcy earlier this year cast a cloud of uncertainty over two San Fernando Valley hospitals it owns, said Thursday it will sell or lease one of the facilities to raise money to repay its debts, including a defaulted $167-million loan insured by the state.

The company said it is seeking a buyer for its money-losing West Valley Hospital and Health Center in Canoga Park, a 139-bed facility known locally for its programs for expectant parents and senior citizens.

Triad executives said losses at West Valley Hospital have been subsidized by Triad’s profitable Sherman Oaks Hospital and Health Center, which houses the renowned Sherman Oaks Burn Center and an AIDS ward.

Triad acquired the hospitals in 1991 with the help of a $167-million loan guaranteed by Cal-Mortgage, a state program that has helped many health care institutions qualify for low-interest loans.

But the firm defaulted in July, 1993, forcing state officials to suspend the Cal-Mortgage program, potentially leaving taxpayers on the hook for the loan. The default damaged the hospitals’ reputations and triggered investigations by the state Legislature and the state Office of Statewide Health Planning and Development.

Last month, Triad filed in federal bankruptcy court to reorganize its finances and begin paying off creditors under Chapter 11 of the bankruptcy law. Dennis Simon, Triad’s bankruptcy trustee, declined Thursday to say how much the firm hopes to make by selling or leasing West Valley Hospital, but said the proceeds would be used to pay off suppliers and similar creditors first.

Simon said under the plan, payments to the state of California--the firm’s biggest creditor--would not begin until 1997, with an expected payment of more than $5 million. He said the state would receive all its money over 25 years under the plan, which is still subject to approval by a federal bankruptcy judge.

“The state can be a relatively longer-term player in this. The state has an interest in supporting health care for the very long haul. . . . Everyone sees the benefits of seeing the hospitals come out of bankruptcy soon,” said Simon, who hopes to bring the firm out of bankruptcy by early next year.

Dennis Fenwick, deputy director of Cal-Mortgage, said his agency has agreed to wait longer for the sake of smaller creditors. But he said it is too early to tell if the state will be stuck for any of the defaulted loan.

“The plan is drawn so that if the facility is successful, that’s a potential. Whether that’s the way the plan comes out is too early to tell,” he said.

Triad executives said the company has taken several steps to reinvigorate itself financially, including cutting salaries and signing new contracts with several health maintenance organizations such as Blue Cross and Aetna.

Before it declared bankruptcy, Triad had few contracts with HMOs, which now supply the bulk of patients to Southern California hospitals. Occupancy rates recently were anemic at both Triad hospitals, with Sherman Oaks hovering at 31% and West Valley barely managing to fill 22% of its beds. The Los Angeles County average last year was 48%.

Triad said it also is paying top executives far less. In the past, eight top officials and four secretaries drew $1.4 million annually, but a Simon-led team of five executives and one secretary now gets $720,000 a year.