Firm Decides to Bolster Its Investment in Hospital

In an unexpected turn of events, the company that operates South Bay Hospital says it will stop trying to find another hospital to sublease the financially ailing facility.

American Medical International, which has operated South Bay Hospital for a decade, plans to invest in the hospital and strengthen its ties to local physicians, said Steve Balalian, the hospital’s vice president of finance.

“They’ve made a commitment to do all they can to make it a market leader,” Balalian said Monday.

South Bay Hospital has been hurt in recent years by lagging patient admissions and the loss of managed-care contracts, fueling concern that it could close.

For months, AMI has been negotiating with other hospitals interested in taking over management of the 203-bed facility in Redondo Beach.

The most promising plan appeared to be one by Daniel Freeman Hospitals, which has expressed interest in expanding into the Beach Cities area. The nonprofit Catholic concern already operates Daniel Freeman Memorial Hospital in Inglewood and Daniel Freeman Marina Hospital in Marina del Rey.

But Daniel Freeman announced last week that it had decided to terminate the discussions.

South Bay Hospital is owned by a public agency, the Beach Cities Health District, which was formed in 1955 to build and operate a community hospital. Taxpayers in Redondo Beach, Hermosa Beach and Manhattan Beach pay about $900,000 annually to the district.

Since 1984, the district has leased the hospital to AMI, a commercial chain, for about $3 million a year in rent. The interest is used to fund health-related programs in the Beach Cities.

Although the lease does not expire until 2014, AMI had been exploring whether it could sublease hospital operations, only to decide to continue operating the hospital itself, Balalian said.

“We had come to the conclusion that the economics (of a sublease) would not work,” he said. “We are making a new commitment to serving the South Bay communities.”

Hospital officials are developing an extensive business plan that will be presented to the health district, he said.

“We’re enthusiastic about the proposal,” said district board member Dick Fruin.

District officials speculated that AMI’s commitment to the hospital could have been firmed up by the company’s pending acquisition by National Medical Enterprises, the nation’s second-largest health care concern. The new organization will have more than a dozen hospitals in the Los Angeles Basin, Balalian said.