Community Hospital of Huntington Park has filed for Chapter 11 bankruptcy protection due to the long-delayed California budget the second hospital owned by Karykeion Inc. to get into financial trouble this year.
The 81-bed community hospital has one of the busiest emergency rooms for its size in the state, but a delay in crucial Medi-Cal payments during the budget squabble prompted the facility’s owners to file for bankruptcy, according to interim hospital officials and court records.
The hospital has not yet provided the bankruptcy court with detailed financials, but the initial Sept. 22 filing lists liabilities of $10 million to $50 million, and 200 to 999 creditors. Claims from 16 secured creditors total $11 million, much of which the hospital is disputing; claims from the top 20 unsecured creditors total more than $5 million.
Under Chapter 11, the south L.A. County hospital may continue to operate while it seeks to refinance. The hospital was scheduled to go to bankruptcy court last week to gain permission to use some of its collateral assets, including accounts receivable, to make back payments to doctors, get current on insurance and obtain supplies to keep the hospital operating.
The first meeting of creditors is scheduled for Nov. 14.
In April, Karykeion closed Mission Hospital, a sister hospital of Community also located in Huntington Park. The two hospitals, with 157 licensed beds between them, were largely reliant on Medi-Cal and other government programs to cover patient care costs. In fiscal 2006-07, they received around $10.5 million from the state’s Disproportionate Share Hospital Unit program, which boosts payments to hospitals that treat many indigent and Medi-Cal patients. The hospitals reported a $3.4 million loss to state regulators for calendar year 2006. The loss narrowed to $1.2 million last year, but only because Mission was downsized prior to its closure.
Karykeion, which bought the two-campus hospital from Tenet Healthcare Corp. at the end of 2005, said Community was doing well since the closure of Mission, but then the budget crisis intervened. It hopes to emerge from the bankruptcy filing in a stronger financial position once deals have been worked out with creditors.
“We were financially sound and getting stronger every day prior to the budget crisis,” said interim Chief Financial Officer David Kaye, who was brought in as a turnaround consultant and later hired as chief financial officer just prior to the bankruptcy filing. “I’m looking forward to a happy ending to all of this.”
Kaye said that once Karykeion was able to untangle the two hospitals’ finances, it became clear that it was Mission that was dragging Community down. Mission, which housed obstetrics and pediatrics units, was losing an estimated $800,000 a month due to inadequate reimbursement rates.
Community primarily handles adult patients and operates a 24-hour standby emergency room that gets 30,000 visits a year. The hospital employs 320 people, with 20 doctors on call or associated with the facility.
North Hollywood-based Karykeion was formed by Dr. Edward Rubin, and is held under a family trust for Rubin and his wife, Laurie. Michael Weiss, the hospital’s bankruptcy attorney, said that the Rubins’ son Mitchell took over as trustee during the summer. The Rubins could not be reached for comment.
Karykeion’s financial challenges appear to have commenced soon after it took over in January 2006. Within three months, unionized hospital workers voted to authorize a strike if the company didn’t straighten out its payroll problems. They said some checks had been bouncing and others weren’t even distributed. Since mid-2006, more than two dozen lawsuits have been filed against the company in Los Angeles County Superior Court, many of them related to collections or breach-of-contract accusations.
PathNet Acquired
PathNet Esoteric Laboratory Institute has been acquired by Laboratory Corp. of America Holdings, a Burlington, N.C.-based competitor.
LabCorp., a publicly held company, has not yet disclosed how much it paid for PathNet, which is based in Van Nuys and does testing for cancer, genetics and sexually transmitted infections.
However, a trade publication, Laboratory Industry Report, estimated that the company was acquired for between $15 million and $22.5 million. The estimate is based on what LabCorp officials have previously said they would be willing to pay for acquisitions as a percentage of revenues.
PathNet last year was ranked 73rd on the Business Journal’s list of Los Angeles County’s fastest-growing private companies, with revenues of $13.1 million in 2006. Founded in 1996, it reported 53 percent revenue growth between 2004 and 2006, and had 102 employees, 90 of them in L.A. County.
A LabCorp spokesman confirmed the acquisition, but declined further comment.
Staff reporter Deborah Crowe can be reached [email protected] or at (323) 549-5225, ext. 232.
