When news broke that troubled Century City Doctors Hospital would close its doors by Aug. 29 unless a white knight could be found, some in the hospital community turned their eyes toward Victorville.

That's the headquarters of Prime Healthcare Services, where founder Dr. Prem Reddy and his brother-in-law, Chief Executive Lex Reddy, have for the past few years been buying the most promising faltering hospitals in L.A. and Orange counties.

Many of those facilities were former Tenet Healthcare Corp. hospitals acquired by doctor-led investors groups that mistakenly thought they could do a better job than the Dallas-based chain. Prime's recent acquisitions include Inglewood's Centinela Hospital Medical Center bought last year from just such a group and the Encino campus of Encino-Tarzana Medical Center, acquired from Tenet itself.

Was Century City Doctors Hospital promising to Prime? Not so much, Lex Reddy admitted in a phone interview last week.

"There are a lot of other failing or faltering hospitals in L.A. more in line with our model that we are keeping our eyes on," said Reddy, adding his company never seriously considered the 176-bed Century Park East boutique surgical hospital.

Doctors reopened in 2005 after renovations that cost $100 million. It had hoped to attract higher-income patients who wanted elective procedures performed in the latest high-tech surgical suites and then be able to recover in plush private rooms offering Wolfgang Puck-inspired cuisine.

But the hospital ended up competing for the same business that often goes to UCLA and Cedars-Sinai medical centers, both of which have opened new facilities since.

Prime facilities tend to be scrappy community hospitals that the Reddys hope to turn profitable through tough cost controls, often canceling inadequate commercial insurance contracts.

Indeed, inadequate reimbursement rates, particularly from Medicare and Medi-Cal, were a leading cause of Doctors' financial distress, according to those familiar with the facility's operations. The new owners, lead by Beverly Hills-based managing partner Salus Surgical Group, were never able to pull in enough revenue to cover both operational costs and $60 million in debts stemming from the massive renovation.

With the hospital's owners leasing the building, Reddy said there really was little to acquire even if Prime had wanted to buy it.

"Its equipment is owned by the lender and the property is owned by the landlord," he said. "There's really nothing to buy."

Hospital officials indicated last week that they had been talking with one potential interested party, but no announcement had been made by the Business Journal's deadline. Salus officials did not return calls last week, and the hospital's interim management could not be reached for comment.

Minkow Backs Down

Barry Minkow is tight-lipped about why he abruptly dropped his investigation this month against nutritional supplement maker Herbalife Ltd.

The former fraudster-turned-anti-fraud crusader would only say that after months of hammering away at Herbalife's product safety and business model, it was time for his San Diego-based Fraud Discovery Institute to move on.

"We're a small concern and we have to allocate resources," said Minkow last week, noting that his group's settlement with Herbalife included a strict nondisclosure agreement.

Herbalife on Aug. 22 announced that Minkow, who had admitted shorting the stock but said it was to fund his investigation, retracted the institute's claims against the company so that both sides could "avoid litigation."

The release went on to say that Minkow no longer believed Herbalife's products are harmful, and retracted criticism about the alleged unfairness of Herbalife's multilevel marketing business model.

Minkow earlier this year hired an independent lab to test several products and said it found levels of lead in several products that he alleged should require product safety labeling under California's Proposition 65.

Herbalife countered with its own third-party testing that it said showed the products to have safe levels of lead.

The highly publicized allegations, plus a product safety lawsuit by a former customer, took its toll on Herbalife's stock earlier this year, though the share price has nearly recovered since the company went on to report quarterly earnings that beat Wall Street expectations.

Minkow said he's not twiddling his thumbs now that all traces of the Herbalife crusade have been wiped off his institute's Web site. The former San Fernando Valley resident, who became a minister and private investigator after going to prison in the early 1990s on charges he defrauded investors of his ZZZZ Best carpet cleaning company, has a TV pilot based on his life making the rounds in Hollywood.

He took a church group on a mission to Tijuana last week and is completing a probe of an alleged Los Angeles County-based Ponzi scheme.

Staff reporter Deborah Crowe can be reached dcrowe@labusinessjournal.com or at (323) 549-5225, ext. 232.

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