Being squeezed from every conceivable quarter, an increasing number of Los Angeles-area hospitals are finding themselves in critical condition.

Government reimbursements for Medi-Cal and Medicare patients have been lowered, health maintenance organizations are reducing their pay-outs and ever-greater emphasis is being placed on outpatient care.

All those factors, and more, are driving hospitals into the red.

Despite the challenging environment, several hospitals in L.A. continue to be highly profitable. Topping the list is L.A. County-USC Medical Center, which posted 1997 net income of $303.7 million, according to figures compiled for the Business Journal. However, virtually all that “profit” comes from federal and state subsidies.

Once government subsidies are excluded, the most profitable hospital in the L.A. area is UCLA Medical Center, which posted 1997 net income of $49.5 million.

Other hospitals among the biggest money-makers are: Cedars-Sinai Medical Center ($31.8 million), Presbyterian Intercommunity Hospital in Whittier ($26.3 million), and St. Johns Hospital and Health Center in Santa Monica ($23.7 million).

But after the top dozen or so hospitals, profits begin to drop off dramatically evidence of the toughening environment.

To stay alive, hospitals have had to reinvent their role in the community. Those that fail to do so are shutting down. Eight local hospitals have closed since the beginning of 1997, and more are likely to close in the months ahead, health care analysts predict.

“Overall, most hospitals are losing money in Los Angeles County because they have not been able to manage their costs as fast as the decline in revenue,” said Mike Dwyer, principal health care consultant for accounting firm BDO Seidman LLP in Los Angeles, who helps hospitals reevaluate their operations. “You can only lose money for so long before you close your doors. The hospitals that are most at risk are the small ones that continue to hemorrhage and have no other source of funding.”

Hospitals are required by law to report their financial results quarterly to the Statewide Office of Planning and Development. But the method of reporting can be convoluted. The figure “net from operations,” for example, includes all revenues from patient care and government subsidies (including Medi-Cal and Medicare reimbursements), less operating expenses.

The state next breaks hospital results into non-operating revenues and non-operating expenses, which relate to such things as donations, grants, fund-raising expenses and retail operations (like gift shops and cafeterias).

The term “net income” is never used. The bottom line is referred to as “total net revenue,” which is derived by adding “net from operations” to “net revenues from non-operations.”

Among the hospitals suffering big net losses in 1997 are USC University Hospital ($5.7 million), Century City Hospital ($6.3 million), Santa Monica Community Hospital ($6.7 million), Motion Picture & Television Hospital ($8 million), and Brotman Medical Center ($17 million), according to the Office of Statewide Health Planning and Development.

“The losses reflect what is happening overall in the industry,” said Steve Valentine, president of the Camden Group, a health care consulting firm based in El Segundo. “The occupancy rates are running at 55 to 60 percent of capacity, Medi-Cal and Medicare have lowered reimbursements and they are competing with doctor-owned surgery centers for outpatient care. All of this has really impacted a hospital’s ability to make money.”

Many hospitals that have continued to bleed red ink are being forced to sell off their operations to one of the big hospital giants, like Tenet Healthcare Corp. or Catholic Healthcare West. Others are forming limited partnerships to gain more clout in negotiating with the HMOs.

Queen of Angels-Hollywood Presbyterian Medical Center is a good example of a hospital on the brink that sold out to survive. The large community hospital had been treading water on government reimbursements just to break even, so it sold out to Tenet, according to John Fenton, president and chief executive of Queen of Angels.

“The fear was that the (government reimbursements) would go away and then what would happen?” he said. “Between (Tenet’s) buyer power and access to capital, we can run the hospital for $8 million to $10 million cheaper than before. It made more sense to have a larger company take over.”

Tenet has acquired other local community hospitals that were bleeding red ink, including Brotman Medical Center in Culver City. That hospital had been operating an expensive OB/GYN unit that was not being fully utilized. So Tenet closed the unit and now offers Brotman patients transportation to nearby Centinela Hospital Medical Center for births. Prenatal care at Brotman is handled at a newly opened outpatient clinic.

The hospitals that have succeeded like St. Johns, Cedars-Sinai and UCLA Medical Center have done so by creating new revenue sources, specializing in one area and vigilantly raising private donations.

Cedars-Sinai, for example, is famous for its star-studded fund-raising galas, which have been known to generate more than $1 million in a single evening.

Another strong performer is St. Johns, which has been cultivating community relationships, said Bruce Lamoureux, chief executive of St. Johns.

“What we have done is extend our services and in effect increased our market share,” said Lamoureux. “That is what has benefited this organization.”

The Santa Monica hospital has bolstered its outpatient load from 161,000 visits in 1996 to 216,000 in 1997. St. Johns also has been negotiating better contracts with its physician groups and establishing partnerships with community resources like the Center for Healthy Aging to attract new patients. It has also been reducing costs and managing its reimbursement dollars more effectively, Lamoureux said.

Cedars-Sinai and UCLA are in the process of setting up partnerships with other hospitals to increase their clout in negotiating with the HMOs. Both those hospitals have established state-of-the-art specialty transplant programs and cancer treatment centers that are bringing global name recognition to the facilities.

Among local hospitals that have been unsuccessful in staying afloat are smaller community facilities like South Bay Medical Center in Redondo Beach, which closed last May. The hospital suffered a net loss in excess of $6 million in 1997, according to the Office of Statewide Health Planning and Development.

Other recent local closures include Woodruff Community Hospital in Long Beach, Newhall Community Hospital, Long Beach Doctors Hospital, Medical Center of North Hollywood and Vencor Hospital in Burbank, to name a few.

Charles Idelson, spokesman for the California Nurses Association, said having so many hospitals closing or at risk of closing creates a disquieting situation for consumers.

“It is a dangerous signal,” said Idelson. “There will be an increase in the monopolization of hospitals and that means less choice for consumers in making medical decisions. The bean counters will be making decisions and there will be less concern for quality of care and more concern for the bottom line.”