Hospital Group Pulling Out of CompCare Deal

VHA Enterprises, a national alliance of 668 nonprofit hospitals, said Monday that it will dissolve its joint venture with Comprehensive Care Corp. of Irvine because it is dissatisfied with the firm’s psychiatric and drug treatment programs.

Business generated by the joint venture last year produced $2.3 million in annual pre-tax earnings for CompCare, which received 70% of the joint venture’s profits, according to documents filed with the Securities and Exchange Commission.

The joint venture was an important profit center for CompCare, a faltering company that has seen its annual profits plummet from $17 million in 1985 to $502,000 for the fiscal year ended May 31. CompCare recently agreed to be bought by First Hospital Corp. in Norfolk, Va., for about $110 million.

Dissolution of the joint venture, called Behavioral Medical Care, would have an “adverse impact” on CompCare if the hospitals choose not to renew their contracts, according to proxy documents that CompCare filed Aug. 14.

Dissolution Right Disputed

Comp Care and First Hospital officials could not be reached for comment. But Robert E. Currie, attorney for CompCare, said: “It is the view of CompCare that VHA had no right under the joint-venture agreement to dissolve the joint venture.”

Timothy R. Cappel, attorney for VHA Enterprises, said that existing contracts between individual hospitals and Behavioral Medical Care will be honored until their expiration dates but that “there will be no new contracts and no renewals of existing contracts.”

VHA Enterprises said Monday that it has already formed a substitute joint venture with Parkside Medical Services, a subsidiary of Lutheran General Hospital in Park Ridge, Ill.

Cappel said that CompCare had agreed to terminate its joint venture with VHA but that First Hospital Corp. vetoed the plan.

In response, Cappel said, VHA Enterprises filed a $4-million lawsuit in July against CompCare, its CareUnit subsidiary and First Hospital.

The suit argues that VHA has a legal right to dissolve the joint venture, begun in 1983, because CompCare has allegedly failed to perform its “obligations and responsibilities.”

Ownership Clause

Also, VHA said, terms of the joint agreement allow the venture to be terminated if one party changes ownership.

Cappel said talks to settle the suit fell apart last week when CompCare countersued VHA. Among other complaints, CompCare has accused VHA of libel and slander for circulating a letter to client hospitals of the joint venture that criticized CompCare’s treatment programs.