Triad Workers Stick by Troubled Hospital Firm

Nurse Denise O’Neil’s phone was ringing off the hook last winter with job offers, but she was heartsick over the reason.

Her employer, Sherman Oaks Hospital and Health Center, had just been thrust into the public spotlight as one of two hospitals owned by financially troubled Triad Healthcare of Encino. Every week, it seemed, the newspapers brought more news of corporate turmoil, staggering debt and, finally, bankruptcy.

There was no shortage of rumors, many of them heralding the hospital’s imminent sale--even closure--as Triad’s chief creditor, the state of California, sought to recover from a $167-million loan default by the company.

“I think the potential of us being disillusioned by the situation started (recruiters) calling,” said O’Neil, director of the hospital’s AIDS unit.

But O’Neil has decided to stay--as have many of the hospital’s employees and physicians--despite the uncertainty clouding Triad’s future.

Their reasons are a mixture of the pragmatic and the emotional, and say much about the business of hospitals.

Triad’s financial problems stem in part from the superheated 1980s, when hospitals, like other investments, were bought or sold entirely for their profit potential, often in heavily leveraged deals. But because hospitals provide an intensely personal service--caring for the sick--they tend to have deep community roots and staffs that are loyal to patients first, corporate owners second.

“We have been owned by three or four or five corporations--I’ve lost track,” said Linda Ching, director of nurses at the hospital, who over the years employed a dismissive catch phrase to calm staff about the latest change of ownership.

“That’s corporate,” she would tell them. “We’re the hospital.”’

But the $167-million debt that Triad loaded onto its hospitals when it acquired them in 1991 is not so easy to dismiss. That is especially true in Southern California’s glutted hospital market where simply breaking even is reason enough to uncork the champagne.

Managed-care health insurance plans have drastically reduced the number of patients in hospitals and the length of their stays. In 1993, average occupancy in Southern California hospitals dipped to a historic low--48%--and more than half the hospitals closed the year in the red, according to the Hospital Council of Southern California.

Triad’s hospitals have had even lower occupancy, with 156-bed Sherman Oaks Hospital hovering at 31% and 138-bed West Valley Hospital and Health Center in Canoga Park barely managing to fill 22% of its beds, according to staff.

Compounding the occupancy problems was Triad’s default in July, 1993, on the $167-million state-insured loan, which brought unusual public scrutiny. News reports severely undermined confidence in the stability, and potentially in the quality, of the hospitals, according to doctors and other staff.

Triad had used a state loan guarantee program called Cal-Mortgage, leaving state taxpayers potentially responsible for paying off bondholders. The loan default, the largest in Cal-Mortgage’s 25-year history, effectively shut down the program for six months and spawned legislative and departmental investigations that continue today.

“Everybody was down in the dumps, reading the newspaper from one day to the next,” said Froyla Alden, director of nurses at West Valley hospital. “They were crying in my office, wondering if they were going to have a job.”

Some doctors, feeling uneasy about the situation, diverted patients to other hospitals where they had admitting privileges. Dr. Eugene Sollman, an obstetrician at West Valley and chairman of the hospital’s board of trustees, said the number of doctors admitting to West Valley dropped 22%.

The problems seemed insurmountable, giving rise to rumors that the hospitals would close. But Sherman Oaks and West Valley had several things going for them that doomsayers overlooked.

One of them, ironically, was the generally poor hospital market in Southern California. If hospital staff members were looking to bolt for more secure employment, they found the pickings slim.

“A few people left, but really overall the percentage was quite small,” said Dr. Peter Miao, chief of the medical staff at Sherman Oaks Hospital. “Economics are bad for hospitals now, and there is no job security anywhere.”

Also working in the hospitals’ favor was the long tenure and loyalty of employees. Ching and Alden, the nursing directors, say many on their staffs have been at the hospitals for their entire professional lives. In specialties involving long-term treatment--notably in the AIDS and burn units at Sherman Oaks Hospital--the nurses, doctors and support staff typically develop close ties to patients and their families.

“The experience of trying to help those kinds of patients makes for an enormous sense of resolve and unity among the staff,” said David Langness, a Hospital Council vice president.

Still, the hospitals had to figure out how to cut costs, preserve quality and bring in patients. For the second half of 1993, they were stymied by corporate turmoil at Triad. The company’s board of directors switched management consultants, fired its president and battled the state for control of its hospitals. Triad ultimately found stability in U.S Bankruptcy Court, preempting a move by state officials to place Triad and its hospitals into receivership.

Dennis Simon, a Price Waterhouse consultant who specializes in turning around failing companies, was appointed bankruptcy trustee in March.

By then, cynicism had taken hold of many Triad employees who had seen would-be rescuers come and go. But Simon was unusually visible, according to staff at the hospital. He immediately began meeting with all levels of employees and candidly presenting both the plight and prospects of the hospitals.

While demanding greater efficiency and tighter budgets, Simon slashed away at corporate overhead. For example, he canceled the lease on a penthouse office occupied by Triad’s former president, Stuart Marylander, until he left the company last year. The penthouse lease, plus several others that Simon deemed unnecessary, were costing Triad $700,000 annually, he said.

Simon said he also has canceled executive credit cards and stopped severance payments to former Triad executives, including Marylander. The Times reported in December that Marylander’s severance package totaled more than $900,000 over three years.

“I have not been paying him since the day I took over,” Simon said, adding that he has applied to the bankruptcy court for permission to cancel the severance packages altogether.

Marylander’s attorney, Robert Fabrikant, declined to comment, saying that after consulting with his client, “We didn’t feel it was appropriate or us to comment on any actions the trustee was taking.”

Perhaps the biggest morale boost has come from Simon’s decision to rehire Sherman Oaks Hospital’s former executive director, David A. Levinsohn, as Triad’s new chief operating officer.

The well-regarded Levinsohn resigned as Sherman Oaks’ top executive in November at the height of the post-default turmoil. “I just didn’t feel that I had any control,” he said, citing the company’s financial situation and a rapidly deteriorating relationship between corporate headquarters and hospital-based managers.

Simon persuaded Levinsohn in May to take the position vacated by Marylander. News of his return had an immediate impact.

Denise O’Neil, for one, had a lilt in her voice as she turned down job offers. One of the few employees whose specialized skills made her in great demand, O’Neil said Levinsohn’s return reinforced her decision to stick by her patients in the AIDS unit.

“With David here, I just knew we were going to make it,” O’Neil said.

“David is the glue,” said Dr. A. Richard Grossman, head of Sherman Oaks’ renowned burn unit. One of only three in Los Angeles County, it is one of the hospital’s most coveted assets. Grossman said he has fended off approaches from other hospitals who wanted him to relocate the burn unit and its staff.

Levinsohn and Simon have made pursuing managed care contracts their top priority. Blue Cross’ Prudent Buyer and CaliforniaCare programs have signed contracts with Sherman Oaks, and Health Net signed up with both Triad hospitals for patients insured under its Seniority Plus care plan, Triad reported in its most recent newsletter.

West Valley is the more vulnerable of the two Triad hospitals in part because of competition from two hospitals less than five miles away. So Levinsohn said he is looking at ways to better target services to community needs. The hospital is launching a maternity care outreach program to the San Fernando Valley’s growing Latino community, and recently converted a wing from acute medical and surgical care to substance abuse treatment.

Bankruptcy has given Triad the breather it needed to restructure the hospital services, and Levinsohn believes revenues and patient admissions will soon improve.

“I wanted to be in a place where I could make a difference, and I think I can here,” Levinsohn said.

Profile: David A. Levinsohn

Levinsohn is the new chief operating officer of Triad Healthcare Inc., the troubled Encino-based hospital corporation that received federal bankruptcy protection after defaulting on a $167-million loan insured by the state.

* Born: Nov. 6, 1934

* Residence: Marina del Rey

* Education: Bachelor of pharmacy, Durban School of Pharmacy, South Africa.

* Career highlights: Chief executive of a hospital in Durban, South Africa, before immigrating in 1978. He served administrative stints at Washington Hospital in Culver City and Sherman Oaks Hospital. Later became vice president of Encino Tarzana Medical Center. Also, board member of the California Association of Hospitals and Health Systems and a member of the L.A. County AIDS Commission.

* Interests: Tennis, spectator sports and travel.

* Family: Married, three children, two grandchildren.