Doctors operate this company
Andrew Edwards
The purchase this month of four Orange County hospitals is just part
of a larger expansion plan for Costa Mesa-based Integrated Healthcare
Holdings Inc., company officials say.
“We’re in an expanding mode to acquire more and more hospitals,”
said Larry Anderson, president of Integrated Healthcare Holdings Inc.
Integrated, which is controlled by a doctor-dominated consortium,
announced its first acquisition March 8 with the $70-million purchase
of four hospitals that employ about 3,500 doctors and staffers.
The buy was a big one for Integrated. In its current form, the
company is only about 18 months old and does not yet have a website,
Anderson said.
Though Integrated has no plans on tap for additional purchases,
Anderson wants to quintuple the firm’s portfolio.
“We intend to buy other hospitals,” Anderson said. “Our five-year
plan is to own 20 to 25 hospitals by the end of five years.”
Integrated was formed to buy and run hospitals. In November 2003,
Anderson, Integrated chief executive Bruce Mogel and chief financial
officer James Ligon purchased an inactive company called First
Deltavision Inc., according to a Securities and Exchange Commission
filing. They changed the company’s name in June to reflect their
business plan.
The acquisition of Deltavision, which was already qualified as a
public corporation, allowed the new owners to immediately offer stock
in Integrated, Anderson said.
Integrated retained the chief executives of the four hospitals the
firm purchased from Tenet Healthcare Corp.
During 2004, Tenet lost more than $2 billion. The four hospitals
sold to Integrated Healthcare were among 19 California facilities
Tenet decided to divest at the beginning of last year.
None of the four hospitals purchased by Integrated Healthcare are
in Newport-Mesa, though Western Medical Center Santa Ana is usually
the destination for the area’s trauma patients. The other three
hospitals are Western Medical Center Anaheim, Coastal Communities
Hospital in Santa Ana and Chapman Hospital in Orange.
Integrated Healthcare’s majority shareholder is a consortium of
doctors that paid $30 million to fund the hospital purchase.
Cardiologist Anil Shah founded Orange County Physicians Investment
Network LLC specifically to finance that deal. The consortium owns
83% of Integrated Healthcare.
Shah, who is a member of Hoag Hospital’s staff, is also chairman
of Integrated Healthcare’s board of directors.
“Basically, Integrated Healthcare Holdings is ours,” Shah said.
Before Shah’s involvement, doctors worried about the Integrated
Healthcare deal, said surgeon Robert Steedman, chief of staff at
Western Medical Center Santa Ana. Physicians opposed the sale because
under its original structure, the purchase would have been financed
by Hemet physician Kali Chaudhuri, who earlier bought -- and closed
-- several clinics.
In 2000, Chaudhuri’s company, KPC Medical Management Inc., closed
42 clinics the company bought in 1999, according to reports. KPC
Medical Management declared bankruptcy in 2000.
“That was the reason why it caused such a furor in Western Medical
Center,” Steedman said. “We really sort of stonewalled it initially.”
Steedman said he dropped opposition to the sale after Chaudhuri’s
role in the company was reduced. Chaudhuri, who is still involved,
owns 49% of the real estate subsidiary formed with Shah’s company to
own land associated with three of the four hospitals.
He also has the right, along with his lawyer, to buy almost 25% of
Integrated, Shah said.
Chaudhuri could not be reached for comment. Shah said anyone
bothered by Chaudhuri’s involvement should not be.
“He will never have a controlling interest,” Shah said.
California’s Department of Health Services sent a letter dated
Feb. 3 to Integrated Healthcare President Anderson announcing the
agency had approved Integrated’s license to operate the hospitals
after Integrated announced Shah’s company would be the majority
shareholder.
So far, Shah’s consortium has more than 20 investors, and though a
medical degree is not a requirement for an investor to join, most of
the members have one, Shah said. He expects the company’s structure
will be welcoming to medical staff.
“Physicians, they’re interested in supporting the company; they’re
interested in supporting the practice, because that’s what’s most
important to them,” he said.
In early 2004, Steedman contributed to a company that was formed
by doctors at his hospital to consider buying the facility.
He agreed that physician ownership of hospitals has promise. “I
think you’ll find people looking at this -- more and more hospitals
will look at our model,” he said.
The model’s potential advantages, Steedman said, stem from
doctors’ input “to make sure money that comes in goes to appropriate
capital investment and proper patient care.”
* ANDREW EDWARDS covers business and the environment. He can be
reached at (714) 966-4624 or by e-mail at andrew.edwards@latimes.com.
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