Optimism reigns despite DRMC's past troubles

DOWNEY - It is no secret that, even before this era of bailouts and economic stimulus packages, the fate of Downey Regional Medical Center already hung in the balance and was a hot topic of conversation around town.Indeed, at this time last year, the not-for-profit public corporation was, in the words of its executive vice president/chief operating officer Robert Fuller, "on the verge of bankruptcy." Concerns about its viability as a continuing concern finally prompted the Downey Hospital Commission to call a special meeting last Dec. 3 to look at the situation. What its audited consolidated financial statements as of June 30, 2007, revealed was traumatic: an operating loss of $35.5 million (we learned later that this figure was accumulated over four years), a negative working capital of about $12 million, its cash position precarious at best, etc. In other words, the figures showed a hospital in deep trouble. This is how Fuller, a graduate of Dartmouth and Stanford Law School who worked for an oil company and practiced law for over 30 years prior to joining DRMC in 2003, pictured the hospital's tribulations and struggles to right itself: • "We initiated a ground-level review/restructuring of operations (including its pricing structure, patient care delivery, the computer system, the whole system); The system was so broken the hospital was losing $2 million a month, the sad state of affairs lasting through February of last year, and thus running a deficit of some $10-$15 million a year; We looked at everything, every charge, every bill"; • "On the financing side, under the capitation formula, collection of accounts receivable in healthcare took 90 days, while the traditional form of payment (fee-for-service) had a turnaround of 30 to 60 days, which was aligned to the accounts payable schedule"; • "It's hard to imagine, but no one before us fingered capitation as the chief source of the hospital's troubles, but, after exhausting all other possible scenarios, our three-man team did (composed of president and chief executive officer Ken Strople, M.D.S. consultant Richard Yardley, and myself)"; • "We had to seek the intercession of state legislators Alan Lowenthal and Hector de la Torre to talk with the five insurance companies (Blue Shield, Scan, United/Pacific Care, Health Net, Aetna) with whom we had capitation contracts. On July 23 last year at the Embassy Suites, they heard us out; by the end of August, four of the five agreed to let us out of the capitation arrangement; then it took another four to five months before we sealed the deal." To further solve its cash/working capital problems, DRMC has not only obtained an extension of its $7.1 million (max) line of credit with its bank, but is negotiating to have it increased to $12-$15 million. Should this fail, it has other options. Moreover, the four insurance companies (i.e., all except Aetna) have extended it a 3-year $10 million loan, at no interest, and no payment until the end of the first year). Another lender, which Fuller left unidentified, is issuing the hospital a $5 million short-term loan. "I'm not saying we're now wallowing in money, we're still in a tight situation, and it's all a question of timing now," said Fuller. "But even as late as 2006, the data was so screwy, it's hard not to feel a sense of accomplishment when before you were looking at a $15-$20 million loss and today you can see a $10-$20 million gain." "It was in April that we stopped the cash loss," he continued. "We have been operating in the black now for five consecutive months. We hope that in the spring, we can start to build our cash back. Most of our payments totaling $10-$12 million to our vendors will be made in the next 60 days. To date we have 14,000 claims representing 32,000 patients but spread out over 50 different hospitals. "This is a busy time also for the hospital due to the rise in pneumonia and other respiratory cases, said Fuller. "Thus it's going to be a very expensive time. It's all been difficult, of course, but once we get through this winter, we'll start making money. Our model says 2009 will be an OK year. Hopefully, we'll issue a new set of statements in February. Our auditors right now are working on the figures." Thus, all indications are that the hospital's fortunes are on the rebound. Said Chuck Hutchinson, who served for 20 two years on the hospital board and was president at one time: "If they can show they can make a profit, I think there's a good chance that the hospital will make it." ********** Published: January 16, 2009 - Volume 7 - Issue 39