Fourth in a series
[Editor’s Note: See Part 3, “As Bankruptcy Case Proceeds, Brotman Is Performing Nicely,” May 2.]
After this morning’s latest scheduled hearing in bankruptcy court was postponed for two weeks while lawyers for Brotman Medical Center tried to sort out $8 million in disputed debt, the leader of Culver City’s hospital was humming a distinctly upbeat tune.
Daylight is near, if not immediately at hand, says Stan Otake, the Chief Executive Officer. Brotman, he is confident, is emerging from a very long, image-harming dark night in a financial forest.
“Through the refinancing process, there have been some exciting financing options for Brotman to reorganize and come out of bankruptcy,” he said.
“Part of our strategy in getting out of bankruptcy was to monetize certain assets. Take the sale of Delmas West, the old Tower building and the 2.2 acres there — through this sale, we have encountered great ideas for the community of Culver City and for the city itself.
“I can’t divulge what those ideas are. But I can talk about generalities.”
Question: That is the start of a major reconfiguration. The Brotman campus has been a patchwork of about 5 buildings. How much change will be evident by the end of next year?
“I don’t think much will be visible in a year and a half. Clearly, time will be needed to develop architectural plans and to get approval from the city.
“The approval and planning process probably will take a year and a half to two years.”
Question: As you enter a downsizing and reconfiguring phase, what is the ownership status?
“The doctors group, Prospect Medical (which acquired the hospital 4 years ago this month), and two small investor groups — that ownership structure still is intact. Clearly, there might be some changes as we re-emerge out of bankruptcy as part of a new value plan, or whatever plan is submitted to the court as part of our reorganization.”
Question: Almost from the day the sale was announced, Prospect Medical has been criticized for its ownership practices. They were commonly called incapable? Is the criticism fair, in your judgment?
“There has been a change, a big change, in Prospect with their acquisition of a company, the Alta Healthcare System. Alta operates four hospitals in Southern California. My feeling is that Prospect, while in the IPA medical management business, did not have as many intellectual and administrative resources on the hospital side, to help out Brotman.
“It was through the Alta acquisition, and with the help of some Alta personnel, that these strategic changes have occurred.”
Question: Would you describe how authority is distributed?
“We have a 3-person ownership governing board — the CEO, a Prospect member and a member of the true doctors’ ownership group, myself, Dr. Jake Terner and Dr. Bob Rose. Then we have a hospital governing board that always has been part of Brotman , which oversees the quality and the operations, in an advisory role.”
Question: When do you think you will be beyond bankruptcy and breathing freely?
“The turnaround and the traction we have gained in the last half-year have been incredible. With a hospital that lost nearly $1 million a month in fiscal 2007 to one that is making a profit of nearly $700,000 a month in a 5-month period is a great story. To answer the question, I feel like the financing opportunities we have in front of us…
“To answer another question, what is it going to take to take out Prime Healthcare (of Victorville, Brotman’s lender/banker for the past month) right now. I have people who are interested in knowing that amount so they can finance and cut us a check to take out Prime.
“This is the first time Prime has been a lender, and I think they are scared. Lender liability issues, we have discussed. If the worst case happens, they might lose their $18 million, their $20 million position with Brotman Medical Center. Do they want that to happen? Clearly not. One of the interesting parts is that in court, Prime’s bankruptcy attorney had to explain to their in-house counsel what equitable subordination meant, and what their actions might result in.
“They talked about what they judge was saying to them. One said, ‘You better act like a lender. Do not act like an operator, or else you might face lender liability issues.’”
The Objective
How can Brotman detach itself from Prime?
Mr. Otake, a hospital administrator by training who has been on the job at Brotman since last October, said that as a result of the Delmas West site, he has three fresh new financing options to choose from. “One,” he said, “is purely a financing option. And then I have two large hedge funds, investment companies, ready to write the entire check as well.”
(To be continued)
