According to our friends at City Hall, before the badly crippled Tenet Corp. sold out to a team of publicity-allergic doctors last spring, Tenet said it needed a $5 million loan to use as a line of credit for the next nine years. Denying it was acting audaciously, Tenet said did not want certain pesky conditions attached. No, it could not guarantee that it would be able to repay the loan, and no, it would not promise to maintain the present level of service. The beggers were choosing their terms. The smell of the deal was turning acrid. When it came to repayment, both parties acknowledged that the encumbrances against Brotman exceed the worth of the hospital. The “line of credit” request turned out to be a euphemism for what new Redevelopment Agency Chair Steve Rose says actually is capital improvements. By last January, a City Council subcommittee comprised of Carol Gross and Mr. Rose, along with Redevelopment Agency attorney Murray Kane, met with the Brotman team and reached two conclusions:
(a)Instead of tying up the city’s money open-endedly, Brotman would be required to draw down the entire $5 million within a five-year period and agree to repay the full amount within ten years from the day that the agreement was signed; and (b) the hospital promised to maintain the present level of service for the life of the loan.
Now About That Payback
One nagging glitch remains: Not only is the loan unsecured, City Hall can do no more than stand in place and let its jaw hang down if Brotman says, “Sorry, guys, we are out of money.” Mr. Rose made no attempt to beautify the conditions that surely look stark from City Hall’s perspective. “If Brotman defaults,” Mr. Rose said, “the Redevelopment Agency has no way of getting its money back.” The justification for the loan appears to be a potentially fuzzy concept known as the greater good. “Call it a business decision,” Mr. Rose said. Unlike, say, a hardware store or a restaurant, Brotman is the only medical facility our community has. Agency members who favored approving the loan reasoned this way: If Brotman should someday fold — not the longest shot in town — the city would need to purchase an additional ambulance, at a cost of $1.2 million, to transport residents to Cedars-Sinai, St.John’s or Marina Mercy. By putting money in Brotman’s pocket today, the argument goes, the city is forestalling the day when we are hospital-less or enriching Brotman’s chances of remaining in business indefinitely. One way or the other, an average of more than one million dollars a year of city money would be going out the door for the health of residents over the next five years.
Assessing Brotman’s Loan Conditions
A medical clinic director of my acquaintance, Dan Osterweil, M.D., seemed to find the contours of the Brotman loan kosher. “For a community hospital without a corporate entity as a backup,” he said, “it is reasonable to ask the community to provide assistance. Especially if the hospital provides emergency room services for the uninsured. It may encounter many uninsured and many uncollectable bills. Typically, a proprietary hospital, private or corporately owned, is syphoning its revenues to the stockholders or the owner. Community hospitals do not. They would rather reinvest in their infrastructure. The business of medicine unfortunately requires major capital investment to keep up to date with the technology demanded by consumers who want the latest or clinicians who feel they are not responding to changes in time. Those technologies usually become obsolete before their natural amortization, and they become a loss on the books.”
Instead of seeking a loan from City Hall, Dr. Osterweil said that a for-profit hospital “should see capial from private sources. If they offer something in return to the community — services that are “loss leaders” — then the city should weigh it seriously.
