Downey Regional files for bankruptcy protection

DOWNEY - In the same week a new state-of-the-art medical center triumphantly opened its doors in Downey, another hospital sank deeper into insolvency.Downey Regional Medical Center, dealing with a negative cash flow of about $1 million per month and stifling HMO contracts, has filed for Chapter 11 bankruptcy protection, the hospital announced in a statement Monday. The statement said the hospital's board of directors unanimously voted to file Chapter 11, but did not indicate when the vote took place. Downey Regional officials said they expect to emerge from bankruptcy within one year. Since former CEO Allen Korneff was ousted two years ago, Downey Regional administration has been "feverishly working to fix literally thousands of problems within its financial systems," including inadequate billing and collection services. The hospital has drawn nearly $100 million in reserves over the last 10 years to stop a negative cash flow of $1 million per month, officials said. Reserves ran out in March 2008. Administration blamed "unfavorable terms" in capitation contracts with HMOs and medical groups. Capitation transfers the financial responsibility of HMO patients to the hospital and designated physician groups, in exchange for a monthly fee. But Downey Regional was receiving only about $1 million in fees per month, while the hospital's actual costs reached nearly $3 million monthly, officials said. As of February, Downey Regional had paid more than $25 million to negotiate out of capitation contracts with Scan, Blue Shield, Health Net and PacifiCare, hospital officials said. The last remaining capitation contract was with Aetna and that contract was expected to be terminated with Monday's bankruptcy filing. When Downey Regional emerges from reorganization, officials said it will operate under a self-sustaining fee-for-service business model. "[Monday's] necessary actions will allow us to clean up the remainder of the financial morass that the current management team inherited that was over a decade in the making, and that we have been working to fix for two years," Downey Regional CEO Ken Strople said in a statement. "We are confident in our long-term prospects for success. I want to reassure our patients, our employees, the physicians, and the community that DRMC and its services will be fully open during this process, that excellent patient care will continue to be provided, that payrolls will be met, and that operations at the hospital will continue normally."

********** Published: September 18, 2009 - Volume 8 - Issue 22