Almost from the start, NewCare Health Corp.'s fledgling hospital management business operated under a cloud of controversy.
At odds with the board of one if its hospitals, the company ended up suing and being countersued. The hospital ousted NewCare and eventually was forced into bankruptcy.
A second hospital managed by the company just filed for Chapter 11 protection, and the future of that NewCare management contract remains uncertain.
NewCare's dubious track record raises questions about why a publicly traded provider of long-term-care and senior-living services would diversify as it has. Before it entered the hospital business, NewCare was operating 27 skilled-nursing facilities and five assisted-living facilities.
The answer may lie in its financial relationship with the two hospitals.
NewCare, which is based in Atlanta, entered its only hospital management contracts in the fall of 1997-one with 131-bed Tri-City Hospital in Dallas and a second with 150-bed Princeton Hospital in Orlando, Fla. At the time, the company said those agreements were "in line with its strategy of opportunistic growth in the hospital environment."
The company also said the contracts would complement its only hospital holding-84-bed Meadowbrook Hospital, a rehabilitation facility in Gardner, Kan., which it purchased for $5 million in August 1997.
As it turns out, NewCare and its NewCare Hospital Corp. subsidiary have been putting out fires ever since.
Months into its Dallas contract, Tri-City Hospital tossed out NewCare's management team, and NewCare sued. The hospital's board countersued, saying the company wasn't performing up to snuff.
"What they said they were going to do, they did not, and the board felt they had (exaggerated) their skills and experience," says Christopher Luna, the hospital's general counsel. NewCare's contract was terminated in March 1998, he says. Tri-City is now self-managed.
A dispute also erupted with bondholders, who were trying to foreclose on the hospital, Luna says. When the contract with NewCare Hospital Corp. was signed in September 1997, board members were not aware that NewCare's parent held about half the hospital's bonds, he says.
In July 1998, Tri-City filed for Chapter 11 bankruptcy protection to prevent foreclosure by the bond trustee, Bank of New York. Under an agreement reached this month, all pending litigation will be settled. As part of the settlement, Tri-City will pay its former management company $150,000. New financial covenants will enable the hospital to restructure about $18 million of debt. The agreement also settles some outstanding tax issues with the Internal Revenue Service.
Earlier this month, Princeton landed in bankruptcy court after Ken Luckhard, the hospital's chief executive officer, and seven other top managers walked out just before Christmas (Jan. 18, p. 17). Luckhard, who was a NewCare Hospital Corp. employee, declined to comment, saying only that his decision to leave was made deliberately and painfully. The hospital reported $57 million of debt on assets of about $25 million.
Virginia Goren, chairwoman of the hospital's local advisory board, declined comment on the upheaval at Princeton. Calls to the hospital's executive office were referred to Frank Mock, an attorney in the Orlando office of Baker & Hostetler, who is coordinating communications on behalf of the hospital board. Mock's office issued statements saying the hospital has secured a $450,000 loan to keep operations afloat while a restructuring plan is hammered out.
The hospital also said it will seek additional working capital to restructure operations and hinted at a possible ouster of NewCare. "If required in connection with such interim financing, Princeton will implement changes in the day-to-day management of the hospital," according to a statement from Mock's office. That statement also quotes Joe Collins, chairman of the hospital's board, as saying, "We believe a partnership that includes both new investors and the continued support of our existing lenders will best meet the needs of our hospital and the community."
NewCare Hospital Corp. is headed by Arthur Doloreso, a former executive of Nashville-based Columbia/HCA Healthcare Corp. Before joining NewCare in August 1997, he ran Columbia's Kentucky Hospital Division. Doloreso did not return phone calls seeking comment.
Reports in the Orlando (Fla.) Business Journal and Dallas Business Journal trace NewCare's interest in the two hospitals to Dan Carter, a Naples, Fla.-based investor and a majority holder of the hospitals' bonds. Carter, president of International Trading Group, also owns NewCare stock.
Carter did not respond to a request for comment. But in earlier press reports, the company and Carter denied any conflict of interest and defended the management contracts as fair.
NewCare's most recent financial report to the Securities and Exchange Commission reveals the company's financial condition for the first three quarters of 1998 ended Sept. 30. For the third quarter, it recorded net income of $2 million on revenues of $17.1 million, compared with a net loss of $1.7 million on revenues of $8.7 million in the year-ago period. For the nine months ended Sept. 30, it lost nearly $1.7 million on revenues of $48.5 million. In the comparable nine-month period in 1997, NewCare lost more than $1.7 million on revenues of $22.7 million.