In 1997, not-for-profit Vista Hospital Systems, San Luis Obispo, Calif., was an up-and-comer.
It had purchased 124-bed French Hospital Medical Center in San Luis Obispo from Tenet Healthcare Corp. Add that to its ownership of 32-bed Arroyo Grande (Calif.) Community Hospital 10 miles to the south, and it was on its way to cobbling together a small network of hospitals on California's central coast.
But just two years later, Vista is reeling:
* Its physician practice management subsidiary, Vista Medical Foundation, declared bankruptcy late last year. A U.S. bankruptcy court auctioned its primary asset, Corona Regional Medical Group, for $1.5 million in January.
* In March, Vista Hospital Systems began missing payments on $181.7 million worth of bonds. Talks with the bondholders continue, but no plan to restructure Vista's debt servicing has yet been formulated, said Dan Finnane, chief operating officer at Primus Management, the Oakland, Calif.-based firm that manages Vista and its related assets.
* The once-profitable French Hospital has been hemorrhaging money. It lost $7.4 million on revenues of $42.4 million in 1998, according to unaudited figures disclosed in connection with the missed debt payments.
* Vista has pared its combined work staff at French and Arroyo Grande to 830 from 875 in recent months, but Finnane said those cuts were related to consolidating operations at the hospitals rather than financial difficulties.
* And Vista Hospital Systems posted an overall loss of $12.2 million on revenues of $134.8 million last year.
Vista's downfall was caused by bad timing and bad luck, said company officials and industry observers. For example, the system decided to enter the physician practice management business at its dizzying heights, just before it crashed.
Finnane said Vista purchased Corona Regional Medical Group to help preserve the patient base at Vista-owned 225-bed Corona Regional Medical Center.
That Vista's decision to enter the physician practice management business has come back to haunt the system is no surprise, said Steve Valentine, president at the Camden Group, an El Segundo, Calif., consulting firm.
"The physician practice management business has tanked for everyone," he said, adding that most medical groups were greatly overpriced.
The second reason behind Vista's travails is a tremendously acrimonious legal and medical battle with an anesthesiologist formerly at French, Boris Pilch, M.D. Last July French Hospital closed the lucrative pain-management program Pilch had helped develop, Finnane said.
"The ability of the medical staff to monitor the program had come into question, and they wanted to have the right resources to run it, so they supported a moratorium," he said.
The program generated $2 million a year for French in positive cash flow, according to the San Luis Obispo Telegram-Tribune.
Finnane would not confirm the figure but said the program "was a significant contributor to French Hospital-both in terms of (patient) admissions through the program, as well as additional services such as X-ray and laboratory services."
Pilch filed a $117 million lawsuit against French, Primus, Vista and 22 other defendants last November in U.S. District Court in Los Angeles. The lawsuit accuses them of conspiring to drive him away from the pain-management program to keep the business for themselves and interfering in his attempts to buy French Hospital and San Luis Obispo (Calif.) General Hospital in the mid-1990s.
French has filed a countersuit, accusing Pilch of improperly taking patient records. Neither case has gone to trial.
While Finnane declined comment on the lawsuits, he noted that the legal fees generated by the litigation have also drained Vista's bottom line.
And while the outlook appears grim for Vista at the moment, observers such as Valentine are optimistic the company will turn its fortunes around, pointing to its strong management and a 7% increase in Medicare reimbursement that French will receive in 2000.
"Things should start getting somewhat better for them," he said.