The top executives at Santa Monica, Calif.-based Alta Healthcare System do not dwell on their former ties to Paracelsus Healthcare Corp. But they think those connections may have given them the experience to help resuscitate eight ailing Los Angeles-area hospitals they bought from Paracelsus late last year to launch their new company.
Five months after they were purchased, Alta was turning a profit. But David Topper, Alta's founder, president and chief executive officer, declined to provide more recent figures. Alta's officers do say, though, that within five years, they hope to more than double the company's size. Alta has about 1,000 employees and 10 corporate managers.
"We have a strong interest in growing," says Topper. "And we're looking at opportunities in all areas, anywhere."
With the financial backing of Kline Hawkes California, a Los Angeles-based venture capital firm, Alta bought the eight hospitals from Paracelsus last September for $33.7 million. They are 65-bed Bellwood General Hospital in Bellflower, Calif.; 160-bed Hollywood (Calif.) Community Hospital, which includes Hollywood Community Hospital of Van Nuys (Calif.); 186-bed Los Angeles Community Hospital, which includes Los Angeles Community Hospital of Norwalk (Calif.); 49-bed Monrovia (Calif.) Community Hospital; 55-bed Orange County Community Hospital of Buena Park (Calif.); and Orange (Calif.) County Community Hospital, which was closed at the time of the deal but included in the sale. All are within about 20 miles of one another. Alta sold Orange County Community Hospital to Orange County.
Management decided to divest the Los Angeles area hospitals about the time that Pasadena, Calif.-based Paracelsus merged with Champion Healthcare Corp. of Houston, in August 1996, and became a public company. The new Paracelsus opened headquarters in Houston.
In October of that year, Paracelsus announced it would post a significantly larger loss than expected for the quarter, which sparked an onslaught of shareholder lawsuits alleging the company misrepresented its financial condition before the merger.
Topper, then-senior vice president of development at Paracelsus, left the company about that time.
"After the merger with Champion, I decided not to stay with the new entity of Paracelsus," he says.
While at Paracelsus, however, Topper was involved in the acquisitions of some of the hospitals Paracelsus later wanted to sell, so he knew the territory.
"David knows this market very well," says Paul Smith, vice president of finance and operations at Alta. "It's easier to run a place in your own back yard than from across the country."
Smith also has roots at Paracelsus. In the late 1970s, he was a regional controller of a group of hospitals Paracelsus acquired from Ramada Medical, a division of Phoenix-based Ramada Inns. In the 1980s, he worked with the government of Saudi Arabia to develop a new hospital there. When Paracelsus merged with Champion, he went back to a Paracelsus hospital, 123-bed Lancaster (Calif.) Community Hospital.
"When I was made aware that Alta was going to acquire these facilities, I started talking with David," Smith says. "I thought it was a good idea."
Topper says he feels comfortable with the Alta hospitals' niche: mid-sized urban, working-class markets that need a community-oriented hospital.
"I thought there was a true opportunity with local management-management that intended to keep (the hospitals) for the long term, with proper attention, that we would be able to turn them around," he says.
So far, Alta has received approval to reopen Los Angeles Community Hospital of Norwalk, which under Paracelsus management was not accepting patients. The company hopes Orange County Community Hospital of Buena Park, which also had not been accepting patients under Paracelsus management, will be accepting patients by the end of the summer, Topper says.
The hospitals came with some baggage from their Paracelsus days. Two, in fact, were involved in an alleged patient referral-kickback scheme. Paracelsus agreed to pay $7.3 million to settle the charges last year involving Bellwood General and Orange County Community Hospital of Buena Park, but Alta has had to step up compliance efforts as a result of its inheritance.
"The facilities in Orange County and Bellwood were under a forced, mandated corporate compliance program by (HHS' inspector general's office)," Smith says. "We had to essentially pick up the ball on that, and we've adopted that, plus we've adopted our own corporate compliance throughout the company just because of what was associated with that.
"We're trying to change that reputation," Smith adds. "We're not a Paracelsus; we want to create our own identity."
Smith says the hospitals were running at about 30% to 40% occupancy and had negative operating margins when Alta stepped in.
"Our focus has been on increasing volume," he says.
Topper says the hospital volumes have increased by about 20% on average since Alta took over. A new director of patient-care services has been appointed to handle patient complaints. The company also has instituted a new diabetic treatment program, focused more on outpatient surgery and hired more Spanish-speaking personnel.
Alta's total revenues from when the company was formed to February were about $230 million, and net income totaled about $5.5 million, Smith says.
"Every month has been positive since we've taken over," he says.
Topper envisions bringing at least four more hospitals into the Alta fold by the end of 2000. He says the company is in negotiations to make a deal in the near future but declined to elaborate.
"I think the Columbias and Tenets of the world are great companies," he says, "but I do believe we have an advantage in being able to make decisions quickly."