SANTA ANA – Controversial medical entrepreneur Kali P. Chaudhuri bought the debt of four Orange County hospitals in a courtroom auction Friday.
The deal puts Chaudhuri, a Hemet orthopedist, in firm control of Integrated Healthcare Holdings Inc., which operates Western Medical Center – Santa Ana and three other hospitals. Chaudhuri already was the majority shareholder of financially troubled IHHI.
Backed by hedge fund Silver Point Partners, he paid $70 million for high-interest loans with a face value of $73.6 million. He upped his bid after U.S. District Judge David O. Carter pronounced his original $55 million bid a “windfall” and “unwholesome.”
The loans were made over the past five years by Tustin lender Medical Capital Holdings. The Securities and Exchange Commission sued MedCap for fraud last summer, and federal prosecutors have opened a criminal investigation into top executives Sidney M. Field and Joseph “Joey” Lampariello.
MedCap’s court-appointed receiver recommended selling the loans to raise cash for investors.
Chaudhuri beat out another medical entrepreneur with a stormy past, Prem Reddy of Prime Healthcare. Reddy also bid $70 million for IHHI’s debt but failed to post a cash guarantee early, as Carter had required.
IHHI attorney David Robinson told Carter that because of its heavy debts the company is “on a precipice. It is living literally day to day.”
Creditors seized equipment from the WestMed emergency room, though the hospital later got it back, and doctors and nurses weren’t paid on time, Robinson said.
As part of their purchase, Chaudhuri and Silver Point agreed to extend the loans for three years, until October 2013, giving IHHI time to refinance at a lower interest rate. They also will pump in $7 million to $10 million in cash, Robinson said.
Chaudhuri has been one of the most feared people in California medicine since the October 2000 bankruptcy of his company, KPC Medical Management. Its failure left 300,000 patients without care and, in many cases, without their medical records.
Four years later, when Chaudhuri led IHHI’s bid to buy four Orange County hospitals, local doctors protested and a state legislator intervened. He backed away, only to return when the small hospital chain asked him for money to pay its bills.
Chaudhuri said he had invested $15 million into IHHI before Friday’s loan purchase. That, he said, “is my incentive to save the hospitals.”
“When you fail, people say things,” Chaudhuri added. “But they’ll also appreciate it when I succeed.”
Former WestMed chief of staff Michael Fitzgibbons, who is suing IHHI for retaliation, said the return of Chaudhuri is “a black day for health care in Orange County. … We’re very concerned about what he potentially could do.”
Contact the writer: 714-796-5030 or rcampbell@ocregister.com
