Now With Less Chaudhuri!

Physician forced out of deal for three OC hospitals, still has mitts on one

Illustration by Bob AulCritics have called Dr. Kali P. Chaudhuria cancer. State Senator Joe Dunn is proving to be the cure—though, it should be noted, that Dunn hasn't actually cured cancer. That would be amazing.

Still, Dunn has accomplished something almost as amazing. He's restored faith in government.

Four years ago, Chaudhuri's KPC holding company shuttered 81 Southern California medical clinics it had purchased just a year before. The closures stranded 300,000 patients without care and, in many cases, without medical records. Insurers and doctors scrambled to pick up the pieces. Asked to account for the chain's assets, a bankruptcy judge said the money trail was too complicated to follow. The resulting charges of mismanagement, fraud and diversion of assets led to dozens of lawsuits and thousands of creditor claims against Chaudhuri and KPC, most of them unsatisfied to this day.

Then Chaudhuri emerged as the unlikely architect of a deal to buy four North County hospitals from the struggling Tenet Hospitals group.

The sale is proceeding—but now with less Chaudhuri.

Orange County physician Alil V. Shah, Integrated Healthcare Holdings Inc.'s (IHHI) principal investor, has taken over the deal. Shah and fellow investors bowed to pressure from doctors and Dunn (D-Santa Ana) to limit Chaudhuri's influence over the hospitals.

An attorney for IHHI insisted the new agreement would virtually eliminate Chaudhuri's role in operations at the hospitals—Western Medical Center of Santa Ana, Coastal Communities Hospital in Santa Ana, Chapman Hospital in Orange and Western Medical Center of Anaheim. But a federal Securities and Exchange Commission filing obtained by the Weekly indicates something different: Chaudhuri will own and operate Chapman Hospital.

The deal guarantees hospital staffs no fewer than three permanent seats on the governing boards of each hospital and prohibits Chaudhuri's control over contracts with outside services, vendors or suppliers. That concession ought to satisfy stakeholders who recall that Chaudhuri surrounded the KPC clinics with a string of outside suppliers he controlled—and then gave those suppliers preferential payment terms even as the clinics slipped into bankruptcy.

At a Jan. 20 state hearing Dunn convened in Anaheim, Chaudhuri said he would also agree to limit his investor involvement in IHHI to an option to buy 25 percent of the business after two years. But that doesn't mean the notorious Chaudhuri will be out of the picture. Besides acquiring outright ownership of Chapman Hospital, the new agreement allows him an option to buy a 49 percent interest in the real estate beneath the other three hospitals.

That makes his critics edgy. At Dunn's hearing, deputy director of the state Department of Managed Healthcare (DMHC) Bill Barcelona painted a stark picture of the KPC medical meltdown under Chaudhuri's management.

"Chaudhuri came in like a white knight . . . and then went out leaving a domino effect of clinic closings and more than $200 million in debt," he told state officials. "Whole medical groups ended up trashed like old used cars on the side of the road. It was total and complete chaos. The DMHC is concerned we will see a replay of what we saw happen to those clinics and, ultimately, the patients they serve."

The four hospitals being sold represent almost a quarter of the hospital-bed capacity in the county. Western Medical Center of Santa Ana—one of just three trauma centers in the county—is especially critical to the local health-care network. Under the new agreement, IHHI will be required to maintain trauma services at the facility for just two years, with a one-year notice of any scaling down or termination of such services.

Michael Fitzgibbons and Robert Steedman, respective past and present chiefs of staff of the trauma facility, have been critical of what they call Chaudhuri's "legacy of bankruptcy." Both were scheduled to speak at Dunn's hearing but, at the last minute, chose to do so only through the physicians' staff attorney, Tom Curtis.

Curtis told Dunn the doctors believe they face retribution from Chaudhuri.

"We understand other physicians were told by Chaudhuri they could be assured they would not be sued if they joined the Shah-Chaudhuri group and that it was 'probable' that Steedman and Fitzgibbons would be sued," Curtis told the senator.

The threat carries some weight. Several doctors say Chaudhuri has told them he "thrives on litigation." But in the newly minted deal, Chaudhuri agrees to "hold harmless" all parties to the agreement.

"This agreement we are signing assures everyone that no one will be suing anyone," Curtis said.

The deal's attributes—Chaudhuri's limited role in three other hospitals and the staff's strengthened role in hospital management at those three—come at a high price: Chaudhuri gets Chapman Hospital and immediate access to land.

When asked if the doctors were sacrificing Chapman Hospital, Curtis would say only that his doctors group was "withdrawing our concerns about the acquisition. We believe those concerns at this point have been appropriately addressed."

Chaudhuri assured Dunn that his intentions are pure, part of his effort to clear his name among those who would malign him. He said he has no intention of buying the land as a prelude to closing the hospitals. When Dunn asked about Chaudhuri's interest in the separate land purchase, Chaudhuri said simply—some might say ominously—"My interests are confidential. When the sale is complete, it will be made public."

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