Vitamin C

Illustration by Bob AulConservatives envision a health-care system driven by the market—hospitals thrive as businesses, entrepreneurs are rewarded for risks, and patients are given the best care at the lowest cost. It's part of what George W. Bush has called “the ownership society.”

Bush might want to make sure the debate never centers on Dr. Kali P. Chaudhuri.

Chaudhuri is like the movie monster you can't kill. State regulators tried to keep the Bombay-raised physician turned real estate magnate out of a deal to purchase four OC hospitals, but documents reviewed by the Weekly show that Chaudhuri maintains a stake in the business—and could win big whether the hospitals thrive or die.

Controversy temporarily forced Chaudhuri out of Integrated Healthcare Holdings Inc. (IHHI) and its purchase of Western Medical Center Anaheim, Chapman Medical Center Orange, and Western Medical and Coastal Communities Hospital in Santa Ana. But state Senator Joe Dunn (D-Garden Grove) suggests Chaudhuri is still a major player in the company. “It is really creating a false impression to say [Chaudhuri] has no role in the company,” said Dunn. “Legally that is accurate, but not from a real-world perspective.”

Dunn's concerns about Chaudhuri's ties to the four OC hospitals stem from what the doctor did for his last company, KPC, which shares his initials. Five years ago, the doctor purchased dozens of Southern California medical clinics. Fourteen months later, as KPC began to hemorrhage cash, he closed their doors, stranding more than 250,000 patients, many without doctors or medical records.

Last year, when Chaudhuri helped form IHHI to purchase the hospitals, reaction in the medical community was immediate and hostile.

Dunn responded with January 2005 hearings in Anaheim and Sacramento. He took testimony from local doctors and regulators and demanded that IHHI dump Chaudhuri. They did. Or said they did. The company's federal disclosure filing with the Securities and Exchange Commission shows IHHI claimed a $16.4 million expense when it issued common stock warrants to Chaudhuri and his attorney, William Thomas.

The same document provides further evidence of Chaudhuri's involvement in IHHI: while Dunn and state regulators attempted to keep him out of the hospitals, they didn't keep him out of the real estate beneath the buildings. IHHI's SEC filing shows that Chaudhuri bought nearly half of the real estate under the hospitals with Anil Shah—IHHI's chairman of the board. Shah and Chaudhuri set up a separate company called Pacific Coast Holdings Investment LLC (PCHI). As IHHI's report says, “PCHI is a related party entity that is affiliated with the Company through common ownership and control.”

Despite owning 49 percent of the land beneath the hospitals and an option to buy up to 20 percent of IHHI, Chaudhuri maintains through his attorneys that he has no interest in IHHI. (His attorney failed to respond to written and telephoned requests for an interview with Chaudhuri.) Dunn isn't buying that and says he's considering a new round of hearings.

“IHHI's financial stability and the future of the hospitals is a public concern,” Dunn said. “But Dr. Chaudhuri is in a win-win position. If IHHI becomes successful, he has an option to become a majority stakeholder, and if it fails miserably, then he becomes a huge beneficiary in the closure of the hospital and the sale of the real estate. We should all wish we could be in that kind of position. One thing I gotta say about Dr. C is he's a smart businessman.”


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