Buckling under debt, Primedex plans chapter 11 filing.

A heavy debt burden--and bad luck--has caught up with Primedex Health Systems Inc.

The Los Angeles-based operator of 57 medical imaging facilities has announced its intention to file a Chapter 11, pre-packaged bankruptcy after defaulting June 30 on $16.3 million in convertible junior debt, according to a Securities and Exchange Commission filing.

The notes are just a small portion of the $123.5 million in long-term debt Primedex has rung up since the mid-1990s when it embarked on an ambitious expansion plan that has not exactly turned out as planned.

The latest centers, eight of which opened in the past 12 months, have failed to generate as much profit as expected, with the company losing $5.5 million in its last fiscal year while squeaking out a $701,000 profit in the quarter ended April 30.

Then, earlier this year, Southern Pacific Bank, which had granted the company a $22 million credit facility, was taken over and ordered liquidated by federal regulators who cut the credit line to $15 million and will be terminating it as of Dec. 31, according corporate counsel Jeffrey Linden.

"Where we thought we would have dollars to pay off those bonds, we did not have those dollars," Linden said.

The company got some good news this past month when more than half of the roughly 2,500 bond holders, accounting for more than two-thirds of the $16.3 million in junior debt, agreed to a plan that would relieve it of its immediate crashing debt burden.

That level of support would allow Primedex to file a Chapter 11 bankruptcy action with the sole purpose of altering the terms of the debt without the support of the rest of the bond holders, Linden said.

The plan calls for Primedex to extend the term of the debt to 2008, in exchange for raising the interest rate and lowering the conversion price to $2.50 from $12 in recognition that the stock is trading below $1.

The company is currently polling its bondholders again to make sure the support for its reorganization plan is solid. If the support holds up the company hopes to file its Chapter 11 papers soon and conclude the restructuring plan prior to Oct. 31, the end of its fiscal year.

Last Straw?

Considering the size of the state's budget deficit, it wouldn't seem that the 5 percent cut in Medi-Cal reimbursement rotes that the compromise budget plan imposed on doctors is all that unreasonable.

But if you talk to the California Medical Association, it just might be more than many doctors can bear.

Doctors have received only one hike in their Medi-Cal reimbursement rates in the last 18 years, so even before the latest cut California's rates ranked only 42nd out of 50 states. Now, doctors will receive only $22.80 for the average Medi-Cal office visit, and the state's ranking is likely to drop lower.

In a CMA survey last year, the association reported that 75 percent of doctors who responded vowed to reduce their Medi-Cal patients if there were any rate cuts, while 68 percent would not see new patients.

"The message we got from a few doctors is that this is the straw the broke the camel's back," said Heather Campbell, a CMA staff member.

Charity Giving

The final United Way figures are in, and Los Angeles did far better than much of the country. The local campaign raised $68 million, the target of the 2002-2003 campaign and about $2 million more than last year. The money supports healthcare agencies, social service programs and other non-profits.

The figures are all the more impressive because nationwide United Way contributions are down at least 2 percent amid the weak economy and many big cities saw larger declines, such as the 13 percent drop off in Houston.

Even so, local United Way officials say the Los Angeles campaign cannot make up for big losses in funding from government and other charities that area recipients are having to absorb.

DaVita Profits

DaVita Inc., the Torrance-based operator of kidney dialysis centers, is on a roll these days--but investors aren't sure what to make of it.

The company reported net income of $38.5 million for the second quarter ended June 30, more than four times higher than the $8.4 million recorded for the like period a year ago. Revenues, meanwhile, rose 11 percent, to $489.9 million.

DaVita beat Wall Street projections, citing increased business and higher charges. The company, which provides services at 539 outpatient centers, acquired 11 centers and opened eight new ones during the quarter while closing two.

Meanwhile, last month the company announced an agreement to buy 12 vascular access clinics from Baxter Healthcare Corp. and five more dialysis centers from Rockford Health System in Rockford, Ill.

However, DaVita shares fell more than $2 a share, to under $26, on news of the earnings report, before partially recovering last week. Analysts said investors were put off by company projections that operating income would likely remain flat for 2004, despite the addition of the new centers.

Growth Spurt 

The Institute for Healthcare Advancement, a 10-year-old medical education foundation and medical service provider, is ramping up.

The institute, which publishes a popular series of health literacy books, has purchased a new, 47,000 square foot headquarters building in La Habra after leasing a smaller space in Whittier for years. It runs a children's health clinic in La Habra has serves 8,000 patients annually, but has scored its biggest success with a push to increase health literacy.

Staff reporter Laurence Darmiento can be reached at [phone] ext. 237 or at [e-mail].