Lender bankruptcy prompts two local hospitals to seek Chapter 11. (Up Front).

Two local hospitals were dragged into bankruptcy and another was considering its options last week after a key lender, National Century Financial Enterprises Inc., filed for bankruptcy protection itself amid questions over potential financial irregularities.

Lincoln Hospital Medical Center in Los Angeles and Pacifica Hospital of the Valley in Sun Valley both sought Chapter 11 protection, while 145-bed Granada Hills Community Hospital officials were expected to make a decision on their course of action in a matter of days.

"We are looking at several different strategic approaches," said Tom Wallace, chief executive of Granada Hills.

National Century is a factoring company that purchases receivables from health care providers at a discount, giving them a steady source of cash. However, that funding dried up as National Century's troubles mounted.

The company filed for Chapter 11 on Nov. 18, days after the FBI raided its Dublin, Ohio, headquarters amid concerns that National Century had depleted reserves that backed $3 billion in bonds the company had issued for its own funding.

That day, Lincoln Hospital Medical Center, a 47-bed hospital, declared bankruptcy, while two days later Doctors Community Healthcare Corp., the Scottsdale, Ariz. owner of 242-bed Pacifica, declared bankruptcy.

Also seeking bankruptcy protection last week were medical care providers in San Diego, North Carolina and Massachusetts.

Officials with Lincoln Hospital did not return calls for comment, while Doctors Community issued a statement that operations at Pacifica and its other four hospitals would continue normally while it reorganized.

Wallace said Granada Hills got its first indication of problems when National Century stopped paying for receivables in late October.

Since then the company has told private health insurers and the government's Medi-Cal and Medicare programs to pay the hospital directly. Funds have started flowing again, but he conceded that the facility had lost a "significant amount of money" in the interim.

"It was totally unexpected," said Wallace, who maintained that the hospital was still operating normally despite the shortfall in cash.

The problems at National Century come as a particular blow to Granada Hills since it had been having other financial troubles and had just changed ownership in a bid to improve its access to capital.

In addition, earlier this year it entered into a contract with Doctors Community to have the company, whose Pacifica hospital is nearby, help it manage the hospital. Wallace said that management relationship is ongoing despite the Scottsdale firm's Chapter 11 filing.

The fallout from National Century also spread to the financially ailing Los Angeles County Department of Health, which had been in discussions with Doctors Community about privatizing parts of the county public health system.

Doctors Community through an affiliated company operates the Washington D.C. public health care system, where it also owns two hospitals. Its Chapter 11 filing has riled public health care advocates in the district, who had opposed the privatization move from the start.

John Wallace, a spokesman for the Los Angeles County health department, said officials were keeping any eye on the situation but he noted that the county's discussions with Doctors Community only had been preliminary.