Purchaser says it will upgrade Valley hospital.

No change in hospital management or layoff of any employees is expected with the sale of Sherman Oaks Hospital, home of the world-renowned Grossman Burn Center, to Victorville-based Prime Health care Services.

Hospital officials would not disclose the sale price. Prime said that it would be spending at least $50 million to make facility improvements including seismic upgrades and increase the number of hospital beds.

One of very few stand-alone community hospitals in the Valley, Sherman Oaks Hospital struggled to stay open while trying to pay off millions of dollars in debt and deal with lower Medi-Cal reimbursements and higher workers' compensation rates.

"It has been well known that the hospital was seeking financing, we realized that the hospital is full, our census is very high," said chief executive officer David Levinsohn. "We developed a strategic plan (for expansion) but we realized that it would cost a substantial amount of money to complete it."

Its search for funding led the hospital to Prime, which built and opened Desert Valley Hospital in Victorville in 1997 and recently purchased Chino Valley Medical Center after that hospital filed for bankruptcy protection in 2004.

"This assures that Sherman Oaks Hospital will be here for the long-term," said Levinsohn. "We'll be able expand our services, we'll be able to provide what we previously intended which is an expanded emergency room, which is a badly needed resource in the Valley."

Sherman Oaks Hospital is a not-for-profit facility, which means the sale will be subject to approval by the Attorney General. Prime's Chairman Prem Reddy detailed its plans for the hospital in a letter to the Attorney General dated October 5.

Prime plans to pay off a bond debt owed to Cal Mortgage that is substantially more than the worth of the hospital and pay down additional debt. It also plans facility improvements and retrofitting in order to bring the facility in line with state seismic requirements. Prime will purchase new equipment, expand the number of acute care beds, expand the emergency department and improve the hospital's accounting and billing systems. The hospital will need a capital infusion of over $50 million to make those improvements, the Reddy said in his letter.

Sherman Oaks Hospital is a 150-bed facility staffed by 500 professional and support staff including 400 physicians. It also includes the 30-bed Grossman Burn Center, which has earned an international reputation.

Reddy noted that hospitals across the country have struggled to stay open while medical costs have gone up and reimbursement from many government health plans have gone down. In the Valley, Granada Hills Hospital closed in 2003 and Northridge Hospital Sherman Way shut its doors permanently in 2004.

Tenet hospitals has been forced to put a number of its California hospitals on the market. Encino Tarzana Regional Medical Center remains one of the last Tenet hospitals still on the market.

These closures have only increased the pressure on neighboring hospitals--Sherman Oaks Hospitals and others have been forced at times to shut down emergency rooms because of over-crowding.

Prime added in its proposal to the Attorney General's office that it has been able to improve emergency department operations at Desert Valley Hospital and Chino Valley Medical Center by adding staff and expanding facilities. The emergency departments at both hospitals are overcrowded for fewer hours than any other hospitals in the Inland Empire or across Southern California, Prime said.

Levinsohn said that Prime's size would only help the company negotiate better rates with insurance companies, a sentiment that Reddy echoed in his letter.

"Given the current financial distress of Sherman Oaks Hospital, Prime believes that its economies of scale and proven operational successes will be instrumental in the turn around of the operations of the hospital," he said.