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Hillsboro operator execs explain bankruptcy

Staff writer

Senior executives of HMC/CAH, operators of Hillsboro Community Hospital, came to Hillsboro on Friday to answer questions and dispel rumors surrounding the company’s chapter 11 bankruptcy in a community forum at the hospital.

“Everybody hates to hear that term ‘bankruptcy — it’s not a friendly term — because when you hear bankruptcy all you think about is chapter 7 and dissolution,” Bill May, HMC/CAH vice-president of operations, said.

“That’s not what we’re doing — we’re not dissolving the company. We’re reorganizing the company to be better than we are today and being able to pay our own bills for the first time in a long time,” May said. “We didn’t have a lot of choice, things being like they were, so we had to do something.”

HMC/CAH filed for chapter 11 protection Oct. 11 as a result of a failed financial agreement with High Point Capital of Phoenix, Ariz., that was to fund 10 hospital construction projects, including a new hospital in Hillsboro.

“Our priority is that there is health care in Hillsboro. Overall our goal is to make sure there is health care in the community, and a new facility,” May said

High Point had committed to loan $31 million to HMC/CAH for the hospital projects, but only provided $14 million, according to Trent Skaggs, senior vice president of strategic planning and corporate compliance.

“In January this year we got a call from them saying they were out of money, they weren’t going to fund any further,” May said. “Because of the inability or unwillingness of High Point to go ahead and fund these for us, we have not been able to materialize what we could do in a new hospital.”

Subsequent negotiations between HMC/CAH and High Point were unproductive, and in July HMC/CAH filed a lawsuit against the lender, an action which had repercussions for HMC/CAH’s relationship with a second financial resource, Gemino Healthcare Finance of Philadelphia, Penn.

Gemino provides a line of credit to HMC/CAH to facilitate cash flow to fund daily operations of the hospital system, May explained. When HMC/CAH filed suit against High Point, Gemino modified its agreement in a manner that proved detrimental to HMC/CAH’s operational needs.

“They took our line of credit and trimmed it by 20 percent, and they also took the 58 percent they were going to advance us every week and kicked that down to 42 percent,” May said.

“So on $900,000 of collections last week, we got $47,000 from them. Having 12 hospitals and 1,100 employees in five states, you can’t run operations on $47,000,” May concluded. “We couldn’t keep operating with the limited amount of funds we had coming in on a weekly basis and keep the boats afloat.”

The alternatives for HCM/CAH senior executives were limited and clear when they met to discuss options Oct. 6 and 7.

“We have two choices — we can close hospitals, or we can file chapter 11 bankruptcy,” May said.

HCM/CAH chose the latter, and May emphasized the benefit of reorganizing under chapter 11 protections for HCH and the greater hospital system.

“We have been out and about since then talking to groups like you all, talking with our employees, talking with our medical staff trying to assure them we are going to be a stronger, sounder company when we come out of this in nine to 15 months than we are today,” May said. “We’re going to take that money that these hospitals make for us collectively and we’re going to be able to manage that out of the Kansas City office and these guys will have their bills paid real time.”

“It’s a vital community interest,” May said regarding HCH. “We have close to 50 employees here. For you to lose 45 to 50 jobs is not acceptable. So it is in everybody’s interest to keep this facility going.”

HCM/CAH has 60 days to file their formal reorganization plan with the Western Missouri District of the U.S. Bankruptcy Court, so details regarding future hospital construction for Hillsboro have yet to be worked out.

Skaggs said the financial performance of HCH in recent years is a cause for optimism in obtaining new financial backing for the project.

“This year, Hillsboro, just as a stand-alone hospital, had a positive bottom line, and the last several years they have,” Skaggs said. “If you just take Hillsboro out by itself and look at it, it has fairly consistently over time had positive net income year after year. That’s what the bank is also going to want to look at.”

Settlement of the lawsuit against High Point will be part of the bankruptcy plan, clearing the way for HMC/CAH to use its assets as collateral for pursuing new lending partners much sooner than the two to four years it would have taken to resolve the case in court.

“If there’s anything good that happens under reorganization, it’s that under bankruptcy we’re able to take that first position back, which makes it a lot easier for us to attract some of those banks and institutions,” Skaggs said.

Increased patient load, technology enhancements, and aggressive cost containment measures, including staff realignment, have improved system-wide efficiency and contribute positively to the prospect of successfully emerging from chapter 11 reorganization in nine to 12 months, May said.

Recruitment of medical staff will continue to be a top priority during reorganization, May indicated.

“We’ve not stopped recruiting, we’re going to continue to recruit,” May said. “We’ve lost 75 percent of our medical staff here.

“You heard me say earlier the worst thing that could happen to us even before all this happened was to lose medical staff. When you lose 75 percent of your medical staff it gets our attention pretty quickly.”

A physician completing a residency in Wichita signed a letter of intent Thursday to start at HCH in January, although a formal employment agreement has yet to be signed, according to May. He said HMC/CAH hopes to have a full complement of four physicians in place by the first of the year.

HMC/CAH is seeking designation as a rural health clinic, and negotiating with Via Christi to use the former clinic operator’s status to qualify for higher reimbursement rates that will improve the bottom line at HCH.

Skaggs addressed the confusion and concern in the community resulting from the bankruptcy filing.

“We recognize that this is your hospital, this is your community – people are going to ask you about this. Any stress that we’ve caused you in that respect, we apologize,” Skaggs said.

Last modified Oct. 20, 2011

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