Sunday Focus: Judge to determine fate of Miss-Lou health care Monday
Published 12:04 am Sunday, September 28, 2014
NATCHEZ — Six months after filing bankruptcy and more than 54 years after opening its doors, Natchez Regional Medical Center’s future will rest in one man’s hands Monday — but the saga for hospital creditors will linger for years.
U.S. Bankruptcy Court chief judge for the Southern District of Mississippi, the Honorable Neil P. Olack will preside over a confirmation hearing beginning at 9 a.m. at the U.S. Courthouse on Pearl Street in Natchez.
For creditors the bankrupt hospital still owes, repayment may still be up to two years away and even then may only repay half of what is due.
The fate of hundreds of employees remains uncertain as questions loom over how much the new owners will downsize the staff — and when.
County taxpayers will be on the hook to repay a $3 million loan with their tax dollars if the deal sours in the next two years.
Much on the line
Monday’s hearing will determine the fate of many things, including whether or not the hospital continues to operate.
“I think it’s got to be sold at this point,” said Natchez bankruptcy attorney Jack Lazarus, who was hired to represent Adams County’s interests. “If it were not to be sold, in my opinion, Regional would close and the buyer would walk away.”
The judge’s role Monday is fairly straightforward, Lazarus said.
“He’ll be deciding whether or not the plan as proposed, meets all the requirements of the bankruptcy laws and whether or not the creditors are being treated fairly,” Lazarus said.
Lazarus said Olack has been fair but firm in the bankruptcy proceedings to date.
“He’s not going to put up with any foolishness. I expect him to approve it, but to approve it somewhat reluctantly.”
Lazarus said the bankruptcy plan wasn’t ideal but was the best possible plan given the financial instability of the hospital.
“The secured creditors are going to be paid, but the unsecured creditors, the employees will be left — and that includes Adams County — to be paid out of what is left,” Lazarus said. “The last payment isn’t to be paid until 2016.”
Long road
Natchez Regional filed a Chapter 9 bankruptcy in March after several months of attempting to woo a buyer.
Initially, hospital leaders worked to find a non-profit suitor for the hospital but failed to do so before the hospital’s failing finances caused it to file for bankruptcy.
Earlier this month, Community Health Systems, based in Franklin, Tenn., agreed to purchase the hospital, pending approval of the bankruptcy court.
CHS owns cross-town rival hospital Natchez Community Hospital and was the lone bidder in a convoluted sales process that began more than a year ago.
CHS has agreed to pay $10 million in cash for the hospital, plus an additional $8 million in prepaid property taxes.
The purchase price doesn’t cover all of the hospital’s existing debts and potential future debts.
Court documents filed as part of the bankruptcy proceedings show the hospital and its medical foundation collectively had a net loss of nearly $4 million from Oct. 1, 2013, through June 30, 2014.
Creditor concerns
The unsecured creditors — including Adams County taxpayers — will be repaid over the next two years out of any funds left.
Documents filed late last week with the bankruptcy court suggest unsecured creditors will be repaid approximately 58 cents for each dollar owed by Sept. 30, 2016, if the hospital’s plan goes exactly as suggested.
Earlier this month, members of the Adams County Board of Supervisors agreed to borrow $3 million from Regions Bank to help cover the cost of paying off one of the hospital’s secured loans to United Mississippi Bank and other closing shortfalls.
In addition, CHS required the hospital to set aside a $4 million escrow account for two years to cover any potential liabilities that arise after the sale.
The escrow fund will be released after two years and whatever remains will pay unsecured creditors.
If the escrow amount remains at $4 million for two years, the $3 million loan Adams County made to provide the cash needed to make the sale possible would be repaid to the county.
That, along with the hospital’s accounts receivable for health care services provided — listed last week as being $4.18 million — should, the bankruptcy plan stipulates, generate enough surplus cash to pay $2.86 million of the $4.89 million in unsecured debt the hospital owed before the bankruptcy was filed.
After the sale
If the hospital’s sale goes through as planned its interests transfer to a liquidation trust created by the bankruptcy court.
The liquidation trust will disburse the remaining accounts receivable as they are collected over the next two years to unsecured creditors.
What happens beyond the bankruptcy is anyone’s guess.
Several people close to the bankruptcy suggest additional legal actions may occur as unsecured creditors seek to further recoup what is owed to them.
Interestingly, the bankruptcy plan specifically reserves the right of the hospital and the liquidation trust to potentially pursue future legal claims against the following:
– The BP Deepwater Horizon Economic and Property Settlement Business Economic Development Loss Claim.
– The Centers for Medicare and Medicaid Services for possible claims CMS improperly charged the hospital due to audits by the Recovery Audit Contractors. The hospital disputes the $2.4 million in RAC recoveries charged to the hospital.
– The University of Mississippi Medical Center as a result of overcharges Natchez Regional believes existed which may total up to $600,000.
– Members of the hospital’s board of trustees and the officers of the hospital, based on their alleged mismanagement of the operations and finances.
– The Horne CPA firm which provided accounting services to the hospital. Bankruptcy documents alleged Horne “failed to appropriately monitor the financial affairs of the hospital.”
Attorneys for the hospital hope Olack approves the hospital’s bankruptcy repayment plan at Monday’s hearing, allowing the sale to CHS to close at 11:59 p.m. Tuesday.
If judge Olack confirms the hospital’s plan, CHS will take over operations of the hospital Oct. 1.
If Olack opted not to confirm the plan, the hospital could either close or seek to have the bankruptcy dismissed and attempt to be sold outside of bankruptcy.
“This deal Monday has got to go through,” Lazarus said.