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Tuesday, July 29, 2014         

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Medical center confronts Chapter 11

The bankruptcy would be the operation's second since it was bought in January 2007

By Kristen Consillio

POSTED:


The operator of the former St. Francis Medical Centers is once again teetering on the brink of bankruptcy.

Hawaii Medical Center's nine-member board of directors is scheduled to meet tomorrow to decide the fate of the Li­liha and Ewa hospitals just eight months after HMC emerged from Chapter 11 reorganization.

The board will likely approve a second Chapter 11 filing, which could come as soon as next week, according to sources involved in the matter who requested anonymity because the board has not yet voted.

As part of a bankruptcy, HMC would relinquish ownership of the hospitals to lender and former owner St. Francis Healthcare System of Hawaii, the sources said. It would then be up to St. Francis to reorganize the hospitals and bring them out of bankruptcy.

Salim Hasham, chief executive officer of HMC, did not comment when asked about a second bankruptcy.

At stake is access to health care for a largely indigent and elderly population that relies on the medical centers for essential and specialty services such as renal, transplant and cardiac care.

"The odds on a second Chapter 11 is like second marriages; it becomes much less likely to succeed," said David Farmer, a Hono­lulu bankruptcy trustee.

HAWAII MEDICAL CENTER FACTS

>> Hawaii Medical Center-East, opened in 1927, in Liliha
>> Hawaii Medical Center-West, opened in 1990, in Ewa Beach
>> Last sold: January 2007
>> First bankruptcy: August 2008
>> Emerged from bankruptcy: August 2010
>> Specialties: Renal services, organ transplants, skilled nursing

HMC announced plans last month for St. Francis to assume managerial control of the hospitals, according to Kris Tana­hara, HMC spokes­woman.

St. Francis exited the acute care business when it sold its two medical centers in January 2007 for $68 million to HMC LLC, a joint venture between Hawaii Physician Group LLC, comprised of local doctors, and Kansas-based Cardiovascular Hospitals of America.

At the time, St. Francis said it would use the proceeds from the sale to better fulfill its mission of caring for Hawaii's growing senior and poor population through hospice and other proj­ects. The Roman Catholic religious order provided the bulk of the financing for the sale — $40.2 million — and is HMC's main creditor.

St. Francis has said that HMC's inability to repay its loan has thwarted its expansion proj­ects, which include a rental complex for low-income seniors at Ewa Villages.

HMC's financial difficulties also have hurt at least 125 doctors who invested between $10,000 and $400,000 in cash, according to Danelo Canete, HMC's former president and chief executive officer from 2007 to 2009.

"We lost all of it, every single dollar," he said of the physician investors. "It's a lot of heartache."

The total investment between CHA and the local doctors was about $10 million, Canete said.

HMC was forced into bankruptcy in August 2008, a little more than a year and a half after acquiring the hospitals, when lender Sie­mens Finance refused to extend existing loan agreements, threatening the shutdown of the hospitals, HMC said last year.

Shortly after acquiring the hospitals, HMC, initially a physician-owned, for-profit company, cut its 1,250-member work force by 150 employees.

It later laid off at least 80 additional workers and outsourced back-office operations, resulting in another 89 layoffs.

This was in an effort, HMC said at the time, to streamline operations and turn the corner to profitability.

But that never happened.

HMC, which became a nonprofit entity when it emerged from bankruptcy, failed to gain enough support from Oahu's independent physicians, whose referrals are a significant source of revenue.

The company was also hoping to increase referrals for higher-priced procedures — a critical piece in reversing money-losing operations — and increase the number of patients with commercial health insurance to offset the large population covered by Medicare and Medicaid, whose reimbursement rates are significantly lower.

When it came out of its first bankruptcy in August, HMC's court-approved plan required the company to pay $46 million owed to St. Francis over seven years and $21 million to unsecured creditors over 14 years.

Farmer, the bankruptcy trustee, said HMC might cease to exist after a bankruptcy.

"Increasingly, a Chapter 11 has moved into the sale of assets as the endgame," he said. "It's a sale free and clear of liens and encumbrances and leaves a shell behind while a new buyer continues in business. In this case that would be St. Francis. As far as the old entity (HMC), it just withers and dies and goes away."






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