UNION — The Union Hospital District is moving forward with a bankruptcy process that could help it pay off its debts while continuing to provide health care services to the people of Union County.
On June 6, the district filed a Chapter 9 bankruptcy petition in order to seek an “adjustment” of the debts of the the district and its four service areas — Wallace Thomson Hospital, Ellen Sager Nursing Homes, Carolinas Health Associates, and Union County EMS — under the supervision of the Bankruptcy Court.”
Most of the $18 million-$20 million in debt, which the district had accumulated over the past five years, is owed to vendors, a number of whom the district no longer does business with because it brought those services in-house in an effort to reduce costs.
When the district filed the Chapter 9 bankruptcy petition, CEO Paul Newhouse said the district hoped to settle those debts during the bankruptcy process through a combination of negotiations and restructuring.
On Friday, Newhouse discussed the bankruptcy process and the circumstances that lead to the district filing the Chapter 9 petition and how the process is proceeding.
Newhouse began by pointing out that Chapter 9 bankruptcy is a lesser known form of bankruptcy specifically designed for municipalities, a category that includes not only cities and towns, but also counties, municipal utilities, and school districts. He pointed out that the Bankruptcy Code defines a municipality as a “political subdivision or public agency or instrumentality of a State.”
“We are a political subdivision created by the state,” Newhouse said. “That puts us under the Chapter 9 umbrella.”
Newhouse also pointed out that Chapter 9 enables political subdivisions such as the hospital district to reorganize their debt by extending the time period during which they have to be paid; refinancing the debt; or reducing the principle or interest on those existing debts. The assets of a political subdivision are not liquidated under Chapter 9.
Initially, Newhouse said the district was working to deal with its debt situation through affiliation with another health care organization.
“We had for the past year been negotiating with the vendors,” Newhouse said. “A part of that discussion was that we were talking with other health care systems about an affiliation. The hope was that those debts would be off if we affiliated with someone.”
Newhouse said the district had hoped to have an affiliation agreement in place by the beginning of this year, but learned in May that the organizations they’d been in communication with were not prepared to move forward with affiliation at the present time.
After learning of this, Newhouse said the district contacted its major vendors to inform them of the situation and the district’s response to it. Newhouse said this took the form of a conference call with the attorneys representing the vendors. He said that during the call the attorneys were told of the district’s continuing efforts to develop a reorganization/restructuring plan that would help deal with the debt. The attorneys responded that they could not commit to that plan without first contacting their clients.
Newhouse said that shortly after this one of the vendors decided to go ahead and file a judgment suit against the district.
It was at that point that the district’s attorney advised the district to file Chapter 9 in order to prevent that vendor’s judgment suit and to prevent other vendors from doing the same. Newhouse said the attorney said that in situations like this when one creditor files a judgment suit, other creditors will then do the same, creating a piling on effect that could prove extremely costly to the object of that suit.
“It needed to be filed for protection from litigation by some of the creditors,” Newhouse said. “It also give us extra time to work on the plan to adjust that debt.”
Newhouse said that under the rules governing Chapter 9, before they can file for bankruptcy, the debtor is required to attempt to negotiate with its creditors. He said the district had been negotiating with its creditors for the past several years, a process that included making payments when possible as well as attempting to restructure the debt. When, however, one of the vendors chose to file a judgment suit, Newhouse said the district had no choice but file for Chapter 9 bankruptcy.
With the filing of Chapter 9, Newhouse said all the debt the district owed as of June 6 “is put on hold,” while the district goes through the bankruptcy process.
The district, including Wallace Thomson, Ellen Sagar, EMS, and Carolinas Health Associates has continued to operate since that time, including do business with its vendors. Newhouse said while the debt the district had accumulated up until June 6 is on hold, the costs it has incurred since then are being paid and the vendors kept informed of the district’s efforts to reorganize and restructure as part of the bankruptcy process.
Even as it goes through bankruptcy proceedings, Newhouse said the district is still delivering health care services to the community as it did before June 6.
“We have not reduced any staff involved in treating patients,” Newhouse said. “Any and all reductions in personnel have been made in administrative staff or those not directly involved in patient care. Staffing is at the same level it has been for the past 15 years. We still have the same nurse to patient ratio.”
Newhouse said he expects the Chapter 9 process to take several months as the district, working with its attorney, reviews and analyzes all contracts with its vendors to determine what can be renegotiated as part of the development of a reorganization/restructuring plan that can be presented to the court. He said the district had its first meeting with the judge presiding over the case in Spartanburg this past Wednesday during which he and other representatives of the district explained its history over the past few years including changes in health care and their impact on its finances.
The hearing went well according to Newhouse who said the judge stated that he understood the importance of the district in providing health care to the community and that he wanted to help them work through the reorganization/restructuring process.
“It was a good start,” Newhouse said.
Newhouse added that if successful, the reorganization/restructuring plan it is developing will not only enable it to pay off its debts to the satisfaction of its creditors, but make it a more efficient organization that will be more attractive to other health care systems. This in turn would increase the likelihood of the district affiliating with one of those systems in the future.