Isle medical center in Chapter 11
The reorganization filing is aimed at avoiding a liquidity crisis for two hospitals
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Hawaii Medical Center LLC is seeking bankruptcy protection to buy time to reverse money-losing operations inherited when it purchased the former St. Francis Medical Centers.
HMC filed for Chapter 11 bankruptcy reorganization yesterday to prevent the closure of its two hospitals, HMC-East in Liliha and HMC-West in Ewa Beach. Operations are expected to remain unchanged.
The filings were prompted by the refusal of Siemens Finance to extend an existing agreement on a revolving loan through accounts receivable totaling $5.5 million, the company said.
The state's only physician-owned, for-profit hospitals are negotiating with other lenders to purchase part of their accounts receivable and also are leasing space to have sufficient cash flow while in bankruptcy.
The company expects to emerge from bankruptcy in four to eight months.
UNDER THE WEATHER
A glance at Hawaii Medical Center LLC:
Owners: CHA Hawaii, an affiliate of Cardiovascular Hospitals of America, 54 percent; more than 130 Hawaii-based physicians who form Hawaii Physician Group LLC, 45 percent; St. Francis Healthcare System of Hawaii, 1 percent
Hospitals: HMC-East in Liliha and HMC-West in Ewa Beach
Purchase price: $67.9 million from St. Francis Healthcare System of Hawaii
in January 2007
Combined beds: 342
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Hawaii Medical Center LLC filed for bankruptcy yesterday after one of its lenders threatened to freeze operating cash needed to keep its two hospitals open.
HAWAII MEDICAL CENTER
Estimated assets: $50 million to $60 million
Estimated liabilities: $10 million to $50 million, including $40 million in infrastructure costs and $5 million to $6 million in receivable loans
Largest unsecured creditors: Clinical Laboratories of Hawaii, Ewa Beach, $3.9 million; Organ Donor Center of Hawaii, Honolulu, $792,000; SBM Site Services, McClellan, Calif., $723,391; Cerner Corp., Kansas City, Mo., $450,631; Sodexho Inc. and affiliates, Honolulu, $399,949
The former St. Francis Medical Centers, which have 930 total employees, said the Chapter 11 bankruptcy reorganization buys time to turn around finances and prevent the closure of the two hospitals, HMC-East in Liliha and HMC-West in Ewa Beach. Operations are expected to remain unchanged during bankruptcy, HMC said.
The filings were prompted by the refusal of Siemens Finance to extend an existing agreement on a revolving loan through accounts receivable totaling $5.5 million because of the tight credit markets and HMC's failure to meet certain liquidity requirements, the company said.
"We faced the threat that our lenders would freeze our cash, creating a liquidity crisis that would force the hospitals to shut down," said Danelo Canete, HMC's chief executive officer. "These filings will permit us to continue to serve our patients as usual while we remain on the path to financial stability."
The state's only physician-owned, for-profit hospitals, with a combined 342 beds, are negotiating with other lenders to purchase part of their accounts receivable and also are leasing space to have sufficient cash flow to meet their obligations.
The company said its liabilities total between $10 million and $50 million, while assets amount to between $50 million and $60 million.
The bankruptcy, filed in Delaware, came as a surprise to HMC's largest lender, St. Francis Healthcare System.
"No one wants to see any health care organization in trouble, especially the patients and others in the community who count on the health care services provided by these hospitals," said Sister Agnelle Ching, St. Francis' CEO.
St. Francis has been deferring HMC's principal payments on its loan over the past few months, Ching said. The deal requires HMC to pay St. Francis $342,000 a month, according to state records.
Employees were also shocked and concerned about the continuity of patient care, given the recent changes in personnel and financial hardships facing the hospitals.
"I know everybody's going to be panicking, saying, 'What's going on?' because they never tell us what's happening," said a longtime nurse at HMC-East who asked not to be identified.
HMC, whose hospitals are between 40 percent and 50 percent full, expects to increase that to between 75 percent and 85 percent in the next four to eight months to stabilize finances, said medical-finance expert Salim Hasham, HMC's director of implementation, who was brought on board in April to turn around operations.
Boosting physician referrals at the financially troubled medical center is key to the success of the company's business model, Hasham said.
The company has a structured turnaround plan, including breaking even in a year and generating between $10 million and $12 million to bring finances into the black in two years, Hasham said.
HMC, a partnership of CHA Hawaii, an affiliate of Cardiovascular Hospitals of America, and more than 130 Hawaii-based doctors under Hawaii Physician Group LLC, inherited money-losing operations when it acquired the former St. Francis facilities for $67.9 million in January 2007. At the time, the company's initial restructuring led to layoffs of nearly 150 employees out of a 1,250-member work force.
HMC said earlier this month that it would cut at least 80 employees, or nearly 10 percent of its work force, to bring staffing levels into balance with the number of patients at the hospitals, just two months after outsourcing back-office operations, which resulted in 89 layoffs.
The company does not anticipate further layoffs at this point, Hasham said.
The hospitals have enough cash to meet their employee obligations and plan to keep wages and benefits the same. HMC also plans to sell its accounts receivable to pay its vendors and other unsecured creditors, the largest of which is Clinical Laboratories of Hawaii, which is owed $3.9 million.
However, the company has been unable to increase higher-paying private insurance referrals from specialists and primary-care physicians as quickly as the group expected. About 70 percent to 75 percent of patients are covered under lower-paying Medicare and Medicaid, HMC said.