Hawaii Medical Center will become a nonprofit organization after a U.S. Bankruptcy Court judge confirmed a reorganization plan for the two hospitals yesterday.

Current owner CHA Hawaii will no longer have a stake in the hospitals located in the Ewa Beach and Liliha areas. Instead, the hospitals will be run by a nine-member board of directors.

In confirming the plan, which took almost two years to iron out, Bankruptcy Judge Robert Faris said in a hearing yesterday that it is “;good news for the community.”;

The plan won a thumbs-up from officials of the hospitals' former owner and the largest creditor in the case, St. Francis Healthcare System of Hawaii, which is owed more than $46 million.

“;We are pleased with the outcome,”; said Jerry Correa, chief administrative officer for St. Francis. “;With a community board and the company being not-for-profit, it's going to be a locally run system.”;

The plan would honor all collective bargaining agreements with the unions, which objected to the plan fearing that the agreements would be nullified.

Hawaii Medical Center will pay St. Francis in seven years, paid semiannually with 8.04 percent interest. The plan calls for a 10.04 percent interest rate if HMC defaults on payments.

“;It is a great thing to have St. Francis on board,”; said Salim Hasham, HMC's chief operating and restructuring officer. “;We'll work closely with them; they'll be on our board. They have a great franchise in the community.”;

Hawaii Medical Center also may require exit financing to leave bankruptcy. Hasham said that could cost between $10 million and $12 million.

“;Once we exit, a lot of the costs that we are incurring right now, like excise taxes, will go away,”; Hasham said. “;We will be extremely well placed to move forward.”;

Attaining nonprofit status comes with tax exemptions, and relieves the hospitals of up to $6 million in taxes paid annually. That figure includes general excise and property taxes.

The board of directors will be made up of three members from the Hawaii Physician Group LLC, one from the creditors committee, three from the St. Francis system and two at-large members.

“;Everything gets reconstituted,”; Hasham said.

Badr Ibdeis, chairman and chief executive officer of CHA Hawaii, filed a letter Monday opposing the reorganization plan, alleging a “;misrepresentation”; of the company's interests in court. CHA Hawaii stakeholders did not agree to converting to a nonprofit.

“;Without the vote of CHA Hawaii, a majority member of HMC, it would appear that the plan of conversion could not be implemented, and without the plan of conversion to nonprofit, the new plan of reorganization is lacking in foundation,”; Ibdeis wrote.

Faris rejected the letter, stating that it was filed late in the process and that CHA Hawaii had no representation in court. Also, confirming a reorganization plan did not need CHA Hawaii's approval since the debtors and creditors all agreed to the plan.

“;Shareholding gets terminated, so it's to be expected that shareholders would reject the plan,”; Hasham said. “;Some shareholders have elected to object, but it's not a major issue.”;

Reorganization is expected to begin July 1, including repaying back about $1.7 million in cash collateral. Should there be any delays, the St. Francis reorganization plan is still on the table for consideration.

St. Francis' plan seeks regaining ownership of the two hospitals, as well as promissory notes from HMC that would mature in 10 years.

“;Our plan is still a backstop,”; Correa said.

St. Francis sold Hawaii Medical Center for $67.9 million in January 2007. In August 2008, HMC filed for Chapter 11 bankruptcy after suffering operating losses of about $21.8 million since its purchase.

CHA Hawaii, whose parent is Cardiovascular Hospitals of America LLC, owns 54 percent of HMC, while Hawaii Physician Group, consisting of 130 local doctors, owns 45 percent. St. Francis owns 1 percent.

HMC currently employs about 700 people, and Hasham said there should be no changes to operations and management. The hospitals have become profitable, and Hasham said the company should remain sustainable as a nonprofit.

“;Our attention has been distracted for a while,”; Hasham said. “;Now we can get back on track and start working on operations, put all our cash resources back into the hospital. So all it really does is improve quality of care.”;