Hospitals file for Chapter 9 bankruptcy

By: CHRIS BAGLEY - Staff Writer
With reprieve from payments, managers plan to retool | Friday, December 14, 2007 10:29 AM PST ∞

The public health care district that owns hospitals in Sun City and Hemet began bankruptcy proceedings Thursday morning, a move that managers said would allow breathing room while seeking to reverse a flow of red ink.

The Valley Health Systems district filed its Chapter 9 petition in the Riverside branch of the U.S Bankruptcy Court for the Central District of California, an act that allows its hospitals to delay payments to hundreds or even thousands of creditors.

If the court ultimately approves a reorganization plan, the hospitals would pay some portion of the debt and discharge the remainder. The district has more than $100 million in liabilities, including both long-term bonds and payments due immediately to suppliers, employees and physicians, according to its filing.

"At the moment, the district is losing money," said Gary Klausner, an attorney whose firm was hired to handle the bankruptcy process. "It is losing money at a significant rate. The goal of this process is to develop a business plan so as to return to profitability. In the meantime ... it's more or less business as usual."

Managers said a break from payment obligations should allow them a bit of extra cash to invest in new equipment and recruit doctors.

In contrast to bankruptcies filed under Chapter 7 of the U.S. Bankruptcy Code, which can involve liquidation of assets, and Chapter 11, in which an outside trustee oversees the organization's restructuring, Chapter 9 bankruptcies allow cities, hospital districts and other public entities to maintain a measure of control.

Chuck Axelrod, another attorney with the firm, Stutman, Treister and Glatt, said he expects a judge to act on the petition in January or February. If its petition is rejected, the district would be back to square one, minus a few hundred thousand dollars, attorneys said. Otherwise, the district could emerge from the process in a year or two, Axelrod said.

The filing followed a 6-0 vote Thursday morning by the district's board of directors and comments from Axelrod, Klausner and a half-dozen employees and taxpayers in the district, which stretches from Menifee and Sun City to the San Jacinto mountains. Two of the speakers urged board members to follow the lead of former Chairman Patrick Searl, who resigned Wednesday.

Glen Holmes, a Hemet-area resident who campaigned in support of the district's sale that failed last month, praised Searl and other board members for what he called tough but necessary decisions over the last two years.

In mid-2006, the board approved a bond measure that would have refinanced existing borrowings and upgraded and expanded the district's hospitals. But a sizeable block of voters balked at the prospect of property taxes to repay $485 million in new borrowings, and Measure G fell 9 points short of the necessary 67 percent supermajority in a special election last year.

The district then sought buyers for one of its hospitals ----- Moreno Valley Community Hospital, which is outside the district's boundaries. It ended up attracting a $135 million offer for the purchase of all the district's hospitals, including Menifee Valley Medical Center in Sun City and two facilities in Hemet. But voters shot down that deal 53 percent to 47 percent last month. Concentrated in Hemet and San Jacinto, opponents argued the buyout would remove local oversight from the district, while keeping its hospitals trapped in a web of money-losing contracts.

A lawsuit filed in September, in which the Hemet-based Hospital Defense League sought to block the "secret giveaway deal," will probably be put on hold while the bankruptcy proceeds, Axelrod said.

The same could also apply to the district's erstwhile plans to go ahead with a $47 million sale of the Moreno Valley Hospital to the jilted buyer, Axelrod said.

Bill Klippel, a member of the anti-sale group, praised Searl's decision to resign and urged new Chairman Tom Wilson and the other five directors to do the same. Klippel said he had already begun to organize a campaign to remove all six from the board.

"Your community, frankly, doesn't want you," Klippel told them.

None indicated any plan to leave, though Wilson welcomed the idea of a critic filling the seat, which represents voters in Romoland, northern Hemet and southern San Jacinto. Holmes, who lost bids for the seat to Searl in 2001 and 2002, called Klippel's remarks "out of line."

The district's debts range from the $2.7 million it owes Hemet Community Medical Group to several thousand others of less than $30,000, according to its filing Thursday.

Managers with Quorum Health Group Inc., which the district hired shortly before the Nov. 6 vote, said the bankruptcy should allow them to renegotiate contracts with suppliers, doctors, other hospitals and employee unions. Most of the 2,000 who work for the district belong to the Service Employees International Union, though nurses at Hemet Valley Medical Center are represented by the California Nurses Association.

Managers said they don't expect to cut any services or lay off any employees beyond the 40 who were cut late last month. But a pay raise scheduled to take effect in 2008 is now on the table along with the range of other possible cuts, chief executive Fred Harder said.

Greg Griffith, a steward with the service union, said he was prepared to forego the raise if creditors and doctors make similar sacrifices.

"I think most employees are willing to give up, give in, and right this ship in any way possible," Griffith said.

Harder said he expects a relatively small portion of the savings to come from salaries, even though they represent the district's single largest expense.

The possibility of bankruptcy has loomed large since the Nov. 6 vote. Harder said as recently as Nov. 26, in his fourth week at the helm, that he hoped to avoid it. But the district's finances had eroded significantly since then, he said. It lost $2.9 million in the month of October and managers said it will probably turn out to have lost a similar amount in November.

Patient counts have dwindled at the Hemet hospital in recent weeks, a development managers blamed partly on local residents' uncertainty over the hospitals' future. And one specialized insurer that helps hospitals guard against such fluctuations had recently backed out, creating a temporary but sudden gap in one revenue stream, managers said.

Even so, they said, many of the district's problems go far beyond central Riverside County, and many intersect with the quirks and problems of health care insurance in the United States: Many patients delay major surgical procedures until the new year, when insurance will cover a greater portion of it, while rising numbers of uninsured Americans are turning to emergency rooms for even basic health care, killing hospitals' profitability, Harder and numerous others in the industry say.

"Nothing has changed but a continued and greater understanding of the depth of our situation here," Harder said.

Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com.

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Pre-Registration Comments[-]Go to Top

CPhiliip wrote on Dec 13, 2007 10:14 PM:Wow! Thanks for this story. We were going to offer to recruit nurses for Valley! Recruit and not get paid? I don't think so! Thanks for this article!

Dumb voters wrote on Dec 13, 2007 10:42 PM:The people of these towns voted against selling the hospitals like morans and now we all have to suffer through this. We could have had investors buying us out and bringing in wonderful and much needed healthcare opportunities. Now, bankruptcy is the only option left!!! The board made the best decisions they could - Someone has an obvious smear campaign against the Board who did the best they possibly could... now we are all going to have NOTHING.

bill wrote on Dec 14, 2007 2:37 AM:All I know is Valley Healthcare systems is 2nd rate this area needs more competition from other healthcare orgs. I would like to see Scripps, Sharp and others bring choice here. AS for what we have it is overburdened ...

My guess is wrote on Dec 14, 2007 3:27 AM:that we will probably see more of this sort of thing happening. Healthcare as well as public education need to be funded. Where is Robin Hood when you need him? Now the 'haves' and the 'have-nots' can be pitted against each other. You will not have the 'used to have a little', aka, the middle class, to bail you out much longer.

Yep. wrote on Dec 14, 2007 5:27 AM:It's the Conservative way. Everyone is on their own. If you can afford health care then you get it. Simple.

Why? wrote on Dec 14, 2007 7:25 AM:What's missing from this story is WHY they are having such serious financial problems. Is it the same old problem of unreienbursed care that has closed other hospitals and emergency room?

Craig wrote on Dec 14, 2007 8:04 AM:to Why, The reason is listed at the end of the story. "while rising numbers of uninsured Americans are turning to emergency rooms for even basic health care, killing hospitals' profitability"

Another reason wrote on Dec 14, 2007 8:45 AM:"...while rising numbers of uninsured Americans are turning to emergency rooms for even basic health care, killing hospitals' profitability". Americans? No place in this article does it mention the catastrophic rise in numbers of illegals aliens that are using the emergency rooms as their primary care physician. Please do not act like this is not a significant and contributing factor. Any of us Southern California residents that have been to an emergency room in recent years can tell you that illegals make up a high percentage of patients. There is a reason that hospitals have a higher failure rate in areas with large amounts of illegal immigrants. This all boils down to simple economics. Society cannot provide free services indefinitely. At some point, either the money runs out or additional funding must occur. And that, my friends, comes in the form of higher taxes.

Concerned-1 wrote on Dec 14, 2007 8:46 AM:Something has to be done about the "why." It would be inhumane to turn away patients in need of critical care, however, this free healthcare for uninsured illegal aliens is obviously not working. People balk at it and fling the race card and worse, but illegal immigration is killing us.

bill wrote on Dec 14, 2007 8:51 AM:Illegal immigrants are a big reason this and alot of other social services struggle, there are just to many of them overburdening the resources citizens pay for!

Solution wrote on Dec 14, 2007 9:48 AM:We need to educate more doctors. The AMA keeps tabs on how many are graduated in order to keep fees up. Reduce the cost of Med school and create competition. For those that think nationalized healthcare will work look anywhere that has it. Don't believe Hillary, read for your self. Also remember any company that does business with a Hospital or any Healthcare ALWAYS charges list price plus plus. Why? Because the companies know they will pay it.

not just illegals wrote on Dec 14, 2007 9:54 AM:There are 60 million uninsured people in this country and reportedly 12 million illegal immigrants. Even if you assume every illegal is uninsured, that still leaves 48 million AMERICANS uninsured. That's four times as many as the illegals, so while illegals are definitely a part of the problem, they are hardly the whole problem. Lack of a national health care system is the real problem.

It took you folks a while wrote on Dec 14, 2007 10:00 AM:but at least you are beginning to realize that it is the uninsured ILLEGAL ALIENS that are bankrupting, not only our hospitals, our schools and our country. I will vote for NO ONE who won't work to remove this blight for president or congress or the senate.

Kathleen wrote on Dec 14, 2007 11:40 AM:Tri-City Hospital, after last year's $2.4 million loss, has shined on a sterling opportunity to sell its facility. Now it's only a matter of time until it joins Valley Health Systems in bankruptcy.

Jim wrote on Dec 14, 2007 3:13 PM:"It took you folks a while", "not just illegals", made a wonderful point. You should try to understand it first before commenting. With all my love, Jim

No body pays wrote on Dec 14, 2007 6:01 PM:Blame the illegals, blame the management, blame the weather. The blame goes to you the citizens that did not support the hospital. They attempted a bond you said NO, they attempted a buy-out and you said NO. The problem is that no one want to pay for healthcare you or the goverment wants to pay. Most of you pay maybe a small cost each month to and you have immediate access to the most technical care in the world and you pay maybe 175 per month for your coverage. A CT scanner cost over 2 million dollars to install in a hospital. Hospital staffing cost are extremely expensive and you have access to healthcare guaranteed in minutes at your door and you pay next to nothing. Illegals are a very small part of non paying patients. You, your kids, the person living next door to you. All because they do not want to pay the 175 per month or their job wont pay. So, we all pay. Now you knuckle head will not have access to healthcare because YOU did not support your local hospital.

Exactly wrote on Dec 14, 2007 6:57 PM:Exactly. I agree with No Body Pays. No one wanted to pay a little extra to keep the hospital in business. No one wanted to sell the hospital. Guess what? Bankruptcy! Really uninformed voters who did this and now they can't complain when they die of a heart attack and the hospital they refused to support is closed up or half-staffed. Not smart people!

Mark wrote on Dec 14, 2007 8:20 PM:Uninsured Americans tend to use emergency care facilities that are fee for service, like emergency care centers, and pay cash for sore throats, intestinal flu, or children's earaches. Not so for the hospitals. Wander into a emergency room and you will see that the majority of the patients are illegal immigrants who can't afford $60-$150 per visit. Multiply that by 50 visits per day per 360 days a year and the numbers add up.

American Mike wrote on Dec 15, 2007 12:33 AM:Jim wrote on Dec 14, 2007 3:13 PM: " "It took you folks a while", "not just illegals", made a wonderful point. You should try to understand it first before commenting. With all my love, Jim " Yes, but the fact of the matter is that most of those American citizens have Medical or Medicare, at least the Federal Government picks up the tab. When it comes to the illegals, we all suffer. Anyone that disagrees must have more wealth than most.

That is Bull wrote on Dec 15, 2007 12:34 AM:I work for a municipality in San Diego County. My employer pays $545.00 a month and I pay $550.00 out of pocket for my son and I. We do pay. And we pay alot. Illegal immigration is a major contributor. And it also causes other companies not to pay legal citizens benefits because it doesn't have to. With the amnesty of 1986 and the new plaque of illegal immigrants, there are just not enough jobs that pay benefits. Yes the illegal immigrants and the ones who where here illegally in 1986 are also to blame. ...

Ralph wrote on Dec 15, 2007 12:47 AM:Illegal aliens use a lot of our resources ..., slowly destroying this our country's foundation. I'd rather let uninsured Americans use our hospitals and other resources than illegals sucking up our healthcare, educational, WIC, and other government resources. We have spent almost a TRILLION dollars in IRAQ. If we used a that money here in America instead, we won't have a housing, gas, and healthcare crisis. Almost a Trillion dollars and OSAMA is still alive. Democracy is not going to work in the Middle East. Once US troops leave IRAQ, there will be chaos and civil war. They have been fighting there since biblical times. Wake up America. China and India are on track, they are growing rapidly. In America, we have the Mortgage crisis, high gas prices, struggling hospitals, heathcare system that does not work, and the dollar continues to decline in value. We are heading to recession and then depression. More hard times ahead.

Nobody Pays wrote on Dec 15, 2007 8:50 AM:"American Mike wrote" Most americans have health insurance. Check your facts. The fact is that 50 million Americans do not have insurance and the hospitals do not get paid for the services performed on them. There is maybe 12 million illegals in this America now, do the math. Yes they are part of the problem but only a part. People like American Mike use illegals as a red herring not to invest in the infrastructure of your community. The point here is that your community would not help the hospital grow and improve so you have a situation that is very dangerous for the people who have insurance and the ones who do not. Oh and by the way. Medicare and the insurance companies usually pay the hospital less than what it cost to provide the service to you. Hospitals are lucky if they can make a 1 to 2 percent margin because not body want to pay for healthcare.

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