Woes pile up for critical access
HMC’S bankruptcy adds to hospitals’ struggles
Critical-access hospitals, already facing the threat of reduced reimbursement from Medicare, took another hit when the owner of 12 such hospitals filed for bankruptcy. HMC/CAH Consolidated, Kansas City, Mo., filed for Chapter 11 bankruptcy Oct. 10, citing a lack of financial liquidity resulting from an outside lender allegedly not meeting the terms of a financing agreement.
HMC’s business model took a major blow as a result of the loss of that financing, with the company reporting a projected loss of $2.3 million in fiscal 2011 after recording losses of $9.3 million in 2010 and $4.3 million in 2009, according to its bankruptcy filing. Had it not lost the financing, though, HMC contends it would have projected a loss of only $800,000 for fiscal 2012.
HMC’s stated approach relies heavily on lending from third parties. The company seeks to acquire struggling critical-access hospitals for little or no money down and then improve the efficiency of the hospital and build a replacement facility that is more appealing to rural patients, according to its bankruptcy filing.
Another key component of the model is that 70% to 90% of the cost of the replacement hospitals would be financed through loans backed by the Agriculture Department or the Housing and Urban Development Department, according to the filing. The balance of the construction costs would come from HMC or an outside lender, HPCG Hospital Investment, Scottsdale, Ariz.
As a result of not getting funds to execute its strategy, the HMC filing states that four of its critical-access hospitals breached their agreements on their building projects and HMC saw its costs go up significantly for a separate accounts receivable financing agreement.
HMC sued HPCG and two other parties in state court in Missouri—a case that was temporarily moved to federal court—for a variety of alleged reasons, including breach of contract, fraud, and breach of implied duty of good faith and fair dealing, according to its state suit on file with the federal court.
Dennis Davis, chief legal officer, board secretary and spokesman for HMC, did not return calls seeking comment.
Douglas Nieder and Thomas Larson of the law firm Lewis, Rice & Fingerish, who are identified as attorneys representing HPCG in the federal version of the lawsuit, did not return phone calls.
The financing struggles at HMC come amid a battle by rural healthcare advocates to keep Medicare funding at criticalaccess hospitals and other rural facilities constant as Congress considers ways to balance the budget.
The outlook regarding the cuts, which would potentially come as a result of the work of the Joint Select Committee on Deficit Reduction, is not good, said Brock Slabach, senior vice president for member services at the National Rural Health Association, Kansas City, Mo. “We’ve not seen any proposal that says they’re going to spare rural providers,” Slabach said in reference to suggestions made to the supercommittee.
Included in some of the proposals is the option of eliminating the critical-access hospital program and other rural hospital assistance programs altogether, a move that would reduce direct government spending by more than $60 billion over 10 years, Slabach said. “They’re talking about really crippling the program with some of these proposals,” he said.
Slabach said that cutting rural healthcare funding at all would be a mistake given that the facilities are some of the more efficient Medicare providers. An analysis of Medicare cost reports conducted on behalf of the NRHA found that 5.3% of all Medicare hospital spending goes to critical-access hospitals, yet care at those hospitals makes up 8.7% of all Medicare patient days. “It’s our contention that we’re not a sizable part of the Medicare spending problem.”
Moreover, many critical-access hospitals already are struggling. The NRHA estimates that more than 40% of all critical-access hospitals are operating at a loss.
If reimbursement falls, that means more critical-access hospitals will close, said Ethan Lipkind, chairman of Michigan Rural Healthcare Preservation, a not-forprofit seeking to create a network of critical-access hospitals in Michigan. “ It is extremely challenging—we find ourselves in a difficult environment,” he said.