MEDIATION OK’D IN BANKRUPTCY CASE

Borrego Health group owes tens of millions to creditors, other parties

The Borrego Community Health Foundation, which filed for Chapter 11 bankruptcy protection earlier this year amid a criminal investigation into its finances, has agreed to mediation to try and resolve disputes with creditors and regulators.

Officials from the health care provider known as Borrego Health joined creditors and California Department of Health Care Services lawyers in agreeing to nonbinding negotiations that will be overseen by an independent court-appointed official.

“Because litigation is timeconsuming and expensive, it is beneficial to both Borrego Health and our patients if we are able to sit down with DHCS in front of a judicial officer and resolve our issues quickly,” Borrego Health spokesperson Daniel Kramer said.

“This more efficient process also benefits our patients by allowing our managers and other team members to spend more time focusing on providing excellent medical care,” he said.

State regulators did not respond to a request for comment on the mediation effort. They previously have resisted discussing Borrego Health beyond saying they are working to protect its patients.

Meanwhile, businesses and others owed tens of millions of dollars by Borrego Health set up a committee to represent their interests before the bankruptcy court. An attorney for the committee said he welcomes the plan to negotiate a settlement.

“We look forward to participating in good faith,” lawyer Jeffrey Pomerantz said in a statement. “Ensuring a strong future financial position for this organization is a top priority for the committee.”

The mediation comes as Borrego Health works to emerge from what a civil lawsuit filed earlier this year called a yearslong, widespread fraud that wrongly steered millions of federal public-health

dollars to contractors and former foundation officials.

It also comes more than two years after FBI and state Department of Justice agents executed multiple search warrants at the nonprofit health provider’s administrative office in Borrego Springs and several clinics in San Diego and Riverside counties.

Weeks after FBI and state agents confirmed that the searches were part of an ongoing criminal investigation, California health regulators suspended Medi-Cal reimbursements to the federally qualified health center, or FQHC.

The decision was a huge setback for Borrego Health, which collects higher-thanusual Medi-Cal reimbursements due to its status as an FQHC.

Organization officials agreed to numerous staff and leadership changes, and by early last year the Department of Health Care Services agreed to restart most of its Medi-Cal payments.

The state continued to withhold reimbursements for dental services, however, which are at the center of the criminal investigation, according to a civil suit Borrego Health filed this year

against contractors and former officials.

But earlier this year, state regulators reversed that decision. They said Borrego Health had failed to adhere to all of the conditions agreed to last year and said patients were at risk.

Borrego Health filed for bankruptcy in September, days before the state MediCal suspension was set to go back into effect.

The bankruptcy judge agreed to put a stop to the state’s reimbursements suspension, meaning state regulators would continue to pay for Borrego Health to treat its caseload of some 94,000 patients in clinics across San Diego and Riverside counties.

But lawyers for the state have appealed that decision to the federal district court, which has yet to rule on the matter.

Borrego Health said it was concerned the maneuver might adversely affect its patients.

“While we’re confident we will prevail on appeal, we believe that DHCS, Borrego Health — and most importantly, our patients — are better served by trying to resolve the underlying issues through mediation, rather than through litigation like this appeal,” Kramer said by email.

In initial bankruptcy filings,

Borrego Health acknowledged millions of dollars in debt to thousands of vendors, service providers and others. Debtors included a slew of resorts, casinos, restaurants and even a f lower shop.

All of the questionable spending was made by prior executives, officials said.

“Many of the parties identified, specifically those you have referenced, predate current Borrego Health leadership,” the Borrego Health spokesperson said in September.

In the initial bankruptcy filing, Borrego Health said it owed thousands of creditors somewhere between $50 million and $100 million. It listed assets worth between $50 million and $100 million in the same document.

According to more recent filings in the bankruptcy case, Borrego Health has just over $70 million in assets, including about $5 million in cash on hand. It reported more than $11 million in unsecured debt.

The health care provider continues to collect revenue, although at a much lower rate than in prior years, other records show.

For example, Borrego Health has reported about $22 million in revenue between July 1 and the bankruptcy filing date in October — a major downturn from the last fiscal year’s nearly $130 million in revenue and the $215 million it reported in 2020-21.

The decline in income has not stopped Borrego Health from continuing to pay healthy salaries to top executives.

Former CEO Edgar Bulloch, for example, received more than $500,000 between September 2021 and August 2022, including a $114,000 vacation payout, the records show.

Interim chief information officer Debbie Rieger collected more than $370,000 between October 2021 and June. Current CEO Rose MacIsaac began in March at a monthly salary higher than $25,000 but is now collecting more than $35,000 each month — the equivalent of $420,000 annually.

The nonprofit also has spent more than $5 million this year on bankruptcy lawyers and other experts, the organization told the court. Those payments began in January, eight months before the Chapter 11 proceeding was filed.

Mediation sessions between Borrego Health, state regulators and the creditors could begin later this month, after the court approves a specific mediator.