HMC/CAH calls meeting to talk about bankruptcy

Prompted by rumors, officials with HMC/CAH Con?solidated Inc., owner and operator of Hillsboro Com?munity Hospital meet with the public Friday to talk about the facts surrounding the company?s decision to file Chapter 11 of the U.S. Bank?ruptcy Code.

Bill May, vice president of operations for HMC/CAH, which also owns and operates 11 other facilities in five states, said he wanted to make sure everyone understood Hills?boro?s hospital is not closing.

?We plan to be stronger, sounder company in nine to 15 months when we come out (of Chapter 11) then we are today,? he told a group of about 30 people who came to listen.

May said it was important to talk about the company?s background and what transpired to this point.

?HMC started about five years ago and early on we developed a relationship with High?point Capital in Mesa, Ariz., to help us rebuild 10 of our 12 hospitals,? May said.

Highpoint Capital had funded HMC with millions of dollars, he said, giving it a portion of that to help with operations and rebuilding some of its hospitals.

?In January 2011,? May said, ?(Highpoint Capital) wasn?t going to fund us any further because they were out of money.?

From January through July, he said, HMC worked with Highpoint on ?some sort of program? to fund the hospitals going forward.

?In July,? he said, ?we weren?t getting anywhere with them and so we filed a lawsuit three to four weeks later.?

When HMC filed the lawsuit, May said, it started a cascade-effect with some of the company?s other lenders.

More problems arise

May said one of those lenders was Gemino Healthcare Finance, which HMC had been using for about 18 months.

Gemino is a management company and provided HMC with a line of credit for its 12 hospitals.

?We were given 58 percent advance on that line of credit to run operations day-to-day-to-day and for awhile things worked fine,? May said. ?We were getting plenty of money?$700,000 to $900,000 a week to fund our operations, which was enough to keep us afloat and keep us going.?

As soon as the lawsuit was filed, though, Gemino started trimming that money back, taking HMC?s line of credit and dropping it by 20 percent.

?They also took the 58 percent advance from us every week,? May said, ?and kicked that down to 42 percent.?

According to May, Gemino started squeezing and instead of getting $900,000 weekly, the company was getting $47,000 on which to operate its 12 hospital.

?As you can imagine having 12 hospitals, 1,100 employees in five states,? he said, ?we can?t operate on $47,000.?

Trent Skaggs, he said, being on the HMC/CAH board and on the executive staff, both in Kansas City, met Oct. 6 and 7 to develop a game plan on what the company could do.

While the money woes were happening, May said since January HMC had been shopping for a capital partner to come in and help rebuild those hospitals?including the one in Hillsboro.

?But because Highpoint had a first position with us as far as collateral,? he said, ?nobody would step forth to say, ?We will give you $10 to $15 million to rebuild hospitals if we don?t have first position should something happen.??

Looked for alternatives

May said the company talked to real estate investment trust companies and other options.

?So when the board met Friday,? he said, ?I got a call with senior staff with two choices: close some of the 12 hospitals or file Chapter 11 bankruptcy.?

May, with the company almost from its inception, said Chapter 11 was the only choice.

Following that action, May said he has been out talking with groups like the one in Hillsboro, talking with medical staff and hospital employees.

?For the first time, we are now going to take our money generating $1.2 (million) to $1.5 million per week that these hospitals make collectively,? May said, ?and we are going to be able to manage that from the Kansas City office and pay our bills in real time.?

Biggest fears

May said the company?s biggest fears were twofold. The first was assuring employees over the last 18 months about ?right sizing? for the size of a hospital?s specific operations.

?If you read in the newspaper, operations of HMC losses were in the neighborhood of $15 million in the last few years,? he said.

Looking at the year just ending in September, May said there was an $8 million swing from the first year to this year, which was a positive swing.

The reason for this, he said, was because HMC?s hospitals are busier, there is new technology and the chief executive officers are controlling their expenses to the detriment of vendors.

The second fear he said he wanted to take care of involved mid-levels (nurse practitioners and physician assistants) employed at their facilities.

?We wanted to reassure them to the extent we could that we would be viable, that it was business as usual.?

May said this information has now brought everyone full circle as to how it started, what happened and what it is like today.

?We feel better about operations today (Oct. 14) then we did Monday morning,? he said.

Skaggs also wanted to reassure those attending last week?s meeting.

?We recognize this is your hospital, your community, the people you go to church with, people you pick up your kids with or see at the grocery store and for any stress we have caused you, we apologize,? Skaggs said. ?It was not our intent (to stress people).?

As for replacing the Hillsboro hospital, Skaggs said that is still the plan, but said it won?t be an easy process.

The company first announced it filed for reorganization under Chapter 11 Oct. 12. At that time, officials said the move should not affect the daily operation and services provided by the hospitals it owns. In its initial statement, HMC/CAH said it planned to reorganize the company?s finances, and believed its system of 12 rural hospitals ?will emerge stronger and more competitive in providing high quality healthcare to rural communities.?

The decision to financially restructure the company through Chapter 11 was in general driven by the challenges of the current economic downturn, and more specifically by the failure of HMC/CAH?s key lender to fund the four replacement hospital projects, including Hills?boro?s, which were scheduled to begin construction this year.

HMC/CAH stated the reorganization ultimately will ?permit the company to reposition itself for long-term success, and the ultimate completion of its business plan.?

Larry Arthur, HMC/CAH president, said, ?The strategic decision to pursue a financial restructuring through Chapter 11 will now allow us to protect our financial position and to ensure that the company will remain a viable health-care resources in the communities where we operate.

?HMC/CAH has not waivered, and will not waiver, from its ultimate goal to rebuild the rural hospital infrastructure of its hospitals.?

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