The financially struggling hospital is reaching out to Catoosa and Walker counties — who, along with Dade County, are owners of the hospital’s facilities and land — to use the hospital property as collateral to pay off debts.
The hospital is asking for a short-term note for $25 million, with a 1-percent interest rate, to be used within the next two years.
Walker and Catoosa counties would use their ownership of the property to get the line of credit for the hospital.
Catoosa County’s five-member commission discussed the agreement, which is in the form of a joint Catoosa-Walker resolution, during a meeting on Dec. 18 and commissioners signed the resolution on Jan. 2.
“It is critical for our community to have a high-functioning hospital,” Catoosa County manager Mike Helton said about Catoosa’s decision to back the bond. “They (the hospital) need help to get to the next step.”
During the Walker County commissioner’s meeting Thursday, Jan. 24, the resolution to support the hospital with the $25 million bond anticipation note was briefly discussed. Sole commissioner Bebe Heiskell said her main concern is “to protect the taxpayers of Walker County.”
“I'm going to be pretty particular about what this is about before I sign it because it is important,” Heiskell said at the meeting. “I don't want to lose it (the hospital). If we have to sell the hospital to pay off the debt, so be it.”
Heiskell said she had not seen the resolution and was unsure of where the $25 million would be spent, noting that medical vendors are keeping 25 percent of payments for supplies to pay back-debts to the vendors.
When Roger Forgey, president and CEO of Hutcheson, came on board there was a vendor charging additional money to pay down debt, Forgey said.
"That was our payment plan to them. We are no longer with that vendor," Forgey said.
“They are not getting what they need and they need to do this (bond to pay off debts) in order to function,” Heiskell said. “Everybody is trying really hard to make it work.”
“Catoosa won’t go into it (the bond agreement) without Walker,” said Chad Young, attorney for the Catoosa County commission. “If she (Heiskell) doesn’t sign, then Catoosa’s out.”
Dade County is not participating in the bond.
“Dade is still a part of the tri-county agreement for the board but they have no financial ability to do the same thing,” said Keith Green, chairman of the Catoosa County commission. “We have a more vested interest.”
Forgey first came to the hospital as CEO in early 2012 and found Erlanger at Hutcheson to be approximately $11 million in debt for operations, he said. A $20 million line of credit from Erlanger initially went to cover payroll and then towards turning the hospital around.
"We are now making payroll and paying our bills, but it's still not enough to pay down the debt," Forgey said. "That is the whole reason for the bond. We can't possible make debt service with the interest rate. We will pay down the debt and then put money back into the hospital."
The $20 million loan from Erlanger was offered to see if the hospital could turn a loosing operation into a successful one, Forgey said, saying the initial investment did turn the hospital around. Now the question is about long-term survival and consolidating debt will accomplish that mission, he said.
How the money will be used
Hutcheson plans to use the $25 million bond in these ways: $12 million to Medicare, $2 million to medical vendors, and $11 million for working capital to replace outdated medical equipment and machinery.
The hospital owes about $12 million to the federal government for Medicare debt. Hospital officials have emphasis that the Medicare debt is not a case of fraud. It is being repaid with an 11-percent interest rate, bringing the total owed to about $14 million.
The Medicare debt is the most pressing, but the hospital also owes roughly $5 million to various medical vendors.
Both the vendor and Medicare debt were accrued by the previous administration.
"The debt was incurred as far back as 2007," Forgey said. "We found the Medicare debt in due diligence and reported it. Medicare put us on a plan to pay them back."
The $25 million bond, backed by collateral from Catoosa and Walker counties and with a 1-percent interest rate, would immediately go to pay off the Medicare debt, Young said.
“The ultimate goal of the hospital is to refinance debt,” Young said. “Because of the legal process of getting bonds issued and sold on the market, we are doing a bond anticipation note. This gets the loan upfront for operating cash.”
Catoosa County officials say they are confident about backing the bond because of the hospital’s increased patient census and profitability since September 2012.
According to the hospital’s September 2012 financial reports, the hospital and its various clinics had combined positive earnings of about $92,000. It was the first time the hospital system-wide, which had been losing about $1 million a month, had shown a profit since January 2009. The hospital is expected to be nearly $4 million in the black by September 2013, officials have said.
Erlanger loan
Hutcheson entered a management agreement in April-May 2011 with Erlanger hospital in Chattanooga and changed its name from Hutcheson Medical Center to Erlanger at Hutcheson. The agreement included a $20 million line of credit from Erlanger. Hutcheson has used about $18.8 million of that money, which will have to be paid back to Erlanger.
During negotiations with Erlanger for the line of credit, the three counties backed the credit with a total pledge of $25 million, asking for increased representation on the hospital authority based on population.
The resolution to create a 13-member hospital authority board was approved March 2012. This resolution was amended at the December meeting, creating a hospital authority board of 12 members — five from Catoosa, five from Walker and two from Dade.
Sounds like someone missed math class to me, or make a lot as an accountant.
1) The crooks that defrauded Medicare and skedaddled with a giant severance.
2)Vendors that have not been paid,even though they provided goods and services in good faith and the deadbeats making six figures over there won't tighten them up.
3) Newer,shinier medical stuff to replace obsolescent equipment.
Ever since Erlanger took over, we've been told that prosperity for HMC was "just around the corner". Just another month or two,and the red ink would change to black.Now we find out that Erlangers $20 Mil has went down the same bunny hole that countless other millions disappeared into.Why on earth don't we just cut our losses and tell these people that enough is enough?
And another thing. I thought that there was already a mortgage on the place through Regions Bank.How on earth would they let another group of creditors get in the mix and dilute any recovery when this thing goes boom?
It's not too late. Before we go down this road and have $100 million dollars invested in a $25 million hospital, let's just cut our losses and back away.This thing is a blast furnace that no amount of public subsidy can quench.
All this place does is treat drug addicts. If you are sent to their emergency room you will surely die.