Hazel Hawkins Memorial Hospital Chief Finance Officer Mark Robinson told its board of directors Nov. 4 that several factors have led the hospital to potentially file for bankruptcy, which include returning over $12 million to the state this fiscal year, the Anthem Blue Cross reimbursement dispute and the delayed supplemental payments totaling $13 million to the hospital from the state.
Robinson said the top issues are based on the year-to-date financial report up to Sept. 30.
On June 30, he said, Medicare sent a letter from Meridian Health Services, an intermediary between the Centers for Medicare/Medicaid Services and the hospital regarding payments. He said, in Medicare’s opinion the hospital was overpaid for the fiscal year ending June 30.
“They initiated, within a two-week period, a takeback of $5.2 million,” he said. “That money will be clawed back over the next year. Compounding that, we were also told going forward they were going to reduce our payments the same volume by $5.2 million. That’s a 20% reduction of reimbursement of in-patient care and a 13% reduction of reimbursement of outpatient care.”
He said the hospital cannot appeal the decision, but he is trying to negotiate a better payment schedule.
Another issue on the list is Anthem, Robinson said. The decision to go out of contract with Anthem happened more than a year ago, he said, and that over the 22 years he has been at the hospital they have not had a fair reimbursement rate with Anthem.
“We felt it was finally time a year ago, when we were doing better with Medicare, to come out of contract and say we need a fairer rate,” he said. “They don’t treat us fairly because we’re a small hospital. We continue to negotiate in good faith with Anthem, but they have in many cases just stopped paying us. Going back to Aug. 11, there are over $4 million in claims that are being withheld. They haven’t explained why.”
Robinson said staff has worked over 45 days on the claims and they have been told it may take another 45 days. On top of this, he said there are $13 million in supplemental payments from the state that have not been made and they will not be made this fiscal year but delayed until winter 2023.
Additionally, there was the need to pay back a loan of $6.9 million in COVID funding from the state. There was also a loan from Blue Shield of $2.85 million that had to be paid back within a year. Then there was a $1.2 million FICA tax withholding program that was paid off in December 2021.
“That was $10.9 million that had to be returned within the last year,” he said.
On top of all the debt that had to be paid back, COVID impacted the hospital because even though the facility is licensed for 25 beds at one time, there were 44 patients.
“During that year we lost $9.6 million providing care for the COVID patients,” he said. “The government continues to have us report on where the money was spent. They still owe us money, but it could take years before they reconcile. This all comes down to cash flow and the timing of when we receive the pavements. As of September, cash was down to under 18 days, which is under $7.5 million.”
He said he continues to negotiate with creditors, “but at the end of the day, this comes down to the cash flow on the revenue side. We are also looking to reduce expenses. That’s what we look at every year but the main focus of what’s driving this decision has to do with the time of the payments due for the care.”
After Jeri Hernandez, chair of the Board of Directors of the San Benito Health Care District, which governs the hospital, told more than 50 nurses, doctors and hospital personnel gathered in the conference room in the Women’s Center in the beginning of the Nov. 4 meeting that the decision had been made to declare a fiscal emergency and filing a Chapter 9 petition, special counsel Michael Sweet explained what this would mean for those who work at the hospital, as well as the community.
Sweet said while he was informing the board what was in store for the hospital, he was also speaking to those in the room. He said the hospital staff had been working on the problem for several weeks and that the situation evolved over several years. He told the board after declaring a fiscal emergency it needed to give staff the authority to initiate a bankruptcy case if it should be necessary. The deadline for the filing is Dec. 31.
Sweet said that because the district is a government entity, bankruptcy comes under Chapter 9 of the bankruptcy code called the “Municipal Debt Restructuring Act” to restructure obligations but “does not anticipate termination of the facility.”
“This is not about closing the hospital,” he said. “It’s not about laying off the employees; it’s not about terminating care; it’s about finding a way to address the financial shortfalls that the district is experiencing, and the cash flow issues that are on the near-term horizon.”
Sweet added that a fiscal emergency had to be declared because of the extremely short window of “weeks, not months the hospital can continue operations based on its cash-flow reports.” He said that “if things don’t change dramatically in the next couple months, the cash just runs too low for what is needed to run a facility of this size and care for the community that relies on it.”
He said staff will continue to work on concessions from stakeholders to hopefully achieve a solution rather than having to declare bankruptcy. But since the board has authorized Robinson to file the bankruptcy, if needed, he can do so up until Dec. 31 without going back to the board for permission.
Sweet reminded the board that the filing is needed because “there is a threat to the health, safety and well-being of the community who are put at risk because of the dire financial situation.”
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Hazel Hawkins authorizes Chapter 9 bankruptcy filing
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