COAST HOSPITAL TO FILE FOR BANKRUPTCY, by Mark Scaramella
PACHULSKI, Stang, Ziehl & Jones.
Friedman & Springwater, LLP.
Start getting used to hearing those, or similar, aegypian words fairly often in coming months whenever the subject of Coast Hospital comes up. According to their website, Pachulski, Stang, Ziehl & Jones has “depth and expertise in … bankruptcy reorganizations and out-of-court workouts, bankruptcy litigation, including avoidance actions and claim litigation… Our goal is to provide exceptional and effective representation to a wide variety of clients, large public corporations and smaller businesses, debtors, creditors' committees and trustees…” Pachulski et al was retained by the "creditors commitees" of the two most recent prior hospital district bankruptcy filings in California.
CREDITORS’ committees are formed when a business or organization files for one of the forms of bankruptcy which involves “reorganization.” In the case of municipalities and special districts like public hospital districts which find themselves unable to make payments or payroll, bankruptcy falls under Chapter 9 of the US Bankruptcy code. And, as advertised here the week before, last week Coast Hospital CEO Ray Hino and his Board (three of them anyway) announced that they plan to file for Chapter 9 bankruptcy on November 15.
MENDOCINO COAST District Hospital has managed to survive several serious financial blows since its formation in the late 1970s. But this latest one is clearly the most severe, with causes that are more systemic than in the past which were temporary and could be attributed to specific persons like former CEO Bryan Ballard.
ACCORDING to CEO Hino, the advantage of bankruptcy is that it “will have the ability to cancel contracts and negotiate new payment terms.” But the time lag in the proposed filing and the secrecy of the bankruptcy decision-making — protected under a claim of attorney-client privilege — has some people wondering 1. If they’re really going to file for bankruptcy, 2. whose contracts will be canceled and whose will be renegotiated, and 3. What if, after “reorganization,” the hospital still can’t cover its costs?
THOSE “CREDITORS’ COMMITTEES” are a legally required part of bankruptcy filings and they typically include representatives, lawyers or executives, of the bankrupt entity. They do not include representatives of employee groups or unions, even though employees are frequently owed as much if not more than the conventional “creditor” such as equipment suppliers, service providers (e.g., doctors), banks, government agencies and the IRS.
GIVEN CEO Hino’s recent unsuccessful attempt to deny Coast Hospital employees a 3% raise called for in their “contract,” we suspect that the primary contract Hino wants to cancel is the one with the Hospital’s employees.
COAST HOSPITAL also “contracts” with most of its doctors on the Coast. So it’s also theoretically possible that the doctors’ contracts could be canceled. But, given that doctors — the primary reason people seek treatment at Coast Hospital — get preferential treatment during normal hospital operations and that two of them are on the Hospital’s Board of Directors, it’s not likely that the doctor contracts are at the top of Hino’s cancellation list.
HOSPITAL SUPPLIERS and equipment vendors will probably be pressured to renegotiate payment terms, presumably to spread payments out over a longer time with lower monthly amounts. But, since these creditors have already been subject to similar pressure short of bankruptcy, it’s hard to see how much more this could really save.
THE HOSPITAL’S other major “creditor” is the State of California who is still in charge of the Hospital’s bond repayments against the hospital improvement bond (loan) that the Hospital District took out in the 90s and is still paying on. (The bond was, in part, supposed to give the Hospital the basis for increasing revenue, but obviously that hasn’t worked out and is a story for another day.)
ACCORDING to the Hospital’s Chief Financial Officer, Wayne Allen, Coast hospital is losing several hundred thousands of dollars a month — $400,000 just in July and August — and he doesn’t see anything on the horizon to change that downward trend. Admissions and outpatients are down, insurance payments are down, pharmaceutical reimbursements are down, MediCal and MediCare payments are down… And costs are going up.
IS BANKRUPTCY THE SOLUTION? In a word: No. At best bankruptcy, by itself, only postpones the inevitable and at worst it makes things worse. Among other things, somebody has to pay the big lawyer fees, and the smaller the organization the bigger the lawyers’ percentage is.
CAN CHAPTER 9 reorganization save enough money to pay the lawyers and still have enough left over to cover the ongoing costs — even if they’re renegotiated? Again: No.
BANKRUPTCIES ARE EXPENSIVE. Lawyers get their dibs first. Even the creditor representatives who are appointed to the “creditors committee” are usually paid out of the bankrupt organization’s own depleted pockets. According to on-line bankruptcy advice by the Jones Day law firm: “Another fee issue that may arise in a Chapter 9 case is the payment of professionals that represent an official committee. Although Chapter 9 incorporates the provision of the Bankruptcy Code that provides for the appointment of an official creditors' committee, it does not incorporate the provision of the Bankruptcy Code that requires the debtor to pay the professional fees and other costs of an official committee. Accordingly, it is possible that any professionals retained by an official committee appointed in a Chapter 9 case will not be entitled to payment by the municipality [or District], and will only have recourse for payment to the members of the official committee. As a practical matter, however, a municipality may often agree to pay the professional fees of an official committee in order to facilitate the negotiation of a consensual plan of adjustment.” And that’s just one of the many fees that the District may discover if the process unfolds according to law which is expected to take at least six months. Probably more.
WE KNOW that Mr. Hino and Mr. Allen are not stupid men — certainly an improvement over the management team they replaced — so we suspect the bankruptcy announcement may be a bluff to get the Hospital’s employees union to make concessions. If not, you can be pretty sure that Mr. Hino will make it quite clear to anyone who asks that the union’s recalcitrance is a major factor if the Hospital’s decides to follow through and file for bankruptcy when November 15 rolls around.
WE FOUND two recent examples of public hospital districts filing for Chapter 9 bankruptcy in California in recent years. The first was Valley Health Systems in Riverside, California which filed for Chapter 9 bankruptcy reorganization in 2007. But it didn’t work. In 2009 Valley Health’s management team gave up and put a measure on the District’s ballot to permit them to sell their assets. The District’s voters overwhelmingly approved the measure by an 87% to 13% vote. (Interestingly, in apparent anticipation of this possibility, Hospital Board Chairman Sean Hogan specifically told the audience at last week’s announcement of the District’s plans to file for bankruptcy that no assets would be sold or offered for sale.) A team comprised mostly of the Valley Health District’s doctors who had affiliated themselves with Catholic Healthcare West ended up owning what was left of Valley Health systems. Riverside’s only publicly owned and operated Hospital was gone and the private owners — the doctors — were making all the decisions about how the Hospital would operate.
THE OTHER Hospital District to declare bankruptcy in California recently was Contra Costa County’s Doctors Hospital which filed for bankruptcy in 2006. In that case, the restructuring of East Bay’s second largest hospital did produce renegotiated contracts which saved a good chunk of money. But it wasn’t near enough and the bankruptcy filing had little to do with the ultimate outcome. Doctors Hospital also borrowed $10 million from Contra Costa County, and secured commitments from the California Medical Assistance Commission, and Kaiser and John Muir hospitals totaling $17 million a year for three years. In addition, voters also approved a $52 per year parcel tax that helped support the hospital and by 2008, the hospital came out of bankruptcy.
IN THE CASE OF Coast Hospital, there’s no chance of them getting a loan from nearly broke Mendocino County or the State of California (both of Doctors Hospital loans were obtained before the 2008 crash). Conceivably, Coast Hospital could get some help from the Adventists who own Mendocino County’s other two hospitals. But that would come with strings and probably would not result in the Adventists picking up Coast Hospital’s debt. Coast Hospital’s previous contacts with the Adventists went nowhere.
COAST HOSPITAL officials have considered a parcel tax increase in the past but decided against it since the one time it was tried back in the late 1990s it only got 52% of the vote, far from the 67% needed to pass a new tax. However, that was back when the Hospital was run by Bryan Ballard who was widely viewed in Fort Bragg as corrupt and self-serving. Now that Coast Hospital is in more competent management hands, it’s very possible that a ballot measure that gave Coast District voters a choice between selling off the hospital or keeping it in public hands would get the necessary 67%.
BUT BEFORE any of that happens, for better or worse, rest assured that Pachulski, Stang, Ziehl & Jones, and Friedman and Springwater LLP and their ilk will have an insider opportunity to tailor their bills to fit whatever cash is on hand at Coast Hospital first. By the time they’re done, Coast Hospital management may find themselves wishing they’d simply put a tax measure on the ballot and taken their chances.
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COMMENT OF THE DAY: The fact is that the U-6, the long-time underemployment and unemployment number, remain fixed at a dismal 14.7%, the true unemployment figure. The media will no doubt trumpet the new 7.8% unemployment rate as evidence that Obama's policies are working. Unfortunately the new 7.8% figure is a political fraud. The numbers don't add up. The government claims 114,000 jobs were added last month, which isn't all that great of a number. This resulted in a 0.3% drop in unemployment? That isn't believable in the least. The ranks of the unemployed decreased by 456,000 last month. Well wait a minute, how does that figure decrease by so much when only 114,000 new jobs were created? The government is tossing 340,000+ people out of the job market in order to boast unemployment is down. It took me all of 30 seconds to figure out what they're doing. Unfortunately the press will only report the 7.8% number. CNBC claims the numbers are tame and they're confused by all of the contradictory figures. This report is overtly political. It's meant to secure Obama's re-election. Just wait, the November surprise we'll get when the October jobs report is released on November 2nd will be even worse. Magically, unemployment will be below 7.5%. That the government threw half a million more people out of the job market will be ignored. Just in the last two months the government has claimed that over 500,000 people are no longer in the job market. Where are they? Did they leave the country? Surely they aren't all women who have decided to stay at home with their kids. In fact, the numbers are even worse than this. We need 150,000 new jobs every month just to keep pace with population growth. Each month new kids graduate college or high school, jobs need to be available for them. When 114,000 jobs are created that means we aren't even keeping pace with population growth. Sure, some people are retiring and that offsets the number. But a lot of people are foregoing retiring in this economy. Romney was right during the debate that 50% of college graduates can't find a job out of college. These people are either going directly to the ranks of the unemployed or the government simply isn't counting them. — Samuel Burns
IT TOOK the better part of three days but a jury is seated for the Billy Norbury murder trial. Opening statements begin Tuesday morning. Norbury, 34, faces a murder charge with a special allegation that he used a gun in the killing of Jamal Andrews, 30, on the night of January 24th, 2012. Andrews, a popular reggae musician based on the Northcoast, is black. Norbury, the son of a well-known Redwood Valley contractor, is white. Andrews’ many friends and family remain convinced that his murder was racially motivated. DA David Eyster, however, has said the shooting occurred for “other reasons.” The trial is expected to last three weeks and will include two phases: the first will concern Norbury's guilt, the second Norbury's sanity at the time of the killing. Norbury changed his original not-guilty plea to one of not guilty by reason of insanity.
ASSEMBLYMAN JARED HUFFMAN got a name change for the California Department of Fish and Game, which will soon be called the Department of Fish and Wildlife and comes with a new science panel that will advise on conservation measures. (AB2402) Huffman is about to become the Northcoast's congressman in the new long tall congressional district running north from the Golden Gate Bridge to the Oregon border in a narrow strip containing a 2-1 Democrat registration. Former congressman Thompson is moving next door in a district also nicely gerrymandered to accommodate his Blue Dog views.
SPEAKING OF HUFFMAN, we received he following press release last week: “The community is invited to a coffee and tea klatch to meet with Jared Huffman, candidate for US Congress in California’s Northcoast Second Congressional District, in Boonville on Saturday, October 20, from one to three in the afternoon. This community meeting with Jared Huffman is hosted by John Lewallen and Barbara Stephens-Lewallen. It will be at MendoDragon. To find MendoDragon, go south on Lambert Lane by the Boonville Hotel, and follow the Huffman signs at the first left. MendoDragon is the house at the end of the road on the right. For information, call John and Barbara at (707) 895-2996.”
UH, if you're going to see ol' Spike you better head west on Lambert Lane before you start looking for puffs of smoke, big red eyes, four-foot teeth, a vegan lizard and the Lewallens. Lambert Lane runs west off 128.
I’M WATCHING this thing about how a gigantic new bridge in Oakland, California, is being made in China. Can you imagine? Now they're making our goddamned bridges, Alan. I got to say, I saw everything else coming. When they closed down Stride Rite, I saw it coming. When you start shopping out there in Taiwan, I saw it coming. I saw the rest of it coming — toys, electronics, furniture. Makes sense if you're some shitass bloodthirsty executive hellbent on hollowing out the economy for his own gain. All that makes sense. Nature of the beast. But the bridges I did not see coming. By God, we're having other people make our bridges. And now you're in Saudi Arabia, selling a hologram to the pharoahs. That takes the cake! Ron was still talking. Every day, Alan, all over Asia, hundreds of container ships are leaving their ports, full of every kind of consumer good. Talk about three-dimensional, Alan. These are actual things. They're making actual things over there, and we're making websites and holograms. Every day our people are making their websites and holograms, while sitting on chairs made in China, working on computers made in China, driving over bridges made in China. Does this sound sustainable to you, Alan? — ‘Hologram for the King,’ Dave Eggers
ACCORDING TO SATURDAY'S Press Democrat, of the two frontrunners for Sonoma County's 1st District Board of Supervisors, Susan Gorin and John Sawyer, Sawyer has raised the most money — $295,000 and presently enjoys a cash balance of $37,180.
SAWYER OWES THE AVA about $400. He stiffed us for that amount when he closed Sawyer's News in Santa Rosa. We sold a lot of papers there every week for years, years I tell you! It was our main sales outlet in SoCo although Copperfield's various locations were good for us, too. They all paid. Sawyer, too. Until he got ready to close. For the last three or four months he was selling papers he stiffed us.
ALL OUR SoCo outlets are gone now, and people who read newspapers (or anything else more complicated than a WTF tweet) are going, too.
I'LL BET SAWYER was square with the Press Democrat when he closed his newsstand. I'll bet the PD got paid. A local pol needs to be on good terms with the PD because, right up until this jive election, the PD did endorsements, and anyone who owed them money, well, it's pay or die with the big boys. With us, it's pay us or WE whine. (Under the new owners, by the way, the PD, craven in the best of times, no longer does political endorsements. Too divisive, you see. This is a newspaper saying this, mind you.)
SAWYER twice told us he'd pay up. Twice he didn't pay up. But he's got 37 grand cash lying around. If I were a SoCo voter I'd think twice about voting for a deadbeat.
GASOLINE hit an all-time average high in California of $4.6140 a gallon Saturday, and take your pick of the reasons but if you choose GOUGE and SPECULATION you're off to a good start. The previous high was $4.6096 on June 19, 2008.