The financial problems of Hillsboro Community Hospital operator HMC/CAH Consolidated are moving toward a positive resolution as soon as this summer, but those attending the community forum Tuesday at Hillsboro Community Hospital were cautioned one hurdle remains.
HMC CEO Larry Arthur described for the approximately 60 attendees the complicated financial developments since November 2010 that led to the company’s Chapter 11 bankruptcy filing in October.
The final blow came when a $6 million line of credit HMC used to facilitate daily financial operations was restructured in a way that allowed the creditor to collect HMC’s deposits, apply them toward outstanding debt, and then loan cash back to HMC.
“The first week of October we had about $1 million they swept to pay down our line, and they provided us $42,000 back,” Arthur said. “That was a real shock.”
HMC’s chief legal officer gave Arthur three options to consider.
“We can either file for reorganization, we can start closing hospitals and laying people off, or we can find $4.5 million in a week and pay them off,” Arthur said. “We ended up having to file for protection.”
The major advantage of Chapter 11 reorganization was immediate restoration of HMC’s cash flow.
“In two days, we had access back to our cash, and we did not have to borrow additional money to make our hospitals work,” Arthur said. “From October until now, we’ve been cash flowing just fine.”
Arthur said reorganization has been proceeding as planned, and HMC expects to emerge from Chapter 11 in June or July.
Hospital construction finance
A $9.5 million loan approved in June 2010 through the Bank of Hays to finance construction of a new hospital in Hillsboro led HMC to hold a groundbreaking ceremony for the facility in December 2010.
“We would have never gone through the hoopla of groundbreaking last year had we not felt we were going to be able to accomplish that,” Arthur said. “Had we been able to fund the hospital and close on the loan last January, we’d be opening the hospital this month.”
However, the loan, which was to be guaranteed by the U.S. Department of Agriculture, had not completely closed. Two companies failed to come through with funds HMC needed for its share of the project, and deepening put construction on hold indefinitely, Arthur said.
“Randy Walker, president of the Bank of Hays, is a great guy,” Arthur said. “He said, ‘I’m not giving up on this loan, I know you’ll come out of reorganization, and we think you’ll be stronger in the long run.”
The challenge facing Arthur and Walker is that the USDA guarantee that made the Bank of Hays loan possible is funded by stimulus money that expires in December.
“USDA has indicated they have an interest potentially in extending the loan, and if they do that the Bank of Hays will stay in with us and be our funding for the hospital project,” Arnold said.
“We talked with Randy as recently as last week, and he pretty much assured us the paperwork has been filed with USDA to keep the loan in place,” Arnold said. “Hopefully they’ll approve that, but there are no guarantees at this point.”
New HCH CEO Marion Regier reported positive trends related to financial operations and medical services at the hospital.
“We finished last year strong, with a positive bottom line, and we’re off to a great start in the first four months of this fiscal year,” Regier said.
Regier pointed to the re-opening of Hillsboro Clinic in October as a boost to local health care, seeing 20 to 25 patients on average each week.
“Our hospital utilization is up, our clinic is busy,” Regier said.
Arnold responded to questions from the audience about hospital finances relative to patient load by describing how inpatient load is no longer the primary measuring stick.
“All of our hospitals are critical access hospitals, and what that means is that we’re large outpatient facilities with a few inpatient beds tacked on,” Arthur said. “We do a lot of diagnostic testing and treatment, such as physical therapy, that’s where our revenue comes from.”
Arnold closed the meeting by reaffirmed HCM’s commitment to building a new hospital.
“We want this hospital replaced because we think it will guarantee health care in Hillsboro for the next 30 years, and we’re going to do everything we possibly can to make sure that happens.”