in critical condition
You can’t tell a book by its cover, but you can tell a bankruptcy by its chapter.
News this week that Hillsboro Community Hospital filed for protection under Chapter 11 of bankruptcy laws has generated sensational and often misleading news coverage.
The hospital absolutely has not declared bankruptcy, a term that conjures images of assets being seized and sold.
That happens under the much less lucky number of Chapter 7. It isn’t what Chapter 11 is all about.
Chapter 11 buys time to allow debt to be restructured. A repayment plan, typically including major concessions from creditors, is negotiated over several months, and if a judge and creditors approve, the business remains open.
Chapter 11 isn’t all good news, of course. If creditors and the court can’t agree or aren’t satisfied, Chapter 11 reverts to Chapter 7. And if that were to happen, what’s now a vital institution in our community could be sold — all at once or, more likely, in piecemeal fashion, which could leave the community with a huge, expensive building devoid of any meaningful function.
Everyone appears to be hoping that a buyer can be found and the hospital saved. Chapter 11 may be the best hope for that to happen.
The problem is, it assumes that the hospital’s finances can be straightened out — that its problems are mainly about cash flow, inefficiency, or mismanagement. If the real problem is that entire project, noble as it might have been, was too extravagant, Chapter 11 is unlikely to save HCH.
To prove itself a worthy investment for private enterprise, the hospital needs not only to restructure its debt but also to make significant headway toward profitability. To date, unfortunately, that hasn’t happened.
Court documents reveal that the hospital ended January owing $1.7 million more than it is worth. Bad as that might seem, it ended February even more upside-down — owing $2.1 million more than the value of its assets.
For the month of January, the hospital lost more than $194,000 on ongoing operations. In February, the monthly loss swelled to more than $437,000, with net revenue from patients totaling just a tad more than $90,000.
Absent major concessions from lenders, who to date understandably have shown little willingness, finding a non-governmental angel to save the hospital seems unlikely at best.
According to court documents, HCH is so seriously underwater that the adage about rearranging deck chairs on the Titanic may be all too apropos.
None of us want to see the worst happen, of course. But this may be the time to begin thinking about solutions that end up with, perhaps, a urgent-care clinic instead of a hospital serving the community.
We’re not yet at the point at which a DNR — do not resuscitate — order should kick in, but we’re just one court ruling away from that, and we may need to start thinking about what to do if the worst happens.
— ERIC MEYER