Green Valley Hospital is filing for Chapter 11 bankruptcy protection to get out from under crushing debt and to secure the long-term financial stability of the area's first hospital, the CEO said.
John Matuska said Friday that the filing, likely Monday, will make no obvious impact on day-to-day operations, and that there will be no layoffs or reductions in services.
“You wouldn't even know it if (the filing) wasn't public,” said Matuska, who became the hospital's third CEO in October.
He said the long-anticipated move came about because the hospital was overbuilt and undercapitalized, and that the filing will “clean up the massive amount of debt at a high interest rate, plus fees” incurred since it opened in May 2015. Chapter 11 allows an organization protection from creditors as it reorganizes.
Total liabilities are $88 million; a hospital of this size — 49 beds — should have debt of about $37 million, he said. Matuska said he expects the bankruptcy process, which involves “a couple hundred” creditors, to take about five months.
“It really is a new beginning for the hospital once we get through this,” he said.
He has met with the major doctor groups serving the hospital, and held two days of meeting with the roughly 300-member staff on Friday and Saturday to explain the decision.
Matuska said the term “bankruptcy” may sound scary to some, but he believes that under the new corporation expected to result, the hospital will come out financially stronger.
“There was no other option to solve this problem,” he said.
Having the hospital in a somewhat rural area to serve a seasonal population is still a good idea, he said, and leadership is working on establishing an affiliation with a Tucson hospital to improve business.
Tucson Orthopedic, which already has doctors on call, starts its clinic operation April 10. It replaces original orthopedic services provider CORE Institute, which moved out last fall citing “a host of reasons outside of our control.”
The hospital is still seeking a pulmonary services provider to locate here.
Matuska said the hospital is not for sale and is not looking for a buyer.
Rumblings of a bankruptcy filing have resonated for weeks and didn't come as a surprise to community leaders, the Green Valley Fire District, ambulance services and others, he said.
“It was expected that something was going to happen,” Matuska said. “(From some) I heard, 'It's about time.'”
He said the hospital has made tough but necessary decisions to turn things around financially, including making settlement agreements with vendor providers.
“To do this, we must show the court we've made specific improvements,” and the hospital is now in a position where it can prove such measures, Matuska said.
“The goal is to reach the point where the hospital's debt is manageable,” he said.
The restructuring plan calls for payoff of a $6.75 million bridge loan from investors made just before Matuska was hired to tide over the hospital as it sought more stable footing.
It also proposes write-off of a $600,000 deficit of state-imposed assessments accrued from a per-patient discharge fee for AHCCCS Medicaid patients, far above the actual number of Medicaid patients the hospital has served.
“It's not a secured debt and we think it can be written off,” Matuska said. “I don't believe we'll have problems getting it approved.” Secured debt is backed by collateral and stipulates that if the borrower defaults on repayment, the bank seizes the assets to sell, using the proceeds to pay it back. Unless state law is changed allowing the hospital an exemption, it will have to pay the assessments going forward, Matuska noted, which they are doing now.
While no layoffs are foreseen, the hospital routinely “staffs down” for lighter patient demand in the summer, achievable based on normal staff turnover and generally involving a reduction in hours, he said.
When the new corporation is created, a lot of financial responsibility will transfer, such as accumulated employee benefits, salaries and physician contracts. Part of the plan calls for the court to issue a stay providing that vendors must continue delivering on their contracts, Matuska said.
He said hospital developer McDowell Enterprises has a minor role in the hospital, and no decision-making power, after it was “bought out” in November. The hospital is 80 percent owned by the Green Card Fund — the EB-5 visa program under which it was built — and 20 percent by Mexican and local investors. Green Card Fund investors in the Green Valley Hospital all are from China, Matuska said.