Reimbursement Woes Force Physician-owned Hospital Into Chapter 11

Reimbursement woes and creditor angst has forced Hawaii Medical Center LLC into bankruptcy to avoid closing its two hospitals.

The Honolulu Advertiser reported that the physician-owned hospital system filed Chapter 11 over the weekend, after Siemens Finance refused to extend an existing loan agreement of $5.5 million. Absent bankruptcy protection, HMC would have had to close HMC-East of Liliha and HMC-West of Ewa Beach.

"We faced the threat that our lenders would freeze our cash, creating a liquidity crisis that would force the hospitals to shut down," HMC’s chief executive Danelo Canete told the newspaper.  "We are seeking protection so that we can continue to operate and provide care to our patients, with no noticeable changes or interruptions."

HMC became Hawaii’s first for-profit hospital system after Hawaii Physician Group LLC and Cardiovascular Hospitals of America, LLC teamed to buy two financially strapped hospitals from St. Francis Health Care System in January 2007.

Canete said HMC has enough available cash to pay its employees and will sell its receivables to pay vendors and other unsecured creditors. It plans to use bankruptcy protection to reorganize.

Salim Hasham, a turnaround expert HMC hired to help it get the company out of the red, told the Advertisers that HMC was on the path to profitability, despite at- or below-cost reimbursements from Medicare and Medicaid. He estimates HMC will need about six months to restructure its operations.

“Every single institution is being challenged in terms of reimbursement in healthcare, so this is nothing new. In terms of how institutions deal with this, seeking protection is just one method to seek restructuring support. In our circumstance right now, it’s the best choice for us,” Hasham told the Advertiser.