Hoping to save troubled Kentucky hospital, court approves order to switch operators

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A Kentucky bankruptcy court approved a deal Monday that would transfer control of the Southeastern Medical Center in Pineville from its current operator to the hospital’s bankruptcy trustee.

By the end of Monday, the trustee plans to reach a deal with a non-profit organization to operate the hospital for the next 60 days while the trustee searches for a potential buyer.

The hospital’s current operator, Pineville Medical Center, Inc., has struggled to maintain the hospital’s operations and finances.

As of Monday, PMC had missed its last three payrolls and related tax obligations totaling $700,000, failed to pay about $750,000 in rent, and recently lost its contract with the Centers for Medicare and Medicaid Services that allows it to serve patients enrolled in the federal health care programs.

The deal forgives PMC, a Deleware-based limited liability company, for the missed rent, and for alleged damages owed to the bankruptcy trustee that could be as high as $2.5 million (PMC disputes some of those damages), according to court records.

In addition, the deal would give PMC 50 percent of the net cash proceeds from the sale of the hospital once the trustee finds a final buyer, and would allow PMC to keep the money in its accounts receivable account — about $1.6 million, according to an attorney for the bankruptcy trustee.

The deal requires PMC to put the proceeds from the sale into a special account and use the money to pay its debts, its missed payroll and its tax obligations.

“The closure of the hospital would be very probable without this transaction,” said James Irving, a Louisville attorney representing PMC.

PMC is a subsidiary of Americore Health Enterprises, LLC., which operates four hospitals, including Southeastern and the Lee County Medical Center, according to its website.

Grant White, Americore Health’s founder and CEO, has “an affinity for rural communities” and “developed a rural health care business model that is less dependent on the government and optimizes the inherent value of each hospital.”

About 90 percent of Southeastern’s patients are on Medicaid or Medicare, said Jon Gay, an attorney for the bankruptcy trustee.

The trustee hopes the deal will give the hospital, which filed for Chapter 7 bankruptcy in November 2018, a chance to keep its Certificate of Need, a state-issued certification that allows it to continue operating.

Without the court’s approval of the transfer, Gay said the state would probably soon revoke the hospital’s certificate and force its closure. The revocation of the certificate would also decrease the value of the hospital by possibly 75 percent, Gay said.

The loss of Southeastern’s certificate would be “devestating” to the community, Gay said.

The City of Pineville has agreed to loan the new, non-profit operator $300,000 to keep the hospital open for the next 60 days while the trustee secures a deal with a buyer.

In a statement last week, Pineville Mayor Scott Madon assured residents that the hospital is open and will remain open.

The hospital’s closure would mean the loss of one of the top employers in Bell County, which, like many counties in southeastern Kentucky, has an unemployment rate well above the statewide average of 3.9 percent. The nearest hospital, in Barbourville, is about 14 miles away.

“As the people of Pineville know, the hospital is an important community asset,” Madon said.

In addition to the hospital’s financial struggles, a January report by the Kentucky State Survey Agency reported that the hospital failed to protect multiple patients from neglect, and was unable to provide important care in multiple cases.

In a statement to the Herald-Leader, April Washington, a spokesperson for the Centers for Medicare and Medicaid Services, said the agency would continue to work “to ensure the safety of all patients in this facility.”

“CMS does not shutter the doors of hospitals,” Washington said. “That is a solely a business decision made by the facility’s owners.”

Herald-Leader Reporter Linda Blackford explains how the secretive Kentucky Medical Services Foundation spends its money.

Will Wright is a corps member with Report for America, a national service program made possible in rural Appalachia with support from the Galloway Family Foundation. Reach him at 859-270-9760, @HLWright
Will Wright is a corps member with Report for America, a national service project made possible in Eastern Kentucky with support from the Galloway Family Foundation. Based in Pikeville, Wright joined the Herald-Leader in January 2018 and reports on Eastern Kentucky.