SPMH: Board disputes Quorum fee claim, considers lawsuit
By Peggy Kelly
Santa Paula News
Published: February 16, 2005
Ballots are probably now in the hands of Santa Paula Memorial Hospital creditors who will decide whether or not to accept the Creditors’ Committee reorganization plan, but bankruptcy court documents show that legal battles could continue.
By Peggy Kelly
Santa Paula Times
Ballots are probably now in the hands of Santa Paula Memorial Hospital creditors who will decide whether or not to accept the Creditors’ Committee reorganization plan, but bankruptcy court documents show that legal battles could continue.
The Creditors’ Committee notified SPMH Directors in June that it might file a lawsuit against the board at the helm of the community hospital, which closed its doors on December 19, 2003, filing for bankruptcy three days later. The Creditors’ Committee would pursue a lawsuit against SPMH directors only if the net proceeds from the reorganization plan are insufficient to pay the claims of creditors in full.
And now the SPMH Board is fighting the $310,319.15 their records indicate is owed to Quorum Health Resources (QHR) of Plano, Texas, SPMH’s highly criticized management company. Quorum - the nation’s largest hospital management firm owned by Triad, the United State’s third largest hospital owner - had worked for SPMH since February 1994 until September 2003, according to court documents.
Santa Paula Memorial Hospital directors intend to file an objection to Quorum’s claim for unpaid management fees on the basis that the company’s hospital managers “failed to provide the hospital’s board of directors with a department by department income and expense analysis,” and failed to “timely reduce staffing levels consistent with reduced patient census.” In addition, SPMH directors claim that Quorum “failed to timely pay all payroll taxes” and “failed to take steps to reduce the economic burden of the SPMH employee benefit pension plan.”
The SPMH board and CEO Mark Gregson – who along with SPMH CFO Dan Jessup was a Quorum employee - announced in December 2002 that the hospital needed an infusion of cash or risked closing its doors in 90 days.
Quorum has been at the helm of numerous hospitals throughout the nation that have experienced financial problems leading to bankruptcies, closures or buyouts by its parent company Triad, an offshoot of scandal plagued Columbia Healthcare. Both Columbia and Quorum paid multimillion dollar fines for Medicare fraud in the late 1990s. Quorum has also been the focus of a rising number of lawsuits filed by the boards of the mostly rural area hospitals that it oversees.
The SPMH Board is also disputing the $1.875 million claim filed by Fidelity Mortgage Lenders, a loan from a variety of private investors. The loan is secured by a senior deed of trust on the hospital’s almost 30-acre property.
Bankruptcy court documents note that “The Debtor is investigating a potential claim against Fidelity for breaching its agreement to loan the Debtor an additional $625,000. The Estate reserves the right to pursue such a claim against Fidelity if warranted.”
The original loan was supposed to be for $2.5 million, but the lesser amount was offered when it was discovered that the entitlement for a six-acre assisted living facility on hospital property had expired.
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