HONOLULU (HawaiiNewsNow) - Judge Robert Faris, who has been presiding over the Hawaii Medical Center bankruptcy, says he's saddened by the closure of the West and East hospitals and he says despite the disaster he believes all parties involved did what they could to avoid this outcome.
In bankruptcy court it was announced that St. Francis Healthcare and Prime Healthcare Services could not agree upon a sale price. Prime had offered $25 million. St. Francis was looking for an offer in the $40 million range.
Prime's attorney Mark Bradshaw, who flew in from California for the hearing, said his group was willing to go up a bit but added the hospitals were not worth $40 million.
Attorney Paul Linehan, representing Hawaii Medical Center told the judge no other companies were available to meet St. Francis' price. So the wind down process has begun and barring any last minute miracles, both hospitals will be closed in 2 to 4 weeks. Linehan added they hoped it would never come to this.
"I don't think anybody is happy with where we are right now," said David Farmer, bankruptcy attorney who has been following the proceedings and also worked on the Aloha Airlines bankruptcy and shutdown. "The deal will happen when what St. Francis will take less than their whole amount and what someone will bid up to overlaps and right now there is a gulf between those two numbers."
It would seem a $25 million dollar offer is better than nothing. St. Francis may have received about $11 million of that offer. But that wasn't enough to cover the debt.
"It's business and business is going to dictate what the decision is," said Farmer.
Both the East facility in Liliha and West hospital in Liliha have informed the city they have stopped accepting ambulances. In response EMS will shift more ambulances to the west side to cover for the additional travel time delivering patients.
"The proactive measures, we'll make sure if there is some lapse in medical services, if there is a difficulty in transporting people we'll augment the services in that area if possible," said Peter Carlisle, Honolulu Mayor.
"If the HMC west, which receives about 18 ambulances a day, were not in operation we would have to take measures to augment that area," said Dr. James Ireland, Emergency Services Director.
The governor's office says there's little the state can do. They are not going to step in and make the hospitals publicly owned facilities but they will monitor the transfer of patients. They will also expedite the licensing process should an organization decide to reopen the hospitals.
The following statement was released by Maria L. Kostylo, Chief Executive Officer/Chief Clinical Officer for Hawaii Medical Center:
It is with much sadness that we informed the U.S. Bankruptcy Court today that we will not be moving forward with the sale of Hawaii Medical Center. To ensure the safety of our patients, we will begin the process of winding down operations at HMC East and HMC West. We regret having to make this decision and understand the impact it will have on our 990 employees just days before Christmas.
HMC has tried its best to keep the hospitals open, to preserve jobs for employees and provide healthcare services to the community, first through Chapter 11 bankruptcy protection and then through a sale. St. Francis Healthcare System's withdrawal from our plan of reorganization in October put the hospitals in a precarious position. We had hoped that our identification of a potential buyer meant that we would be able to continue operating the hospitals.
The potential buyer, Prime Healthcare, had presented a preliminary bid to purchase the hospitals. However, because the intended offer was less than what was owed St. Francis, our largest secured creditor, St. Francis filed a motion earlier this week objecting to a potential sale without being able to credit bid the nearly $40 million they are owed. Prime Healthcare was not willing to proceed with the sale knowing it could not exceed the St. Francis bid. Unfortunately, without the support of a lending company or a future buyer, we can no longer continue operations.
We are devastated by this outcome and its impact on patients, families, communities, and most notably our employees, who have been loyal and supportive throughout this challenging process. We thank them for their unwavering commitment and the excellent care they continue to provide our patients.
Our focus in the weeks ahead will be on the safe relocation of our patients. Prime Healthcare, St. Francis and the Centers for Medicare & Medicaid Services are working with us to ensure we have the financial resources we need to meet our obligations to our employees and patients during the closure of the hospitals.
The following statement is from Sister Agnelle Ching, OSF, Chief Executive Officer of St. Francis Healthcare System of Hawaii:
We respect Hawaii Medical Center's decision to close its two hospitals. The details and timeline of the wind down process are still being finalized.
We want to make sure the safety and well-being of their patients remain priorities in the wind down process, and St. Francis Healthcare System of Hawaii has offered to help Hawaii Medical Center's wind down efforts.
The following is the statement that was released Wednesday by St. Francis Healthcare regarding its rejection of the sale offer:
Hawaii Medical Center has proposed a sale of its hospitals to Prime Healthcare Services Foundation and intends to conduct an auction to determine whether any higher or better offers for the hospitals will be made. Yesterday, St. Francis Healthcare System of Hawaii filed an objection to the procedures proposed by Hawaii Medical Center for conducting the auction.
Right to Credit Bid
Hawaii Medical Center's proposed auction procedures prohibit St. Francis Healthcare System of Hawaii from bidding the amount of its secured claim at the auction – commonly referred to as credit bidding - despite the fact that the Bankruptcy Court previously entered an order confirming that St. Francis had the right to credit bid at a sale of its collateral. With a credit bid, the value of the bid is based upon the amount of the claim of the secured creditor, which is then offset against the purchase price.
St. Francis Should Not Be Responsible For Break-Up Fee
The bidding procedures motion also requests allowance of a fee of $625,000 for Prime Healthcare Services Foundation if another bidder offers a higher bid for the hospitals or if Hawaii Medical Center decides not to sell the hospitals. St. Francis Healthcare System of Hawaii is not opposed to a break-up fee to this stalking horse bidder; however, the break-up fee should not take precedence over St. Francis's claims as a secured creditor.
Priority in Sale Proceeds
In addition to seeking approval of procedures for conducting an auction, Hawaii Medical Center also filed a motion to approve the sale to Prime Healthcare Services Foundation. In the sale motion, Hawaii Medical Center proposes to distribute a substantial portion of the sale proceeds to creditors that are junior in priority to the claims of St. Francis Healthcare System of Hawaii. St. Francis believes that the proposed distribution scheme violates the Bankruptcy Code and intends to challenge such distributions in connection with the sale motion at the appropriate time to protect its rights.
Seeking Relief from the Court
St. Francis Healthcare System of Hawaii is asking the court to either modify the bidding procedures or deny the bidding procedures motion proposed by Hawaii Medical Center.