, Corbin, KY

January 3, 2013

Hospital debtors file objection

Claims involve former operators of Knox County Hospital

The Times-Tribune

CORBIN — By Jeff Noble, Staff Writer

Disputing what’s called “priority treatment,” the former operators of Knox County Hospital filed an objection to claims in their bankruptcy case.

The objection was filed last Friday, Dec. 28, in U.S. Bankruptcy Court in London by Dean A. Langdon, attorney for Pacer Management of Kentucky, Pacer Health Management Corporation of Kentucky and Cumberland-Pacer.

They were the former operators of Knox County Hospital in Barbourville until July 16, when the hospital’s operations were turned over to Knox Hospital Corporation (KHC) and the Knox County Fiscal Court, with Alliant Management Corporation of Louisville managing the hospital.

Court records state the former operators object to the treatments of certain claims filed in previous cases. So far, 81 claims have been filed in the jointly administered cases.

Of those claims, two partial claims have been agreed to. A total of 79 claims are being disputed.

According to court records, the attorney for the former operators agrees with the bankruptcy code section’s treatment for a portion of the two partial claims. They object to the remainder of the claims, saying they are based on something other than the sale of goods in the former owners’ regular business, and received by them within 20 days before the petition date (claims for unpaid services under a lease), lack of documentation regarding the shipment date or delivery of goods, and that the shipped goods were not received by the former operators within the 20 days before the petition date.

Court records indicate the former owners’ attorney asked the bankruptcy court rule the disputed claims aren’t entitled to “priority treatment” (such as administrative expenses or claims in an involuntary Chapter 11 bankruptcy petition), but are only general secured claims, subject to a different treatment.

Knox County Judge-Executive J.M. Hall said the objection is part of what he called “finishing up” on the case that was filed last summer, but that the current operation of the hospital by the county is working out well.

“We’re moving along, paying the bills and we’ve made improvements. The working environment is much better now,” noted Hall, who is also chairman of the hospital’s board of directors.

According to court records, the former operators sought to reject the operating lease for the hospital, which was approved by the bankruptcy court June 6. On July 27, the former operators, the Fiscal Court and Knox Hospital Corporation filed a joint motion for approval of the settlement agreement and releases related to an adversary proceeding and approval of assumptions, assignments and transfers “which will result in the resolution of all issues between the Debtors and the Knox County Parties in these bankruptcy cases.”

An order approving the settlement was entered Aug. 10. On Sept. 18, an agreed order resolving a motion to alter or amend the August decision was filed by the Internal Revenue Service.

A motion to establish the bar date for the bankruptcy code section claims (a “bar date motion”) was also approved. The bar date requires the creditor to strictly comply with the last day to file a claim. If the creditor misses the bar date, the claim may be disallowed.

The bar date order from the court was approved Oct. 12, which set the bar date for filing the claims last Nov. 11. The bar date allowed the former operators 60 days from the bar date, or until this past Monday, for anyone to object to any of the claims filed before the bar date.

Records filed in the objection by the former operators’ attorney stated, “that priority treatment under that section should only be given to claims arising from a claimant’s sale and delivery of goods to the Debtors, not the provision of services.”

The past problems with the hospital’s management began around late October 2011, when court records indicate the Knox County Fiscal Court and Knox Hospital Corporation (KHC) contacted Cumberland-Pacer that it was in default under a certain lease of the hospital. Both Knox County groups and Cumberland-Pacer negotiated on time extensions to take care of the default, with the most recent one March 29.

In January, the Fiscal Court approved an ordinance in regards to $7 million in general obligation bonds or notes for the hospital. At the time, Hall said, “We’re not actually borrowing any money, just getting it in place if for some reason the management group that’s on the ground gave it back to the county or couldn’t fulfill their duty to be able to get a management group back in.”

On March 5, approval was given by the court that the county was in an emergency situation in regards to the hospital, with Hall saying “an emergency exists to consider what action is recommended or taken with respect to the hospital,” to its assets and operation.

On the weekend of March 16, employees at the hospital were unable to cash checks, because of federal money delayed to the hospital. Then-CEO/Administrator Craig Morgan said, “We will make the payrolls, the problem has been Medicaid Managed Care started on Nov. 1, 2011. It replaced the Medicaid program, gave us three medicaid organizations. Instead of just billing Medicaid services, we have three different entities that we have to bill. And all three bill differently. They weren’t prepared at all.” Morgan added that all payroll checks are able to be cashed by March 19.

A day later, the county and KHC filed suit in Knox Circuit Court to have the lease terminated and requested entering a restraining order against Cumberland-Pacer (CP), Pacer Management of Kentucky (PM), Pacer Health Management (PHM) and others. That same day, Knox Circuit Court issued a restraining order that precluded the then-operators from spending funds for the hospital, with the exception of ordinary operating expenses. In addition, the hospital’s board of directors and the Fiscal Court agreed to terminate the hospital’s lease agreements with Cumberland-Pacer during a called meeting of the court. The court and board agreed to sign a contract with Alliant Management to manage and operate the hospital.

On March 27, according to court records, CP, PM, PHM and others filed for Chapter 11 bankruptcy, “to protect their assets and continue operating while they reorganized their business operations…” Court records added the then-operators “sought to reject the operating lease for the hospital, which the (bankruptcy) court approved by order entered on June 26, 2012.”

At 12:01 a.m. on July 16, the county took over the hospital, with Alliant managing the hospital’s operations. Morgan was replaced as CEO/Chief Executive by Gary C. Kendrick, who was formerly CEO at Daviess Community Hospital in Washington, Ind.

Nine days later, the Fiscal Court approved bylaws of the Knox Hospital Corporation. The bylaws said the county judge-executive would serve as the chair of the hospital’s board of directors and would appoint all other board members for four year terms. With the exception of the hospital staff member serving on the board, all board members of the hospital must live in Knox County.