Auburn Memorial Hospital petitioned for Chapter 11 bankruptcy Tuesday to reduce and restructure $20 million in debts with the goal of freeing up its cash flow for capital investment.
Glenn Gaston / Special to The Citizen
Auburn Memorial Hospital is filing for Chapter 11 bankruptcy in an effort to complete a financial turnaround process.
Auburn Memorial Hospital is filing for Chapter 11 bankruptcy in an effort to complete a financial turnaround process.
Hospital officials said Tuesday that the petition to restructure its debts was the last step necessary to complete a turnaround process begun after the hospital lost more than $13 million in 2004, 2005 and 2006. Officials also said the bankruptcy filing will not mean closure of the hospital, its clinics in Auburn and Skaneateles or the Finger Lakes Center for Living, employee layoffs or employees not being paid their regular paychecks.
“This was a difficult decision for us,” Robert Bergan, president of AMH's board of trustees, said Tuesday. “It was the correct decision and this is the way the hospital is going to complete the last component of our turnaround.”
The hospital has staunched its monetary losses by hiring a health care turnaround firm, Wellspring Partners Ltd., in mid-2006 and completing a grassroots revolution of its operational practices to tighten expenses.
The hospital also has had several good milestones the last year: being spared closure by the state health care right-sizing, or Berger, commission; receiving a $4.4 million matching state grant to use toward capital improvements; and completing the turnaround process by hitting the black this year. AMH finished March $150,000 in the black.
An in-person meeting announcing the filing to reporters included Bergan, Scott Berlucchi, AMH's new chief executive officer, John Baran, AMH's interim chief financial officer, and Beverly Miller, director of community relations and the Hospital Foundation of Auburn Memorial Hospital. Other stakeholders also were informed this week.
Berlucchi, while newly on board, was informed of the decision-making before and after he was hired, officials said. Berlucchi said it is his goal to keep the public informed of every step of the bankruptcy proceeding.
The group said that the hospital came to its decision because of the analysis that the hospital would never be able to afford investment in capital improvements if it did not seek a restructuring of its unsecured debt under Chapter 11 bankruptcy. AMH's board of trustees unanimously approved the decision in a special meeting in the last month.
“This frees up the necessary cash for our business strategies and our quality assurance campaigns,” Berlucchi said. “That's what I would say to our friends, our neighbors.”
Capital investment goals include modernizing the hospital's operating rooms, instituting an electronic medical record system, renovating the heating and air conditioning system, renovating the Memorial wing into single-bed patient rooms and moving the hospital's psychiatric ward into the main campus.
The hospital never considered liquidating its debts under Chapter 7 bankruptcy, officials said. It considered Chapter 11 bankruptcy in 2006 but deferred on pursuing that option until the Berger Commission had passed judgment on AMH's future.
“We would have to choose between paying that debt or investing in the hospital,” Bergan said. “We couldn't do both. We determined what is important is investing in the hospital.”
The hospital has a deficit of $53 million and $40 million in total assets. The hospital has and will continue to pay the mortgages it owes on the main hospital campus and its other sites, officials said.
But the hospital is petitioning in United States Bankruptcy Court for the Northern District of New York to have the $13.8 million it owes in missed obligations for four employee pensions plans and an estimated $7 million owed to various vendors restructured to a more manageable level. Stephen A. Donato, of the Bond, Schoeneck & King, PLLC, law firm, is representing the hospital.
“We burned through the cash and we couldn't pay the pension payments,” Baran said. “This is the last piece of the turnaround. We've got black ink on the bottom line for the first time in years.”
What the hospital will ultimately pay to its creditors will take several months to negotiate. Hospital officials expect the bankruptcy will be finalized by the end of the year. They expect they will have two to three years to pay the reduced debt.
First Niagara Bank, Alliance Bank and Cayuga Bank will provide debtor-in-possession financing to fund the hospital through the Chapter 11 proceeding.
Baran does not anticipate any liens being filed by vendors and that AMH's supply of goods and services would not be disrupted by the filing.
All but five hospital retirees likely will have their pensions guaranteed by the Pension Benefit Guaranty Corporation, a government entity which protects the retirement incomes of 44 million workers, according to hospital officials.
The corporation guarantees pensions for retirees up to $49,500, said Jeffrey Speicher, a spokesman for PBGC.
The PBGC has filed two liens - one for $7.2 million and one for $6.7 million - because of the $13.8 million AMH has missed in retirement plan contributions for an estimated 1,500 retirees.
“The PBGC will become a creditor in the bankruptcy proceeding on behalf of the participants in the pension plan,” Speicher said.
Ruth Heller, an administrative organizer for Service Employees International Union Local 1199, said the union was pleased that the Chapter 11 filing relates to restructuring hospital debts and not voiding employee contracts.
“We are really glad to hear they have no intention of trying to void the collective bargaining agreement,” Heller said. “They plan to honor the terms and conditions of the contract. It's also a good sign for the health of the hospital that they're not looking to cut the workforce. They've already made some restructuring decisions through Wellspring. It's basically about restructuring their debt and not restructuring their clinical areas.”
Baran says the hospital can answer yes to the top three questions of employees: if they will receive a paycheck this week; if they will receive a paycheck six months from now; and if they will receive a pension when they retire.
“The hospital remains open and it will remain open for another 100 years,” Baran said.
Officials also said the bankruptcy filing will not impact the hospital's compliance with health regulations or its delivery of care.
“One of the things I learned in 2006 by spending a lot of time here, the employees here at Auburn Memorial Hospital are of the highest caliber. This organization has the finest employees in the community,” Bergan said.
“This filing does not affect our mission or the delivery of quality, compassionate care in any way,” Bergan added.
County officials expressed support for AMH's goal of financial restructuring.
“The Cayuga County Legislature is confident in the ability of the hospital's trustees, management, medical, administrative and support staff to complete this financial restructuring in an expeditious manner and fully supports this effort,” said David Pappert, the Cayuga County legislator point person on issues related to the hospital, in a statement.
Staff writer Amaris Elliott-Engel can be reached at 253-5311 ext. 282 or at amaris.elliot-engel@lee.net
“This was a difficult decision for us,” Robert Bergan, president of AMH's board of trustees, said Tuesday. “It was the correct decision and this is the way the hospital is going to complete the last component of our turnaround.”
The hospital has staunched its monetary losses by hiring a health care turnaround firm, Wellspring Partners Ltd., in mid-2006 and completing a grassroots revolution of its operational practices to tighten expenses.
The hospital also has had several good milestones the last year: being spared closure by the state health care right-sizing, or Berger, commission; receiving a $4.4 million matching state grant to use toward capital improvements; and completing the turnaround process by hitting the black this year. AMH finished March $150,000 in the black.
An in-person meeting announcing the filing to reporters included Bergan, Scott Berlucchi, AMH's new chief executive officer, John Baran, AMH's interim chief financial officer, and Beverly Miller, director of community relations and the Hospital Foundation of Auburn Memorial Hospital. Other stakeholders also were informed this week.
Berlucchi, while newly on board, was informed of the decision-making before and after he was hired, officials said. Berlucchi said it is his goal to keep the public informed of every step of the bankruptcy proceeding.
The group said that the hospital came to its decision because of the analysis that the hospital would never be able to afford investment in capital improvements if it did not seek a restructuring of its unsecured debt under Chapter 11 bankruptcy. AMH's board of trustees unanimously approved the decision in a special meeting in the last month.
“This frees up the necessary cash for our business strategies and our quality assurance campaigns,” Berlucchi said. “That's what I would say to our friends, our neighbors.”
Capital investment goals include modernizing the hospital's operating rooms, instituting an electronic medical record system, renovating the heating and air conditioning system, renovating the Memorial wing into single-bed patient rooms and moving the hospital's psychiatric ward into the main campus.
The hospital never considered liquidating its debts under Chapter 7 bankruptcy, officials said. It considered Chapter 11 bankruptcy in 2006 but deferred on pursuing that option until the Berger Commission had passed judgment on AMH's future.
“We would have to choose between paying that debt or investing in the hospital,” Bergan said. “We couldn't do both. We determined what is important is investing in the hospital.”
The hospital has a deficit of $53 million and $40 million in total assets. The hospital has and will continue to pay the mortgages it owes on the main hospital campus and its other sites, officials said.
But the hospital is petitioning in United States Bankruptcy Court for the Northern District of New York to have the $13.8 million it owes in missed obligations for four employee pensions plans and an estimated $7 million owed to various vendors restructured to a more manageable level. Stephen A. Donato, of the Bond, Schoeneck & King, PLLC, law firm, is representing the hospital.
“We burned through the cash and we couldn't pay the pension payments,” Baran said. “This is the last piece of the turnaround. We've got black ink on the bottom line for the first time in years.”
What the hospital will ultimately pay to its creditors will take several months to negotiate. Hospital officials expect the bankruptcy will be finalized by the end of the year. They expect they will have two to three years to pay the reduced debt.
First Niagara Bank, Alliance Bank and Cayuga Bank will provide debtor-in-possession financing to fund the hospital through the Chapter 11 proceeding.
Baran does not anticipate any liens being filed by vendors and that AMH's supply of goods and services would not be disrupted by the filing.
All but five hospital retirees likely will have their pensions guaranteed by the Pension Benefit Guaranty Corporation, a government entity which protects the retirement incomes of 44 million workers, according to hospital officials.
The corporation guarantees pensions for retirees up to $49,500, said Jeffrey Speicher, a spokesman for PBGC.
The PBGC has filed two liens - one for $7.2 million and one for $6.7 million - because of the $13.8 million AMH has missed in retirement plan contributions for an estimated 1,500 retirees.
“The PBGC will become a creditor in the bankruptcy proceeding on behalf of the participants in the pension plan,” Speicher said.
Ruth Heller, an administrative organizer for Service Employees International Union Local 1199, said the union was pleased that the Chapter 11 filing relates to restructuring hospital debts and not voiding employee contracts.
“We are really glad to hear they have no intention of trying to void the collective bargaining agreement,” Heller said. “They plan to honor the terms and conditions of the contract. It's also a good sign for the health of the hospital that they're not looking to cut the workforce. They've already made some restructuring decisions through Wellspring. It's basically about restructuring their debt and not restructuring their clinical areas.”
Baran says the hospital can answer yes to the top three questions of employees: if they will receive a paycheck this week; if they will receive a paycheck six months from now; and if they will receive a pension when they retire.
“The hospital remains open and it will remain open for another 100 years,” Baran said.
Officials also said the bankruptcy filing will not impact the hospital's compliance with health regulations or its delivery of care.
“One of the things I learned in 2006 by spending a lot of time here, the employees here at Auburn Memorial Hospital are of the highest caliber. This organization has the finest employees in the community,” Bergan said.
“This filing does not affect our mission or the delivery of quality, compassionate care in any way,” Bergan added.
County officials expressed support for AMH's goal of financial restructuring.
“The Cayuga County Legislature is confident in the ability of the hospital's trustees, management, medical, administrative and support staff to complete this financial restructuring in an expeditious manner and fully supports this effort,” said David Pappert, the Cayuga County legislator point person on issues related to the hospital, in a statement.
Staff writer Amaris Elliott-Engel can be reached at 253-5311 ext. 282 or at amaris.elliot-engel@lee.net
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