Employees and physicians ended up owning one of Texas' oldest psychiatric hospitals, Timberlawn Mental Health System, when it emerged from bankruptcy reorganization in September.
As part of the restructuring, unsecured creditors, which included Timberlawn staff members and physicians, traded about $7 million in debt for a 55% stake in the 200-bed Dallas hospital. The other 45% will be owned by an employee stock ownership plan.
Timberlawn filed for Chapter 11 bankruptcy reorganization about seven months ago.
Founded in 1917, the hospital has been one of the state's premier psychiatric facilities. During the 1980s, it often had a waiting list of patients from throughout the country. This year it was named by U.S. News and World Report as one of the top psychiatric facilities in the nation.
However, like other psychiatric hospitals in Texas, it stumbled in the early 1990s as public skepticism about psychiatric care soared amid charges of fraud and mistreatment in private mental health facilities. Still pending is a lawsuit Timberlawn filed last year against Tenet Healthcare Corp., claiming Timberlawn's business was hurt by Tenet's participation in fraud and bribery schemes to attract patients. Santa Monica, Calif.-based Tenet, formerly called National Medical Enterprises, has since divested its psychiatric operations.
Timberlawn had been owned by six physicians, who lost their stakes in the bankruptcy reorganization.
The largest shareholder, Doyle Carson, M.D., held a 55% stake and had been the hospital's chief executive officer. He resigned in July and is in private practice in the Dallas area.
With the bankruptcy reorganization, Timberlawn's financial prospects have improved.
The hospital's monthly debt service was $150,000. That's fallen to about $50,000 a month thanks to new terms on its $6.8 million loan with NationsBank and the establishment of an ESOP.
Sheryl Howard, the hospital's CEO, said the reorganization didn't affect relationships with payers.
"This is a textbook example, of how the bankruptcy code is supposed to work," she said.