Qualis Care, a limited partnership established two years ago to take over certain healthcare billing and accounts receivable services of the now-defunct Towers Financial Corp., has filed for Chapter 11 bankruptcy protection.
MODERN HEALTHCARE learned earlier this year that Qualis was weighing a possible bankruptcy (May 6, p. 4).
According to documents filed with the U.S. Bankruptcy Court in New York in June, Qualis is seeking protection primarily because of troubles stemming from alleged "improprieties" of its former chairman, John Hall. Hall was removed as an officer of Qualis and resigned from its management committee on June 15, 1995, the court filing said.
Towers' creditors filed suit in U.S. District Court in New York last July against Hall and other former members of Qualis management for allegedly bilking them out of more than $20 million (July 24, 1995, p. 4).
In July, Hall pleaded guilty to five criminal counts, including federal charges that he conspired to defraud Towers and its creditors. The $35 million fraud was disclosed in a May 23 indictment filed by the U.S. attorney in Manhattan (June 10, p. 6). Hall is scheduled to be sentenced Nov. 6.
According to unaudited consolidated financial data, as of March 31 Qualis had total assets of $14.7 million and total liabilities of $907,000.
An attorney for Qualis said the company hopes to file a reorganization plan within the next few months.
Qualis was formed in March 1994 when it acquired certain assets of New York-based Towers, which was forced into bankruptcy in March 1993 after criminal and civil charges were leveled against Steven Hoffenberg, who was the company's chairman.
Qualis no longer operates a New York office, and both Joel Ciniero and Cyrus J. Keefer, formerly chief executive officer and senior vice president, respectively, have resigned. The company is being operated by a management committee out of Fort Lauderdale, Fla. According to papers filed with the Delaware Secretary of State's office, Michael D. Gervais is chief operating officer acting on behalf of a management committee, which is acting as Qualis' general partner.
The Chapter 11 filing contended the fraud allegedly committed by Hall and others interfered with the company's ability to maintain and expand its customer base and obtain financing.
For example, MODERN HEALTHCARE*confirmed that adverse publicity and an anticipated fee increase prompted Sinai Hospital of Baltimore to negotiate a legal termination of its hospital billing management contract with Qualis as of May 1.
Because of concerns raised by the lawsuit, Qualis also lost access to a long-term financing agreement with Cargill Financial Services Corp. The $150 million purchasing facility, established in January 1995 contingent on the company's completion of a "due diligence" review, would have provided the capital needed to finance healthcare receivables (March 6, 1995, p. 104).
However, concerns raised during the review, including the alleged fraud, caused Cargill to terminate the deal in July 1995, said Jeff Hilligoss, a managing director of Cargill's corporate capital group.