A severe cash crunch at Logan (W.Va.) General Hospital caused the 132-bed hospital to begin missing monthly bond payments earlier this year.
Now the hospital's future is in the hands of a federal court.
At a hearing last week, attorneys for the Bank of New York, the trustee for the facility's bonds, asked U.S. District Judge Charles Haden III in Charleston, W.Va., to appoint a receiver to oversee hospital operations. Haden requested more information to determine whether the federal court has jurisdiction in the matter. At deadline, it was unclear when the hearing would resume.
Bank of New York assumed the role of trustee when the original trustee, One Valley Bank in Charleston, sold its portfolio of bonds.
The New York bank says Logan Medical Foundation, the not-for-profit organization that operates under the name Logan General, began missing payments on its $31.4 million bond issue in January. The bank says the hospital was in default on more than $450,000 when it filed suit earlier this month. The hospital has since caught up on its payments.
But the trustee worries about Logan Medical's ability to make future payments. In the lawsuit, Bank of New York alleges the hospital improperly transferred nearly $19 million to Monterra Development Corp. for development of a shopping center on U.S. Highway 119 near Logan. Monterra Development is the for-profit arm of Logan General's parent, Monterra Health System.
Hospital President C. David Morrison acknowledges the hospital's financial difficulties. But he contends the loans are perfectly legal. He says the shopping center project will help bring jobs to Logan and boost the local economy, as well as provide investment income for the system.
Meanwhile, the hospital owes $21.4 million in current liabilities, according to the suit. About half of that is owed to tax creditors, including the Internal Revenue Service and federal and state taxing authorities, says Ellen Cappellanti, a partner with Jackson & Kelly, the Charleston firm representing Bank of New York. The balance is owed to other creditors.
Current revenue and earnings information for Logan Medical wasn't available.
At the hearing last week, Cappellanti asked the judge to appoint the Hunter Group, a St. Petersburg, Fla.-based turnaround firm, as receiver of the hospital.