More than two decades ago, five men got together with a plan to help rural hospitals address two crying needs: access to capital and management expertise.
A radiologist, a retired Navy admiral, a real estate developer, a businessman and a vice president at American Airlines formed the board of a not-for-profit holding company, then called Community Hospital Association of Mid-America, which set out to amass a system of rural hospitals. The system was incorporated in Delaware in 1975 and eventually gained control of four tiny facilities scattered across four Western and Southern states.
The company, now known simply as CHAMA, hummed along for many years. But everything changed Oct. 7, 1998, when CHAMA filed for federal bankruptcy protection in Wilmington, Del. The company now must appease creditors who hold claim to about $8 million of unsecured debt and $7.4 million of secured debt. CHAMA recently retained Cain Brothers investment banking and capital investment firm in New York to advise it on the possible sale of one or more hospitals. The creditors' advisers welcome the move. Bankruptcy documents show the hospitals had combined 1997 net assets of $14.9 million and net patient revenues of just $45.1 million.
In rural markets, a handful of physicians can make or break a hospital, and a sizable backlog of claims can spell financial ruin. That is the backdrop against which CHAMA President H. Martyn Little is fighting.
Little declined to answer specific questions "because we are in the middle of this bankruptcy action. It's a tough time, and as soon as we have a little better visibility about how we're going to come out of it, we'll be glad to talk about (it)."
CHAMA's financial wounds are showing, however, through court documents and interviews with the company's contract manager and creditors' counsel.
The company's core holdings are the four hospitals, each of which employs roughly 157 people and has a payroll of $4.4 million.
CHAMA had entered contracts with various hospital management companies. Last September it brought in Portland, Ore.-based Brim Healthcare. Before that, the facilities were managed by Oakland, Calif.-based Arcadian Management Co., which had no hospital management experience.
In January 1998, under Arcadian's reign, CHAMA outsourced the collection of its accounts receivable to QuadraMed Corp., a Larkspur, Calif.-based company better known for its software. According to CHAMA, the outsourcing attempt soon flopped. Cash receipts plummeted, and the QuadraMed contract was terminated Sept. 30, 1998.
"Whenever you have a shift to something different . . . there's a disconnect, and the transition can be difficult," says Mark Feldman, a managing director with the Executive Sounding Board in Washington, which is advising the committee of unsecured creditors. "But this seemed to go beyond that."
In an affidavit filed with the U.S. Bankruptcy Court, Little cites the troubled implementation of collection procedures as helping pave the way to bankruptcy. But Keith Roberts, QuadraMed's executive vice president, chief financial officer and general counsel, denies any mishandling.
"We dispute virtually everything they said about us in that filing," Roberts says. He declined to discuss specifics of the contract.
Whatever the outcome, it's clear that CHAMA made missteps. According to Little's account, Medical Center of Winnie (Texas) experienced a $5 million drop in gross patient revenues in 1997 when five physicians stopped admitting patients because of "unresolved issues" with management of the hospitals and CHAMA. The hospitals also sustained "significant losses" on managed-care and Medicare risk contracts because the cost of providing medical services was seriously underestimated.
The debtor has yet to file a reorganization plan.
With CHAMA's future up for grabs, a sale of hospital assets seems likely. Counsel to the creditors committee, Philadelphia's Saul, Ewing, Remick & Saul, supports management's effort to explore a sale. Alan Gordon, chairman of the firm's bankruptcy and reorganization department, says, "As you saw in the Allegheny (Health, Education and Research Foundation) case, ultimately these hospitals end up being sold."
