The tale of 33-bed South Cameron (La.) Memorial Hospital, in a parish near the Gulf of Mexico, has all the makings of a juicy crime novel.
The plot includes alleged thievery by a hospital executive, his thwarted arrest and disappearance, and the ultimate discovery of the executive in another state and his subsequent jailing. In the latest chapter, the remote community's small, financially troubled hospital, with multimillion-dollar debt to the federal government and with its former chief executive officer in jail, has filed bankruptcy under a rarely used chapter reserved for municipalities.
How such a small hospital could rack up more than $6 million in debt from Medicare overpayments during a couple of years is a story that is only beginning to unfold. State and federal criminal investigations into the hospital's former administration and the bankruptcy proceeding the hospital initiated Nov. 18 should shed some light.
South Cameron Memorial is operated by a hospital district and was established as a subdivision of the parish government. It is a separate taxing organization and eligible to file its bankruptcy petition under Chapter 9 of the U.S. Bankruptcy Code, a section reserved for cities, counties, school districts and other municipalities.
Since 1978, when the Bankruptcy Reform Act updated the U.S. Bankruptcy Code, there have been only about 40 filings under Chapter 9 nationwide, says Arthur Vingiello, the lawyer who filed the petition on behalf of the Louisiana hospital.
"There have been no Chapter 9 cases of any type in Louisiana before this one," he says. "I'd say it's very uncommon."
In recent years, noteworthy Chapter 9 cases have included a filing by Orange County, Calif., when its $1.6 billion investment fund collapsed in 1994 and a filing in 1991 by Bridgeport, Conn., which was later dismissed. More recently, during the summer Camden, N.J., facing a multimillion-dollar budget deficit, sought protection under Chapter 9.
Sarah Foster, a bankruptcy lawyer with Haynes and Boone in Austin, Texas, says Chapter 9 filings are more common among smaller municipal entities with more-fragile tax bases, such as school districts and road districts, than among large municipalities with large tax bases.
"But they're certainly not common," she says.
South Cameron Memorial filed after being informed in an audit by a fiscal intermediary that it owed HCFA more than $6 million in Medicare overpayments from 1997 and 1998.
According to the hospital's filing with the U.S. Bankruptcy Court in Opelousas, La., its estimated debts are between $1 million and $10 million; its estimated assets are in the same range; and it has 100 to 200 creditors. HCFA is by far the largest creditor listed, with an estimated debt of $6.6 million.
The small parish of Cameron was rocked when the hospital's director, Joseph Soileau, vanished in June, just before it was discovered that the hospital owed several million dollars in Medicare payments dating back to 1997. Soileau later returned to town and was fired from the hospital and served with a grand jury subpoena. He failed to appear before the grand jury on July 13 and was indicted on four charges of felony theft, accused of stealing $425,000 from the hospital during several months in 1998, says Glenn Alexander, district attorney for Cameron Parish District. Bond was set at $1 million.
After jumping bond and disappearing a second time, Soileau was tracked down in Florida in November, Alexander says. Prosecutors asked state District Judge H. Ward Fontenot to revoke bond, and Soileau was lodged in the Cameron jail. As of mid-December, no arraignment had been set.
Alexander says the FBI is participating in the investigation into the hospital's finances and administration, going back at least several years.
"It was a very big surprise," Alexander says. "We're just an itty-bitty hospital in an itty-bitty parish and a close-knit community. There are so many people who depend on the hospital for healthcare."
Soileau's lawyer, Gregory Judice, says the hospital's financial troubles aren't unusual in the world of small rural healthcare. And he denies that his client is solely responsible for the hospital's situation.
"We want to assist the investigation as much as possible within the scope of (Soileau's) constitutional defense and his presumption and position of innocence," he says.
Meanwhile, a new administrator has stepped in and is trying to keep the hospital functioning as the bankruptcy case and criminal investigation proceed.
The hospital service district hired Alan McMillin, who had been CEO at 72-bed Women and Children's Hospital in Lake Charles, La., as administrator at South Cameron Memorial this month .
"I'm just taking it one day at a time," he said on his second day on the job. "I'm just seeing what can be done to continue providing services to the people in the area, because they really need it. They're pretty far removed from other sources of healthcare, so it's pretty important that these services remain in place."
McMillin says the hospital reported a net loss of $2.3 million on net patient revenues of $7 million in the fiscal year ended Oct. 31. According to HCIA, a healthcare information company based in Baltimore, the hospital posted profits in 1998 and 1997.
Some of the remedies being considered for its current financial difficulties are conversion to a critical-access facility, a designation that would increase flexibility and federal reimbursement potential. The hospital is also considering closing its home health agency and discontinuing psychiatric services to save money.
The hospital generally serves only about half of Cameron Parish, which has a population of about 9,000, but augmenting its patient base are offshore oil and gas field workers, who account for a significant share of the area's economy. Other Cameron residents travel to Lake Charles, which is about 70 miles from the most distant parts of Cameron Parish.
The hospital has already reduced staff and initiated other cost-cutting measures. In addition it has obtained approval from the state bond commission to try to raise $3 million through a tax in January in hopes of negotiating a settlement with Medicare.
"It's definitely a critical situation, and cash flow is a serious issue," McMillin says. "So we'll see what we can do to keep things together long enough to look at these different options."
A hearing has been scheduled for Jan. 20 to consider any objections to the hospital's bankruptcy petition and set a deadline for the hospital's filing of a disclosure statement and plan.