A trio of factors, including a desire to sell, decreased payments from public and private payers and costly computer upgrades, led the parent company of South Fulton Medical Center in East Point, Ga., to file for bankruptcy late last week.
The 356-bed private not-for-profit hospital is one of the largest freestanding facilities in the country to seek protection from its creditors.
"Whether it's one of the biggest (bankruptcies) or not, its not going to be alone for long," said Keith Shapiro, president of the American Bankruptcy Institute and national co-chair of the bankruptcy and reorganization division in the Chicago law office of Greenburg and Traurig. "There are a great deal of hospitals that will have to go through some form of debt restructuring in the next few years."
In order to facilitate a pending sale of the hospital to an unnamed for-profit company, Georgia International Health Alliance, South Fulton's parent company, filed for Chapter 11 relief in the U.S. Bankruptcy Court in Atlanta.
Chapter 11 is becoming a tool for weaker hospitals to get rid of debts that potential buyers might not want to assume (Jan. 12, 1998, p. 22).
At deadline, the hospital's assets and liabilities were not available.
Hospital officials said they plan to keep the facility open without interrupting patient care while they clean up their financial picture. The hospital has secured a loan commitment for an undisclosed amount from Heller Healthcare Finance, Chevy Chase, Md., to keep its doors open during the reorganization and sale period.
Hospital officials pointed to a series of events that conspired to cause the bankruptcy filing. The negative effects of the Balanced Budget Act of 1997 began to hit hard in 1999. Coupled with inadequately paying managed-care contracts and a $7 million investment in information system upgrades, the hospital found itself with zero cash on hand as of Feb. 29, according to a Standard & Poor's bond-rating report.
"Any one of them on their own we probably could have handled," said South Fulton spokeswoman Jill Smith. "But all together like that, it was just such a big impact in 1999."
"The managed-care market was tough this year in Atlanta," said Elissa Granick, a director in public finance for S&P, noting the high rate of growth in the area. "South Fulton didn't have clout in the market to get the contracts. It did not have a cash cushion to absorb the impact of the confluence of things that went wrong."
With net patient revenue of $110.6 million, South Fulton recorded a loss of $7.4 million for fiscal 1999, which ended in June. In fiscal 1998, the hospital made a profit of $6 million on net revenue of $112.5 million.
Smith said the hospital is projecting a loss of $2 million for fiscal 2000.