Ariz. hospital files for Chapter 11 bankruptcy protection

Gilbert (Ariz.) Hospital filed for Chapter 11 bankruptcy protection this month after one of its lenders seized more than $1 million from the cash-strapped hospital.

Stillwater Bank, one of Gilbert's major creditors, exercised its right to sweep the hospital's operating account of approximately $1.1 million, said Pernell McGuire, the hospital's bankruptcy attorney. That occurred Feb. 3 and 4, and by Feb. 5, with no operating capital to cover its expenses, Gilbert filed for bankruptcy protection on an emergency basis.

The filing shows hospital liabilities between $1 million and $10 million. And although assets are reported at less than $50,000—because the hospital didn't file an asset schedule with the emergency bankruptcy petition—McGuire said assets are actually estimated to be more than $10 million.

Stillwater’s million-dollar move ultimately prompted Gilbert to seek Chapter 11 protection, but according to McGuire, multiple factors have contributed to the financial struggles of what he says was once a very successful and profitable facility.

“Gilbert was formed as an ER hospital, primarily to address the issue of providing prompt emergency care,” McGuire said. “Then (its founder) Dr. Timothy Johns decided to expand and formed a couple other hospitals. He took money from Gilbert to invest in those projects, and they were not nearly as successful.”

In 2012, Gilbert investors filed a lawsuit against Johns for diverting money from Gilbert to other facilities, including Florence (Ariz.) Hospital at Anthem, which filed Chapter 11 bankruptcy last year, and Peoria (Ariz.) Regional Medical Center, which remains only partially constructed after being scheduled to open more than a year ago. Terms of the settlement were not disclosed, and though Johns stepped down from his management position with the hospital, he remains on the five-member board.

“I think that certainly took its toll,” McGuire said.

McGuire also blames increased competition from other hospitals, and even construction around Gilbert Hospital, for negatively impacting its bottom line. “People are driving down the highway, and with the construction, they can’t figure out how to get in the hospital,” he said.

Gilbert remains open, and McGuire said he’s optimistic regarding negotiations and management’s moves to financially stabilize the facility. “We’re having very positive discussions,” he said.