Springfield Hospital files plan to split from clinics in exit from bankruptcy

  • Springfield Hospital, one of the Vermont town's largest employers, sits on a hill overlooking the town Friday, March 29, 2019. (Valley News - James M. Patterson) Copyright Valley News. May not be reprinted or used online without permission. Send requests to permission@vnews.com. James M. Patterson

Valley News Staff Writer
Published: 9/23/2020 9:46:39 PM
Modified: 9/23/2020 9:46:34 PM

SPRINGFIELD, Vt. — Springfield Hospital and its associated Springfield Medical Care Systems clinics in six area towns have filed plans to exit bankruptcy as separate entities at the end of the year.

The plans, filed last Friday in U.S. Bankruptcy Court in Burlington, hinge in large part on the state of Vermont supporting the 25-bed critical care hospital and related federally qualified health centers through a total of $6 million in “exit funding.”

The plan also would write off $4.65 million in unpaid taxes owed the state of Vermont.

Of the new state aid, $4 million is slated to go to the hospital and $2 million to SMCS, which includes health centers in Charlestown and the Vermont communities of Ludlow, Chester, Bellows Falls, Londonderry and Springfield.

The new state bailout, which comes on top of $800,000 the state loaned the health care system in early 2019, is included in Gov. Phil Scott’s budget that the Legislature is voting on this week, said Tom Huebner, special assistant to the governor for Springfield Hospital.

“It is critical to the hospital and the parent corporation coming out of bankruptcy,” said Huebner, the former longtime CEO of Rutland Regional Medical Center. “It is critical that these organizations survive in order to serve the greater Springfield community.”

The two entities first entered bankruptcy in June 2019, following several years of operating losses. Those losses, eventually resulting in the accumulation of a total of about $20 million in debt, were due to revenue declines; increased cost for purchased services; increased health care expenses for employees; and expanded services, some of which were not profitable, according to the filings. The organizations failed to pay third-quarter employment taxes in fiscal year 2018, the revelation of which eventually led to the departures of the CFO and CEO in December of 2018.

The court documents filed last Friday also describe how the two entities plan to move forward separately, but collaboratively after they exit bankruptcy, which they anticipate doing by the end of the year. They signed a master shared services agreement in July that was also provided to the court.

Andrew Helman, of the Portland, Maine-based law firm Murray, Plumb & Murray that is representing the hospital in the case, said in a phone interview on Tuesday that he is currently representing two other New England hospitals going through bankruptcy, and given the additional financial challenges of the COVID-19 pandemic he expects other hospitals around the country are likely to follow.

“What you don’t want to see is a medical desert,” Helman said, adding that Vermont officials seem to understand that and to view the state’s hospitals as part of a larger health care delivery system.

“What Vermont is doing is unique,” said Helman. “This is excellent and important support that’s appropriate for this case.”

Should Springfield Hospital close, it would require patients to make longer trips for medical care, which could have an effect on their health outcomes, according to the filings. Together, the two organizations employ about 600 people.

Under the plans filed last week, the state grant would provide the hospital and SMCS with the funds necessary to repay some of the $9.5 million they owe Berkshire Bank. Should the court approve Springfield Hospital’s plan, $2 million would be returned to Berkshire. SMCS’s plan would return another $2 million to Berkshire Bank using the state-provided “exit funding.”

Under the hospital’s plan, the state of Vermont would eventually receive $5 million. This would be repaid in the form of two promissory notes, one for $2 million, which would be paid over 20 years at a 2% interest rate; the second for $3 million, which also would include a 2% interest rate. To secure the notes, the state of Vermont would hold a “first priority security interest and mortgage” on all of the hospital’s assets.

The hospital also would pay $4 million to settle its debt with the federal Centers for Medicare & Medicaid Services, which would be repaid over five years at a 2% interest rate. The money hospital employees and former employees have in their 457 pension plan would also be preserved. Additionally, the hospital would pay patient refund claims in full upon written request by patients.

SMCS also would repay money owed to People’s United Bank, the town of Charlestown, as well as wage claims and patient refund claims, according to its plan. It would also settle claims with the state of Vermont Retainer Program from which it received nearly $500,000 for COVID-19 response and the state of New Hampshire COVID-19 loan program from which it received $200,000, to the extent those loans aren’t forgiven.

Two child care centers — Squeaky Sneakers locations in Bellows Falls and Springfield — owned by SMCS are slated to separate from the organization before the case concludes, according to the SMCS filing.

But medical services the two organizations provide are expected to remain largely the same when they emerge from bankruptcy, said Mike Halstead, the hospital’s interim CEO.

He said the clinics and the hospital will continue to refer patients to each other and to accept the same insurance coverages.

“We’ve been working together for a good 10 years now,” he said in an interview. “That organization provides the primary care services that an acute care hospital needs to have. It’s vital that we work together.”

The two organizations came together about a decade ago in order to share clinical and administrative services. They shared administrative costs. For example, the hospital historically covered the cost of a self-funded health plan for all employees.

The two organizations owe each other money. SMCS owes the hospital $11.3 million, while the hospital owes SMCS $1.8 million, according to the filings. Since neither is in the position to pay the other and litigation would be complicated, and its success unclear, neither organization is attempting to recover those funds.

Moving forward, the two organizations will continue to share some administrative costs, but they will each pay their own share according to the shared services agreement.

Springfield Hospital executives last year talked with officials from Dartmouth-Hitchcock and nearby Valley Regional Hospital in Claremont and Mt. Ascutney Hospital and Health Center in Windsor about its need for a formal alliance or partnership, but no such agreement was reached.

Springfield “needed to get this filed,” Halstead said of the plans to emerge from bankruptcy. “We went ahead.” But, he said he anticipates revisiting those talks in the future.

“Are there really benefits to the people in the area to have the various organizations in this geographical area work collaboratively together to address the needs?” he said.

Those holding the organizations’ debt will have an opportunity to weigh in before the court issues a decision on the bankruptcy case. A hearing is expected to take place on Oct. 23, Helman said.

Nora Doyle-Burr can be reached at ndoyleburr@vnews.com or 603-727-3213.

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