published Saturday, February 22nd, 2014

Barnes turns tables on Erlanger; former governor now representing Hutcheson Medical Center

Hutcheson Medical Center in Fort Oglethorpe, Ga.
Hutcheson Medical Center in Fort Oglethorpe, Ga.
Photo by Doug Strickland /Chattanooga Times Free Press.
  • photo
    Attorney and former Georgia Gov. Roy Barnes is suing Erlanger hospital over its management deal with Hutcheson Medical Center.
    Photo by Associated Press /Chattanooga Times Free Press.

Hutcheson Medical Center has a high-profile attorney in its corner — former Georgia Gov. Roy E. Barnes — and the struggling Fort Oglethorpe hospital so far hasn't been sued for $20 million plus interest that Erlanger Health System says it is owed.

Erlanger filed suit Jan. 25 in federal court in Rome, Ga., for $550,000 plus interest the Chattanooga-based health system lent Hutcheson as part of a management agreement that lasted 16 months.

But Erlanger hasn't followed through with its threat to file a second suit to get back a second loan to Hutcheson of $20 million plus interest.

Instead, officials from Erlanger, Hutcheson and Walker and Catoosa counties -- the two counties that backed the Erlanger loan -- are negotiating behind closed doors again.

Barnes, who heads the Marietta, Ga.-based Barnes Law Group, blasted away at Erlanger in a Jan. 21 letter that came to light this week through an open records request.

Hutcheson doesn't owe Erlanger $22 million, the former Democratic governor told Erlanger's Atlanta-based attorney, Jack Holland. Instead, Erlanger owes Hutcheson about $90 million, Barnes wrote in the six-page letter.

But the Fort Oglethorpe hospital was willing to give Erlanger a break of $15 million.

"In an effort to compromise this matter and bring it to a conclusion, Hutcheson demands payment of the sum of $75 million," Barnes wrote. "Please forward the amount of $75 million in certified funds."

Hutcheson, which had been hemorrhaging money for years, began posting monthly profits after Erlanger executives took over its management, and county officials previously praised the turnaround.

But Barnes said the $75 million figure is a tally of what he wrote were 23 itemized failures, injuries and damages that Erlanger inflicted on Hutcheson under the management agreement.

The single largest alleged damage was $54 million that Erlanger inflicted by transferring patients from Hutcheson, he wrote.

"Erlanger managed Hutcheson as a 'transfer facility' with the only beneficiary being Erlanger," Barnes' letter states. "These breaches threatened the very survival of Hutcheson."

Erlanger CEO Kevin Spiegel has said repeatedly that Erlanger made "zero dollars" in its agreement with Hutcheson, and that North Georgia leaders never initiated a mediation process to address the problems now brought forth.

Barnes also faulted Erlanger for such failures as not issuing independent financial audits as required by state law; not conducting a community-needs assessment as required for all tax-exempt hospitals; not conducting regular maintenance and repair; failing to pay employees' withholding taxes to the IRS; and leaving Hutcheson "saddled with a debt with interest rates far higher than what was available."

Erlanger also failed, Barnes wrote, to review Hutcheson's medical records system and implement an information technology system -- forcing Hutcheson to hire a third party to perform the service.

Erlanger failed to generate or sustain a positive community for Hutcheson, Barnes wrote, or implement a strategic plan. That failure caused $20 million in damage when Erlanger's market share of patients from Walker and Catoosa counties increased by 5 percent while Hutcheson's market share dropped by 5 percent.

"It became very clear that Erlanger's strategic plan for Hutcheson was totally and exclusively for the benefit of Erlanger," Barnes wrote.

For its part, Erlanger has contended that Hutcheson "acted in bad faith, [has] been stubbornly litigious" and "caused Erlanger unnecessary trouble and expense."

Spiegel also has said that Erlanger's lawsuit against Hutcheson was necessary to protect the assets it invested there.

Barnes couldn't be reached for comment Friday.

Walker County Sole Commissioner Bebe Heiskell said the former governor is regarded as the best hospital attorney in Georgia and one of the 10 best in the United States.

"He knows hospital law inside and out," Heiskell said. "He's very, very good."

Hutcheson Medical Center has more than $60 million in debt. Under Georgia law, hospital authorities and other governmental bodies such as counties and school districts cannot declare bankruptcy.

But Georgia Sen. Jeff Mullis, R-Chickamauga, introduced a bill that would exempt hospital authorities and allow them to file for bankruptcy.

Mullis, chairman of the powerful Rules Committee, said he's not pushing the bill to pass. It's meant to "send a message," he said.

"I introduced a piece of legislation to the hospital industry to send a message that we could get involved if they didn't police their own industry," Mullis said.

With interest included, Erlanger says Hutcheson owes the health system more than $22 million on the original loan of $20.5 million.

Contact staff writer Tim Omarzu at tomarzu@timesfreepress.com or 423-757-6651.

about Tim Omarzu...

Tim Omarzu covers Catoosa and Walker counties for the Times Free Press. Omarzu is a longtime journalist who has worked as a reporter and editor at daily and weekly newspapers in Michigan, Nevada and California. Stories he's covered include crime in blighted parts of metro Detroit and Reno, Nev.; environmental activists tree-sitting in California's Sierra Nevada foothills; attempts by the Michigan Militia to take over a township¹s government in northern Michigan. A native of Michigan, ...

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