Erlanger President and CEO Kevin Spiegel speaks with members of the Chattanooga Times Free Press editorial board Thursday.It is important for the public to understand the real facts leading up to Erlanger Health System's decision to file foreclosure proceedings against Hutcheson Medical Center. Foreclosure on the property is a definitive requirement in the loan document imposed by Walker and Catoosa Counties prior to enabling the guarantee provision by the counties.
On April 8, 2011, the trustees of the Hospital Authority of Walker, Dade and Catoosa Counties and Hutcheson Medical Center voted unanimously for the hospital to enter into a management agreement with Erlanger. Under the agreement, Erlanger committed to a fully secured loan of up to $20 million backed by the Hutcheson campus and a full guarantee of payment by Catoosa and Walker counties. Erlanger then agreed to fund the line of credit, and every penny of the loan was used to pay Hutcheson employee salaries and Hutcheson operating expenses. This was required since Hutcheson Medical Center's previous management lost its ability to be paid by Medicare.
Without Erlanger's financial support, Hutcheson would have been unable to survive or make payroll. The board requested Erlanger to manage, and the counties unanimously guaranteed payment to Erlanger.
Over the next two years, under the very capable leadership of Roger Forgey, Hutcheson recorded significant improvements in monthly operating income -- from previous operating losses of more than $1.5 million a month -- through a steady growth in patient volume, cost-containment measures and the rebuilding of a much stronger physician base in North Georgia. Forgey and other members of Erlanger's management team reported to the Hutcheson board. Any actions provided by the management team were reviewed and approved by that board.
In May 2013, the Hutcheson board asked Erlanger for an additional $550,000 to be able to make payroll due to delayed payments. Again, the counties of Catoosa and Walker guaranteed that debt.
But despite significant gains under Erlanger's leadership, Hutcheson notified Erlanger in 2013 of its intent to terminate its management agreement.
We did not agree with this decision.
This was in reaction to Erlanger not submitting a satisfactory bid to enter into a long-term lease agreement with Hutcheson and to assume all its accumulated debt. Despite numerous efforts to find buyers or new operators, no outside party was interested in operating or buying Hutcheson, and all such talks, including with Erlanger, completely failed. In fact, Erlanger was the only qualified bid responder to Hutcheson's RFP for a long-term lease agreement.
These are not the actions of an organization trying to close a community hospital. Just the opposite.
Despite repeated, earnest and vigorous efforts by Erlanger, Hutcheson was never willing to make a settlement offer that would have provided Erlanger with any material or timely repayment of the $20.5 million in loans that Erlanger was legally and rightfully due. Erlanger made many attempts to help Hutcheson to stop the foreclosure, and none were accepted -- including a very generous offer submitted by me to Dr. Michael Aiken on June 25, 2014.
With no resolution in sight -- and with a financial obligation to Erlanger employees, their families, physicians, bondholders and community we serve -- Erlanger was required to file lawsuits in federal court in Rome against Hutcheson seeking repayment of its loan.
What the citizens of North Georgia also need to know:
When Hutcheson recently sold certain aspects of its operations for about $5 million in cash, it failed to use any of those funds to repay Erlanger.
Claims by Hutcheson officials that it is a "thriving business entity that services the citizens of Walker, Dade and Catoosa counties" is a complete fiction. In fact, Hutcheson's patient volume has been so low that it barely fills a fraction of the 179 licensed beds, and its current patient volume is, and has been, low for a sustained period of time. The census actually increased under Erlanger's management.
Erlanger would never have extended a line of credit without receiving the guarantees of a fully secured loan backed by Walker and Catoosa counties.
Erlanger made vast improvements to key clinical programs at Hutcheson, including emergency medicine services, surgical services, the hospitalist program, orthopedics, G.I. services, nephrology services, urology services, primary and urgent care medicine, as well as recruiting a Harvard-graduated cardiologist, who also specialized in interventional cardiology and echocardiology. This was not a requirement of Erlanger's management agreement, which Hutcheson continues to falsely state.
During its management of Hutcheson, Forgey hand-picked Farrell Hayes as Hutcheson's chief financial officer. Following that, the board requested Forgey as CEO. The fact that Hutcheson officials retained Hayes and promoted him to CEO flies in the face of criticism of Erlanger's leadership abilities.
Erlanger has always provided care to North Georgia residents, regardless of their ability to pay. Those services range from emergency and trauma care services to surgical services and less acute outpatient care. Those services have been provided for decades at no cost to North Georgia counties and those receiving care.
It is clear that Hutcheson and county officials continue to spread misinformation when they are fully aware of the terms of Erlanger's management agreement and of Erlanger's efforts to save Hutcheson. As we have stated many times, Erlanger and Erlanger alone, was able to overcome the dire situation Hutcheson faced three years ago.
Erlanger is willing to drop the foreclosure proceedings entirely if the counties waive that requirement and agree to pay the guarantees of $10 million each, equaling $20 million. Please urge your county commissioners to do the right thing.
Kevin M. Spiegel is president and CEO of Erlanger Health System.