Hutcheson Medical Center foreclosure halted to give hospital more time to repay debt

Hutcheson Medical Center foreclosure halted to give hospital more time to repay debt

August 2nd, 2014 by Dave Flessner in Business Around the Region

Hutcheson Medical Center in Fort Oglethorpe, Ga.

Photo by Doug Strickland/Times Free Press.

Hutcheson Medical Center won't go on the auction block next week as one of its competitors and former managers had planned.

A federal judge in Rome, Ga., Friday halted a planned foreclosure by Erlanger Health System, which wanted to sell Hutcheson assets on the courthouse steps Tuesday morning to help pay more than $20 million Erlanger lent to Hucheson three years ago when Erlanger took over management of the Fort Oglethorpe hospital. Hutcheson terminated its management agreement with Erlanger last year, but Hutcheson has yet to repay any of the Erlanger loan.

U.S. District Court Judge Harold L. Murphy on Friday granted a temporary restraining order sought by Hutcheson and its senior lender, Regions Bank, to temporarily block the foreclosure action. Murphy said keeping the hospital open is in the public interest and he said overcoming an auction sale could be "insurmountable" for the hospital. The judge also ruled that Regions had a senior claim on Hutcheson's debts over Erlanger.

"This is a great victory for us and the people of Catoosa, Walker and Dade counties who count on Hutcheson for their hospital care," Hutcheson President and CEO Farrell Hayes said after Friday's ruling from the bench. "We serve 85,000 patients annually and employ 850 local citizens and we are very pleased that the mission of this hospital will continue."

The order will block the foreclosure while separate federal lawsuits by the two public hospitals against each other can proceed. Erlanger lent more than $20.5 million to Hutcheson in 2011 and 2012 to help the struggling hospital pay its employees and bills while Erlanger managed the Fort Oglethorpe facility.

Hutcheson has counter sued Erlanger, claiming that the Chattanooga hospital mismanaged Hutcheson, failed to attract the physicians and patients it promised and tried to damage Hutcheson to generate more hospital business for Erlanger.

Former Georgia Gov. Roy Barnes, the lead legal counsel for Hutcheson, said Judge Murphy "was very aware of the negative impact" that a foreclosure could have on Hutcheson just as the hospital begins to improve operations.

"I am very pleased that the judge understands the importance of this hospital and the tremendous damage to the community served by HMC that would occur with a foreclosure," he said.

Erlanger officials said they were not disappointed in the ruling since the court gave a road map for Erlanger to enforce its rights under its loan documents. Murphy also ordered Hutcheson and the three counties that own the hospital - Walker, Catoosa and Dade - to provide additional notice about the possible foreclosure on the Fort Oglethorpe campus in the near future.

"Despite Hutcheson's failure to meet its obligations, Erlanger - without exception - met its obligations throughout this process," Erlanger Chief Administrative Officer Gregg Gentry said following the hearing.

Gentry said Erlanger's $20 million loan was secured by the property on Hutcheson's main campus and further guaranteed by Walker and Catoosa Counties, up to $10 million per county.

"We have stated repeatedly that Erlanger remains committed to meeting its longstanding and continued support of the health care needs of northwest Georgia and we feel the court understands that," he said.

Hayes said Hutcheson has been doing better this year than it did under Erlanger's management in the past. The Fort Oglethorpe hospital eliminated labor and delivery services in January, but it has recently boosted its patient volumes.

Although still heavily in debt with more than $60 million of obligations, Hutcheson is now showing an operating profit and is improving its performance, Hayes said. Inpatient volume at Hutcheson increased 30 percent over the past three months and oncology volume has doubled under the direction of the hospital's new management team, Hayes said.

"I think it is important to note that these dramatic gains occurred after the management agreement with Erlanger was terminated," Hayes said. "We're the only hospital in this area of 155,000 people in Northwest Georgia and that can be critical to saving people's lives.

On Friday, Hayes said a child was brought to the hospital after a near drowning and was revived.

"That child is now with us and may not have been if we were not operating Hutcheson," he said. "There is a real community need for us to be here and I don't understand why it would help Erlanger or anyone else if we're not here."

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340.