Catoosa settles
Last week, the Catoosa County Commission voted to accept a settlement agreement with Erlanger Health System to repay part of the loan the Chattanooga hospital once gave to Hutcheson Medical Center. Catoosa County will pay Erlanger $6.2 million — about $3.8 million less than the original bill.
Earlier this month, the chairman of Hutcheson Medical Center's board demanded that Walker County officials cough up millions.
In response, those Walker County officials said last week the demand is illegal.
Thus transpired another step in the slow, tense dance between local government leaders and representatives from the hospital's board, known as the Hospital Authority of Catoosa, Dade and Walker Counties. Both sides hear Erlanger Health System officials knocking at the door, demanding payment.
The board's leaders are prepared to abandon their dance partners, leaving them on the hook for the money. But Walker County's officials are clawing at the board, trying to keep it by their side.
The latest round of arguing began June 10. After a federal judge ruled that Hutcheson's board owes Erlanger $36 million for a five-year-old loan it has yet to pay back, board Chairman Dr. Darrell Weldon signed a settlement agreement with Erlanger.
Weldon agreed to demand that Catoosa and Walker counties pay Erlanger a portion of that debt. In exchange, Erlanger's officials said they would not sue each individual member of the board.
Stuart James, an attorney representing Walker County, said Weldon had no right to make such a demand of the counties.
"No entity wants this put behind us more than Walker County," James said in a statement last Monday. "However, we simply cannot accept an invalid agreement."
Tom Weldon, the chairman's son who also happens to be the board's attorney, responded: "The people down there in Walker County are trying their best to get very creative. There is a political election coming up in November. That may have some impact on the manner in which the leadership of [Walker County] addresses these issues."
Asked if he was implying that the county was refusing to make payment to boost incumbent Commissioner Bebe Heiskell's re-election bid, Weldon said, "That could be the case, but I'm just not sure. They've made some unusual comments and strange actions. It's just difficult to tell."
Said Erlanger Chief Administrative Officer Gregg Gentry: "To claim that Dr. Weldon, as board chairman of the Hospital Authority, did not have the authority to act on behalf of the entity which elected him to that position, is without logic.
To date, the Authority has been complying with its obligations under the settlement, including its obligation to dismiss its counterclaims against Erlanger. Unless there is a judicial determination that the chairman acted without appropriate authority, Erlanger will continue to assume that its rights under the agreement are fully enforceable.
In April 2011, Hutcheson and Erlanger entered into a management agreement. Erlanger employees helped run the hospital's day-to-day operations and loaned Hutcheson $20 million. At the same time, elected leaders in Catoosa and Walker counties told Hutcheson's board they would each make payments on half of that loan if Hutcheson didn't have the funds and asked for help.
The agreement between the hospitals ended in fall 2013. Erlanger sued for its money back. Hutcheson countersued, claiming Erlanger intentionally mismanaged Hutcheson, driving it into the ground. With funds dwindling, Hutcheson closed in December, though it reopened when an Atlanta company bought it and rebranded the hospital as Cornerstone Medical Center.
In April, U.S. District Court Judge Harold Murphy took the teeth out of Hutcheson's lawsuit against Erlanger, saying Hutcheson's lawyers did not prove Erlanger ruined their hospital. In fact, Murphy said, Hutcheson's financials suggest that Hutcheson began to improve when Erlanger leaders took charge.
In the same ruling, Murphy said Hutcheson owes Erlanger $36 million: the principal of the 2011 loan, plus interest and penalties for late payment.
The Chattanooga hospital's administrators knew they couldn't get $36 million out of a hospital that shut down six months ago. But they could get money out of the counties.
The exact amount the counties owe is unclear. While they guaranteed to pay $10 million, the value of that guarantee dropped slightly when ApolloMD bought Hutcheson for $4.5 million in December. The counties each got some "credit" for that sale, lowering the amount they owe Erlanger. Lawyers for Erlanger and the counties say the value sits around $8.5 million today.