Catoosa County to pay Erlanger $6.2 million in settlement agreement

Catoosa County to pay Erlanger $6.2 million in settlement agreement

June 22nd, 2016 by Tyler Jett in Local Regional News

Hutcheson Medical Center is seen in this file photo.

Photo by John Rawlston /Times Free Press.

Clarification: Catoosa County's original debt to Erlanger Health System was $10 million. The $6.2 million payment represents a 38 percent discount. But after a settlement on sales of Hutcheson's property in December, the county owed about $8.7 million. The $6.2 million that the county ultimately paid represents about a 29 percent discount off of that reduced debt.

RINGGOLD, Ga. — Catoosa County received about a 40 percent discount from Erlanger Health System.

In a deal to repay part of a loan Erlanger once gave to Hutcheson Medical Center, the County Commission voted Tuesday night to accept a settlement agreement with the Chattanooga hospital. Catoosa County will pay Erlanger $6.2 million. That's about $3.8 million less than the original bill.

The commissioners' reaction to the deal was lukewarm.

"That sounds like a lot," said Jim Cutler. "But when we started at $10 million, to get it down to $6.2 million, it's a good job. I'm not thrilled, though."

Added Bobby Winters: "It's sickening. But what else can you do?"

County Attorney Chad Young said he began negotiating with Erlanger officials last summer. Those negotiations heated up in December, when ApolloMD bought Hutcheson for $4.2 million. Coupled with a sale of Hutcheson's nursing home to Maybrook Healthcare, Erlanger gave Catoosa and Walker counties each a $1.5 million "credit" for the sales.

That credit cut down the total amount each county owed Erlanger. Catoosa County continued to negotiate with the hospital, Young said. For the last six months, the two sides have hammered out more pieces of the deal.

About one month ago, Young said, Catoosa County and Erlanger agreed to one more term. If Erlanger settles with Walker County within the next year, Walker County cannot receive a better deal than Catoosa County did. If that happens, Erlanger will reimburse Catoosa County for the difference.

Carl Henson, Catoosa County's financial officer, said the money for Erlanger will come from the county's reserve fund. Before the payment, the fund holds about $13 million. Young said Erlanger wants payment before the end of the month, because June is also the end of Erlanger's fiscal year.

Walker County, meanwhile, continues to fight Erlanger in court. Earlier this year, Walker County offered to settle with Erlanger for $1.3 million. Erlanger rejected the deal.

Tuesday's agreement is the result of a decision five years ago, when the elected leaders of Catoosa and Walker counties signed an intergovernmental agreement with the Hospital Authority, the board that controlled Hutcheson. The counties told the hospital that they would each cover half of a $20 million loan from Erlanger — assuming Hutcheson didn't have the funds to pay.

This was part of a larger plan. At the time, Erlanger and Hutcheson had just entered into a management agreement. In addition to issuing the loan, Erlanger would run Hutcheson, a struggling hospital that was on the verge of bankruptcy.

The deal went into effect in April 2011. It died in the fall of 2013, when Hutcheson's board voted to kick out Erlanger. Lawyers for Erlanger then sued Hutcheson, demanding the $20 million in February 2014. Hutcheson's lawyers countersued, claiming Erlanger intentionally managed the hospital so poorly that Hutcheson was doomed to fail.

In April of this year, a federal judge sided with Erlanger, awarding the Chattanooga hospital $36 million for repayment of the loan, interest and late fees. At the same time, the judge ruled Hutcheson's counter lawsuit didn't hold any weight, given that Hutcheson's losses actually slowed down under Erlanger.

The judge's ruling did not formally end Hutcheson's lawsuit against Erlanger; it merely stripped Hutcheson's legal team of the ability to actually recover money in the case. This motivated some members of Hutcheson's board to wave the white flag.

So in early May, at the same time that Catoosa County's officials were negotiating with Erlanger, members of the board voted to negotiate their own deal. The terms of that deal show that Erlanger will promise not to sue individual board members for the $36 million. In exchange, the board is supposed to demand in writing that Walker County pay Erlanger its half of the loan guarantee.

Why would this be part of the deal between Hutcheson's board and Erlanger? Because Walker County has fiercely fought Erlanger's demands for money. In addition to other legal arguments, Walker County's lawyer has said Erlanger can't actually get the money because Walker County never promised them they would pay.

Instead, Walker County promised the Hutcheson board it would pay. At the same time, Hutcheson's board promised Erlanger that it would be able to pursue the loan payments through Catoosa and Walker counties, if Hutcheson was out of money.

Hutcheson has been low on money for years, resulting in its temporary closing in December.

On June 10, Hutcheson board chairman Dr. Darrell Weldon entered a settlement agreement with Erlanger, writing a letter to Walker County Commissioner Bebe Heiskell and Catoosa County Commission Chairman Keith Greene, telling them to pay Erlanger.

While Catoosa County's officials were already on the verge of a deal with Erlanger, Walker County officials argued that Weldon's demand was illegitimate. Despite Hutcheson's board voting to "execute" a settlement with Erlanger during a May 2 meeting, Stuart James, Walker County's lawyer, said Weldon was only allowed to begin negotiations.

What's more, James said the May 2 meeting was illegal. The bylaws say nobody on the board can call a meeting of the board without giving written notice at least three days in advance. Notice in this case was given via emails and phone calls.

Tom Weldon, the board chair's son and the board's attorney, said those specific bylaws did not apply to the May 2 meeting. It was an emergency meeting. And, according to a different section of the board's bylaws, emergency meetings don't need to be called in writing or three days in advance.

Erlanger Chief Administrative Officer Gregg Gentry said his side is treating its June 10 deal with the hospital board as final.

Contact staff writer Tyler Jett at 423-757-6476 or at tjett@timesfreepress.com. Follow him on Twitter @LetsJett.


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