Emails show conflict over Erlanger talks

Emails show conflict over Erlanger talks

March 24th, 2011 by Emily Bregel in News

PROPOSED MANAGEMENT AGREEMENT WITH ERLANGER

* Erlanger will provide a $20 million line of credit

* Two-year deferral of interest payments

* Principal repaid only when Hutcheson has excess cash flow, or when management agreement with Erlanger expires

* Erlanger will hire and pay the hospital CEO, CFO and CNO (estimated cost $1 million per year)

* Erlanger estimates it will invest $15 million in new physician practices in Northwest Georgia over the next few years

* No management fee for first three years unless Hutcheson has positive cash flow before then

Source: Ward Nelson, attorney for Hutcheson Medical Center

Document: Ward Nelson email regarding Erlanger-Hutcheson negotiations

Ward Nelson email regarding Erlanger-Hutcheson negotiations

An attorney for Hutcheson Medical Center Inc. is blaming Walker County leaders for hold-ups in negotiations over a management agreement with Erlanger Health System, according to an email obtained by the Chattanooga Times Free Press.

Walker County leaders are pushing to restructure the hospital's debt before finalizing the deal with Erlanger, according to the email. But Hutcheson Medical Center leaders say that could take months, and Hutcheson might go bankrupt in the meantime.

"So, the only lack of progress lies in Walker County, your home and mine," according to the email sent Tuesday night by Ward Nelson, legal counsel for HMC, the private nonprofit organization that operates Hutcheson.

The email was sent to trustees of the hospital authority that owns the hospital and to Martha Attaway, chairwoman of the HMC board; Jim Brexler, Erlanger president and CEO; and Don Oliver, Walker County attorney and counsel for the Hospital Authority of Walker, Dade and Catoosa Counties' board. The Chattanooga Times Free Press obtained a copy.

Hutcheson is losing about $1 million a month and officials say Erlanger's help is needed immediately to keep the doors open. Hutcheson also has defaulted on its $35 million bond issue from Regions Bank.

Erlanger has offered to put up $20 million to help Hutcheson, but insists that Walker, Dade and Catoosa counties guarantee the investment in case Hutcheson can't repay it from its own revenues.

Walker County has not yet provided that guarantee, which is holding up the talks, according to Nelson's email.

"... My view, and I do think this reflects the view of all other parties besides Don [Oliver]/Walker County, is that to try to obtain and close a bond or other deal right now is foolish and will almost certainly [push] the hospital into bankruptcy," he wrote.

Reached by phone, Nelson declined to comment further.

But Oliver said Wednesday that Erlanger is proposing 5 percent variable rate interest on the loan, which is higher than the counties could get from a private bank.

On Tuesday, Oliver said in an email to the various parties that Hutcheson needs to avoid getting into another "predatory" debt entanglement.

"The hospital is still stuck with such a debacle with Regions, and Commissioner [Bebe] Heiskell will not allow the Walker County taxpayers to be stuck with such a similar predatory arrangement as is being proposed by Erlanger," Oliver wrote.

He said Hutcheson should take only $5 million from Erlanger for 90 days, long enough to restructure its bond with Regions.

Heiskell proposed that to Erlanger last week but has received no response, Oliver said.

Walker County leaders also are concerned about taxpayers' risk if the counties secure Erlanger's investment, according to the email.

Nelson pointed out in his email that a conventional lender would charge upward of $300,000 in lending fees, while Erlanger is not charging Hutcheson anything to make the loan.

But Nelson wrote that Erlanger won't stick around to wait out a bond deal.

"Many or most physicians and key staff there will vacate, and four vendors who collectively are owed about $5 million will immediately demand payment or else they cut off services and sue, etc., and very likely force involuntary bankruptcy - not to mention what Regions may be forced to do," he said.

Though Hutcheson has made some concessions, the contract now on the table is "a fair deal for Hutcheson," said HMC board member Charlie Berry, who serves on the "transition team" for the Erlanger rescue.

"It's not a slam dunk for us ... but the final version right now, I feel comfortable with. I'm prepared to vote for that proposal," he said.

Hutcheson leaders had hoped to bring together Hutcheson's four decision-making boards this week to vote on a final proposal before Erlanger's board meeting today.

That clearly isn't happening, said Ted Rumley, Dade County executive.

Rumley said he's ready to approve the contract on the table, including the $20 million line of credit, and would rather put off the bond restructuring until later.

"We need to keep the hospital open. We need to have a cash flow," he said.

In response to emailed questions, Brexler said in an email, "I am confident that all parties involved are working in the best interest of Hutcheson Medical Center, and am optimistic we will work together to get an agreement acceptable to all."