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Quite simply, Hutcheson should obey the law and stop pointing fingers."

A North Georgia hospital is under investigation for not paying its health insurance bill.

Hutcheson Medical Center didn't provide about $1.4 million that it owed as part of its insurance plan from September 2014 to March, said Lawrence Thompson, a deputy regional director with the U.S. Department of Labor.

"The Department is investigating whether employee premiums were collected but not forwarded to the Plan," he wrote in an April 27 court filing. "In addition, the Department is reviewing whether Hutcheson Medical Center Inc. also failed to pay participant medical claims which were covered under the terms of the Plan."

Though the investigation is still active, Thompson filed the document in U.S. Bankruptcy Court two weeks ago based on what the Department of Labor had found so far. If Hutcheson did withhold money, the hospital could be on the hook to pay the $1.4 million back -- and then some.

Under the Employee Retirement Income Security Act, Hutcheson could face a penalty equal to 20 percent of what it now owes. So if that amount is actually $1.4 million, the hospital also would pay the government a civil penalty of about $275,000.

A spokesman for Cigna, which provides health insurance to Hutcheson employees, declined to comment, citing pending litigation.

This comes after Hutcheson said it experienced its first positive month since filing for Chapter 11 bankruptcy reorganization in November. As part of the bankruptcy plan, Hutcheson has to file monthly financial reports.

After losing a combined $560,000 from December to February, the hospital released its March report on May 1. In that report, Hutcheson appears to earn a profit of $250,000.

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Farrell Hayes, Hutcheson Medical Center CEO, responds to questions at the Colonnade in 2014.
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Lawrence H. Thompson declaration supporting the U.S. Department of Labor claim

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When asked about the Department of Labor investigation, Hutcheson CEO Farrell Hayes blamed Erlanger Health System. The leaders of the Chattanooga hospital took over Hutcheson as part of a management agreement in April 2011. The two sides split up in August 2013, and they sued each other last year.

Both lawsuits are still pending in U.S. District Court. Meanwhile, Hutcheson filed for bankruptcy, allowing creditors to file claims, saying the North Georgia hospital owes them money. Those creditors include the Department of Labor.

"Much of our unsecured claims debt is due to the fact that, under Erlanger's management, they changed our [health insurance] plan to give incentives for Hutcheson employees and dependents to use Erlanger and other non-Hutcheson facilities," Hayes wrote in an email. "Which is wholly nonsensical considering that Hutcheson is in the health care business. The plan has recently been changed."

When asked how Erlanger's health insurance plan caused Hutcheson to allegedly withhold $1.4 million from September 2014 through this March, Hayes said he could not discuss the details because of his hospital's lawsuits against Erlanger.

Pat Charles, a spokeswoman for Erlanger, said Hayes' rationale does not make sense.

"To suggest that Erlanger's health insurance plans for Hutcheson employees had anything to do with Hutcheson's latest legal woes is beyond nonsensical," she said in a statement. "First and foremost, Hutcheson's board has always maintained authority for corporate decisions, even under Erlanger's management.

"... It is abundantly clear from this filing that the Department of Labor is alleging these ERISA violations date back to September 2014 -- a year after Erlanger's management agreement with Hutcheson ended and under the watch of Hutcheson's current leadership, including Hutcheson's Board. None of these violations occurred under Erlanger's watch, and this latest allegation is yet another tired ploy by Hutcheson to deflect blame from their own acts and/or omissions.

"Although Erlanger is not surprised by this latest fiction, we find it truly unfortunate that Hutcheson's employees and their families are now left to worry about whether or not their medical bills have been -- or will be -- paid by Hutcheson. Quite simply, Hutcheson should obey the law and stop pointing fingers."

Hutcheson has been in poor financial shape for several years. In April 2011, when the hospital entered into a management agreement with Erlanger, Hutcheson officials said it was losing about $1 million a month and was on the brink of shutting down.

As part of that agreement, Erlanger extended Hutcheson a $20 million line of credit. Its officials demanded that money back after the two sides broke up. Hutcheson officials then sued Erlanger, saying the Chattanooga hospital's leaders never gave Hutcheson the resources it promised as part of the management agreement.

Saying that Erlanger was secretly trying to ship Hutcheson's patients to Chattanooga to boost revenue, the North Georgia hospital's lawyers now want Erlanger to pay tens of millions of dollars. When a U.S. District Court judge gave Erlanger officials permission to foreclose on Hutcheson, Hutcheson filed for bankruptcy, allowing them to continue to operate.

In the last two months, Hutcheson's attorneys have argued several times in court filings that Erlanger's management agreement from 2011 should be voided. Hutcheson says its own attorneys were covertly shuffling proprietary information to Erlanger, allowing the Chattanooga hospital to get a better deal.

Erlanger's lawyers, meanwhile, say no such conspiracy was ever afoot.

Contact staff writer Tyler Jett at tjett@times freepress.com or at 423-757-6476.

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