This article has been updated under the heading “Potential New Management.”
Healthcare Conglomerate Associates (HCCA) has confirmed that it may not be able to make payroll for its employees Thursday — and that the responsibility for those payments ultimately rests with the Tulare Local Healthcare District.
Additionally, attorneys with the district have moved forward in attempting to reject the hospital’s contract with HCCA, stating that they would be open to keeping HCCA in for a temporary period and that a company, with emergency financing, has been identified to assume control over the hospital’s operations when the contract is rejected.
Marshall Grossman, counsel for HCCA, told the Voice that the hospital management company, which the district has contracted to manage the hospital, has provided the board with at least one loan option to ensure that employees continue to be paid.
“There is that risk, and HCCA is doing everything within its power short of making further loans to the district,” Grossman said.
But he made clear that HCCA’s main responsibility under the contract is to manage the hospital. The board, he said, has to ensure that the employees can be paid, and HCCA has provided them with the information to make that happen, he said.
“They’ve also had available to them at least one specific opportunity for a $20m loan by a responsible publicly-held company, and that opportunity was made available by Dr. Benzeevi, he reported it to the district board and the district board has taken no action to complete the negotiations for that $20m,” Grossman said.
He also said that the district has chosen not to look into opportunities to use its “substantial non-hospital assets at its disposal,” such as buildings that are “not essential for the operation of the hospital.”
“The district has an opportunity to encumber or sell those assets so that the employees are paid and so that the patients are protected. They apparently haven’t lifted a finger to do so,” he said.
“HCCA is sending one last final plea to the [district’s] board to step up to the plate and fund at least this one payment. And we know they’ve got the availability of funds to do so, and they need to draw on those funds to do so, instead of effectively forcing HCCA to make the payments because the primary obligor — namely the district, isn’t doing so,” Grossman said.
“I can tell you that for several days now, they’ve had the full information about the identity and amount of funding that is almost assuredly available, if they’ll just engage the lender; but, for reasons unknown to us, they have yet to engage the lender,” he continued.
But Kevin Northcraft, chairman of the Tulare Local Healthcare District’s Board of Directors, said that it’s surprising HCCA would tell the Voice what they won’t tell their own board.
“[Benny Benzeevi, CEO of HCCA has] made no proposals to us for any options to look at,” Northcraft said.
Northcraft also stated that he hasn’t received any information on loans from HCCA, either.
Board Moves Forward to Reject Contract
Attorneys for the district have also moved forward in their bid to petition the Bankruptcy Court for the Eastern District of California to reject HCCA’s contract with the district.
They’re seeking an emergency hearing on October 12 at 10:30am, in Courtroom 13 of the court, located at 2500 Tulare St, Fresno, CA.
In a declaration filed by Riley C. Walter, a bankruptcy attorney for the district, he claims that HCCA has “threatened to terminate or suspend all employees of the hospital, which will imperil health and safety of patients and result in a cessation of hospital operations,” necessitating the shortened time-frame of the hearing.
Northcraft, in his own declaration, claims that HCCA threatened to “terminate or suspend” its employees at the hospital on October 6 at 6:12PM, unless an agreement was reached by the following day; as of publication time, the Voice has not received any information indicating that employees have been terminated or suspended.
In a motion that the district seeks to have the court approve, the district calls the contract “a one sided, oppressive, overly expensive, unconscionable and unlawful agreement,” stating that the district has “other viable alternatives at more competitive prices, and much more favorable terms.”
It also claims that HCCA had “declared its intention to cease paying its employees” on October 6 and on October 9.
Potential New Management
In the motion, the district’s attorneys state that Wipfli LLP/HFS Consultants would “step in and assume control over the operations of the hospital and healthcare facilities” once HCCA’s contract was rejected, and that the company has “arranged needed emergency financing.”
A declaration by Northcraft states that HFS had “made arrangements with a healthcare provider of signfiicant size, located in Fresno, to provide emergency interim management of the District’s healthcare facilities and provide emergency funding to keep the hospital open for an interim period of time.”
The district’s motion also stated it would be willing to enter into “an arrangement acceptable to the [district] where HCCA would cooperate in an orderly and peaceful transition to a new operator for a transitional period of 30 days post rejection.”
What Funds Does the District Have On Hand?
Under the terms of the Management Services Agreement, which continues to govern the relationship between HCCA and the district until a bankruptcy judge rules otherwise, funds deposited into the hospital’s bank account are transferred to accounts controlled by HCCA on a nightly basis.
HCCA may then use the funds received from those transfers — or from any of the district’s bank accounts — to pay itself the required management fee, any required reimbursements, or repayments for advancements made to the district.
It’s unclear whether those transfers have stopped, or whether the amounts coming in are so small that loans are still needed to make payroll.
Neither Grossman nor Northcraft could immediately confirm whether those transfers had stopped, though the Voice is waiting on a response from Grossman, and will update this article when one is received.
Attorneys for the district have previously indicated that the board is in the dark on its financial situation, going so far as to ask employees and members of the public to come forward with any knowledge on basic items, such as the hospital’s bank branch location.
Even the board’s hired consultants, Wipfli/HFS Consultants, state they have “not been able to obtain any meaningful financial information” on the hospital’s condition.
Grossman also questions the motivations of those on the board.
“These same people that serve on the board are the same one who led the opposition to the attempted bond issue, which would have raised sufficient funds to complete the tower and to finance the operations of the hospital. So they cut off that source of financing,” Grossman said.
“There’s no transparency here on the part of anybody, other than HCCA or Dr. Benzeevi. So somebody’s got a stake in the outcome of all of this — and the public doesn’t know who it is,” Grossman told the Voice. “These are questions that need to be asked, and need to be answered. Hopefully that will occur in the framework of the bankruptcy proceedings.”
Using publicly-available campaign filings, the Voice has previously published interactive graphs and raw reports of donations to Citizens for Hospital Accountability, the campaign committee which has financed Mike Jamaica, Senovia Gutierrez, and Northcraft’s campaigns for election. Those reports are current as of July 10.
Grossman claimed that the board had no rational reason for withdrawing a resolution allowing HCCA to execute loans on behalf of the district, given its financial condition — and that it has no rational reason to not execute a loan now, to ensure employees are paid and operations continue.
“The potential lender is going to be putting up funds for the District to meet the District’s obligations — why in God’s name wouldn’t the District be open to this opportunity with open arms instead of ignoring it?” he asked.
For his part, Northcraft says he simply hasn’t received any information at all.
“I haven’t gotten an email text or letter from [Benzeevi] in probably a month, other than the agenda packet for the last regular meeting,” he said.