Some legal woes of the Tulare Local Healthcare District could soon be resolved, after the district’s board of directors voted to settle lawsuits with Healthcare Conglomerate Associates (HCCA).
HCCA, the management company which formerly oversaw operations of the district’s Tulare Regional Medical Center, was involved in two cases with the district: one legal action filed by HCCA in Los Angeles Superior Court, and another filed by the district in the Bankruptcy Court for the Eastern District of California.
The board’s 3-2 vote — Xavier Avila, Stephen Harrell, and Mike Jamaica, voting in favor; Kevin Northcraft and Senovia Gutierrez dissenting — on Wednesday night settles both of those cases.
“All of the board wanted to say that we heard the community tonight and for the past several months very loud and clear — that we need to fulfill the primary mission to get our hospital open as quickly as possible, and that is first and foremost in the action that was taken tonight,” Northcraft said. “It’s not without risk, but we do feel we are on a path to reopening our hospital, and to have a successful community hospital back in our community.”
Board members did not take action on other closed session items, including a long-running lawsuit against the district by the hospital’s former Medical Executive Committee, or a lawsuit against Celtic Leasing, which provided funds to HCCA for a leaseback of certain hospital assets.
The board also deferred any action on a potential sale and leaseback of the Evolutions Gym. Currently, HCCA holds a deed of trust against the gym’s land, including the undeveloped land adjacent to the gym.
Both board members and the board’s attorneys declined to elaborate on the terms of any potential settlement.
“The board is unable to go into specifics of the terms of the settlement agreement at this time, but will do so as appropriate,” an attorney for the hospital read after closed session.
Public Reaction to Settlement, Leaseback Agenda Items
Public reaction to the addition of a potential settlement to the meeting’s agenda; and, separately, the potential sale and leaseback of Evolutions, was mixed.
Jennifer Burcham, a Tulare resident, said that she was confused after seeing the items on the agenda, noting that the board hadn’t previously discussed them in public.
“There is now an item placed on a closed session agenda where an action will probably be taken and the citizens don’t know what it’s about, what is going on, or how it might affect them and this community,” she said.
Alberto Aguilar, a former member of the hospital’s bond oversight committee, recommended the issue of the leaseback be discussed in open section. He claimed that it would be illegal for the board to discuss the sale of the building and its subsequent leaseback in closed session.
“If the board enters into an agreement regarding the sale of Evolutions, and that individual knows that the transaction was done in an illegal manner, he can have it voided. So can any member of the public,” Aguilar said.
He cited Section 32106 of the California Health and Safety Code, which states that a district’s board of directors could not call a closed meeting to discuss “the sale, conversion, contract for management, or leasing of any district health care facility or the assets thereof, to any for-profit or nonprofit entity, agency, association, organization, governmental body, person, partnership, corporation, or other district.”
Later in the night, the board’s attorneys rebutted those claims — stating that Brown Act provisions allowing the board to meet in closed session overruled that section of the California Health and Safety Code.
Joseph Soares, a Tulare attorney, supported the board’s consideration of the agreement.
“In a good settlement agreement, there’s no winner, there’s no loser,” he said. “I think I can say one thing for sure — that you should vote on one issue only, and that issue is will that settlement agreement get your hospital opened sooner.”
Dan Heckathorne, the hospital’s interim CFO, said that by filing multiple supplemental program reports, the district is able to bring in upwards of $1.5m.
“Most of these represent reports that were required to be filed with Medi-Cal and previously had not been filed,” he said.
Heckathorne told the board that some reports dating as far back as 2014 — previously unfiled — were sent to the state for reimbursement.
Those reimbursements, while helpful, won’t help the district survive the months to come.
Responding to a question from the audience regarding the district’s cash position, Heckathorne said that it’s nearly reached a breaking point.
“Starting next week, we’re projected to be in the hole $166,000, the following week $367,000, the following week $116,000; then we have a positive number, then we come back into the hole $118,000, in the hole the following week $529,000, in the hole the following week $204,000, we go up the next week, and then we come back to only $383,000,” he said.
“The point being is, as I think it was well said — we’re out of cash. Even with the IGTs and so forth, we’re out of cash,” he said. “And so, we’re working to get some supplemental infusions as quickly as we can.”
Additionally, as of March 22, the hospital has a grand total of $33m in accounts payable, including approximately $8.5m claimed by HCCA.
That’s split up between $6m in post-bankruptcy debt and $27.4m in pre-bankruptcy debt. The district filed bankruptcy on September 30, Heckathorne noted, so some post-bankruptcy debt was accrued before control of the hospital was taken back by the district.
“There are accounts payable out there for still running the hospital between October 1 and November 22,” he said.
An audit by the State of California continues as well, Heckathorne told the board.
He estimated that the auditors were only “10 to 15” percent done, and said auditors continued to visit regularly to inspect files and conduct interviews.
During the meeting, an attempt to solicit proposals for long-term hospital management partners was put on ice after significant debate by the board.
Northcraft, the board’s chairman, suggested that hospital staff begin a request for proposals process so that the public would be confident in any future arrangement.
“We want to assure the public that we’ve done our due diligence,” Northcraft said.
Avila, with Harrell seconding, motioned to table the idea until the next meeting.
The other board members disagreed with the idea, believing that the move could signal to Community Medical Center, the hospital’s preferred partner, that the board was not confident in their services; or, alternatively, that the process could slow down a reopening of the hospital.
“We’re out of time,” Avila said.
“They’re ready to come on board,” Jamaica said. “For the short term it’s best for us to go with them right now.”
The motion to table the discussion until the next meeting passed 4-1, with Northcraft being the lone dissenting vote.