Jilted creditors and vendors are lining up in bankruptcy court for some of the Tulare Local Healthcare District’s cash — including Healthcare Conglomerate Associates (HCCA), the district’s former management partner.
Those entities also include the City of Tulare, Tulare County, Bank of the Sierra, the district’s interim management consulting company, and the district’s former legal counsel.
While those claims — mostly for work done before the district filed bankruptcy — total $64,034,836.83, the district’s interim management team’s most recent public estimates value the total of the district’s accounts payable at $33,000,000; $27.4m in pre-bankruptcy debt, and $6m in post-bankruptcy debt.
The large difference is because the validity or amount of some claims are disputed, and others are connected to active, unsettled litigation. Any potential payouts from those litigated claims would be paid from insurance policies, not the district’s assets.
The majority of the district’s creditors and vendors had until April 10, 2018 to file claims with the United States Bankruptcy Court for potential payment. Others were acknowledged in some of the hospital’s initial bankruptcy filings.
“Most vendors had to file a claim,” Riley Walter, the district’s bankruptcy attorney, said. “We’ll compare what the records of the district say is owed to what the claimant says is owed; and, at some point in the far distant future we will have to reconcile that. We will always try to do it by agreement, but if we don’t, we’ll submit it to the court — and the court will fix the amount that’s allowed for the claim.”
County, City, Utilities Unpaid
Tulare County officials had filed a suit against the district in September, 2017 for unpaid rent at the Hillman Clinic, a building owned by the county. According to a bankruptcy claim filed by the county, unrelated to the suit, the district also failed to pay for its last three elections.
At the time the suit was filed, the district had been served with a Three-day Notice to Pay or Quit, which claimed that the district had been in arrears since February, 2017 for monthly rent totalling $148,146.10.
Alan Germany, HCCA’s Chief Financial Officer, briefly referenced the suit at a September 27, 2017 district board meeting. He skipped over any mention of the election bills.
“There’s been cases of homeless people sleeping in the attic out there,” Germany said of the clinic at the meeting. “This is going to sound terrible, but it’s the truth — there’s mice and rats out there.”
“I’ve met with the county and talked about this, and lo and behold — now they’re suing the district for back rent, in the amount of $148,000,” he said.
The suit was filed by the county the day before his remarks.
According to the county’s claim, the district now owes only $111,515.58 in rent at the Hillman Clinic for rent between July and December, 2017.
Documents show Tulare County went unpaid for $132,622.08 in elections expenses, spanning the July 11, 2017 recall election, the November 8, 2016 general election, and the August 30, 2016 Measure I Bond election.
The City of Tulare is also seeking repayment in the amount of $84,864.62. $48,949.90 of that is for a loan repayment, according to the city’s documentation, and $35,734.72 is for utility payments.
Southern California Edison is also seeking a total of $473,625.65 for past due utility services. The Voice first reported on the electric company’s problems with the district in September, after officials with Edison sent a five-day shutoff notice to the district.
Documents submitted by the company show that bills spanning as far back as January 2017 went unpaid.
State Agencies Come Knocking
The City of Tulare and Tulare County aren’t the only governmental entities looking for cash.
The California Department of Healthcare Services (DHCS) has filed two claims. One is for $2.3m, another for $2.5m.
Hospital officials state that they’ve got records proving the amounts have already been paid.
“We were suspicious when we got the notice[s] I think a week ago, and now we’re finding the data that shows we don’t owe them,” Larry Blitz, the hospital’s interim CEO said.
One claim from DHCS states that hospital management failed to comply with a required audit in 2017, causing the department’s auditors to declare that the entire $2,370,060 the district had been paid in 2013/14 to be an overpayment.
The payment came from the Disproportionate Share Hospital (DSH) program. Under the program, hospitals which serve a large number of low-income patients are eligible to receive payments for treating uninsured patients. Federal regulations require that states audit the hospitals that receive such payments, a declaration attached to the claim states.
“DHCS, Myers & Stauffer, and the District Hospital Leadership Forum reached out to Tulare several times asking for the data and Tulare finally sent a few support files to Myers & Stauffer on June 22, 2017. The data that was submitted was incomplete and insufficient for the DSH audit. We again reached out to Tulare asking for the proper data and there was never a response received,” Jillian Mongetta, with DHCS, writes in the declaration.
In a separate claim, DHCS officials seek an additional $2,513,810 for Medi-Cal overpayments.
Problems stemming from unsubmitted, or insufficient, paperwork have been common, Blitz said.
“We’re finding things everyday that require our attention, require justification, or require an action by the district to be able to remedy any particular situation that was not cured previously,” he said.
Consultants, Familiar Faces Unpaid
Multiple consultants went unpaid as officials with HCCA made attempts to solve the district’s cash flow issues and deal with rising debt.
Heather Creager, a consultant specializing in Electronic Medical Record software, filed a claim for $22,425.00 for work done between March and November of 2016.
Creager emailed HCCA officials asking for an update on the past due invoices in August, 2017.
“Is there anything I can do on my end to help press the issue as this is really a significant financial hardship for me. I could provide a formal letter if that helps, but want to be respectful in that I know the organization is working through their financial obligations,” Creager wrote.
By that point, HCCA had been given permission to seek up to $79m in loans for tower construction and bond redemption, and an additional $22m in loans for “operating expenses of the Hospital, repayment of debt, payment of ongoing costs of construction of the Tower project, and for other Hospital purposes.”
Its ability to do so, however, was being challenged by board members Kevin Northcraft, Mike Jamaica, and Senovia Gutierrez. Gutierrez had won a recall election, been sworn in, and the three voted in an emergency meeting to revoke that authority, but HCCA officials stated that she wasn’t officially a board member and the meeting wasn’t legal.
Shawn Burgess, HCCA’s chief information officer, alluded to the company’s efforts to seek out funding in his reply.
“We have been making progress—with finding potential glitches in the Cerner system impacting the $1MM month over month shortfall in cash. On another tangent there is effort underway to leverage some of the capital assets to bring in some cash as well,” Burgess, replied on August 31. “Unfortunately, making payroll has been a challenge where money has been borrowed to cover this expense as well. However, we do see progress on remedying the shortfall in the system and with financial arrangements.”
HCCA still managed to execute a $3m loan in the district’s name, the district later alleged. The money from that loan was received the same day Burgess’ email was sent, but the district claims the money immediately went to another company controlled by HCCA’s CEO — not vendors like Creager.
At the same time, officials were working with Wipfli/HFS Consultants — the interim management company currently handling the district’s day-to-day operations — to find lenders to finish the district’s beleaguered tower construction project.
Blitz, a consultant with Wipfli/HFS, stated that he was not involved in the earlier work with the district, and that the company was brought on by the district — not HCCA.
That work included a feasibility study, which Dr. Benny Benzeevi, HCCA’s CEO, mentioned publicly at an April, 2017 board meeting.
“The first step in that is to get a feasibility study which will confirm by an outside entity that the projections we have for the hospital’s ability to pay back that loan are accurate,” Benzeevi said at the meeting, “and that is what is happening at present.”
That study was never fully paid for, Wipfli’s bankruptcy claim suggests. The company is requesting repayment for $93,256.73 of debt generated before the hospital’s bankruptcy claim, and $15,425.84 in debt generated afterwards.
HCCA has also claims for repayment.
One claim is for $5,908,213.62. That amount is for money the company claims was loaned to the Tulare Local Healthcare District and is secured by a number of attached promissory notes.
The other is for $10,674,478.18, and according to the filing, is claimed for the company’s termination fee, management fees, and “labor costs” that came after the district rejected the HCCA contract.
Banks, Lawyers Unpaid, Too
Bank of the Sierra went largely unpaid for the district’s $800,000 line of credit, according to a claim the bank filed. The loan, taken out in October 2016, was sought to repay other past due bills — to Cardinal Health, a pharmaceutical vendor.
The records show that as of the time the district filed bankruptcy, it still owed Bank of the Sierra $599,624.63 in principal on the loan, along with interest and late fees. In its claim, the bank states that it applied $610,100.28 held in a money market account as collateral towards the unpaid portions of the loan.
That wasn’t enough to satisfy the interest, late fees, and legal fees — required since the bank had to make multiple filings in bankruptcy court to apply the collateral towards the unpaid loan — that had accrued on the loan as of March 5. The bank is seeking an additional $19,836.61.
Additionally, the district’s former law firm, BakerHostetler, filed a claim for nonpayment in the amount of $498,825.40. According to the records provided to the bankruptcy court, invoices began racking up in March of 2017.
Bruce Greene, the attorney who previously represented Benzeevi, HCCA, and the district, sent Benzeevi a letter in September 2017 stating that the firm would no longer take on new cases for HCCA or for Benzeevi personally, and would move to terminate its relationship with him.
“This letter shall serve as notice that the Baker Hostetler firm has determined that we must
commence termination of our representation of you personally as well as our representation of
HCCA, and all entities affiliated with you and HCCA (collectively, “You and HCCA”),” the letter read. “Commencing today, we will no longer undertake any new legal matters for You and HCCA,”
It ended by requesting Benzeevi settle “outstanding accounts with the firm forthwith.”