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Sale of Cheboygan Memorial Hospital set to close

by Kelsey Butler | Published May 2, 2012 at 3:34 PM

A $5 million sale of bankrupt Community Memorial Hospital that will reopen the shuttered medical facility has been revived.

The sale of the Cheboygan, Mich., hospital to McLaren Health Care Corp. will close Wednesday, May 2, about a month after the buyer initially backed out of the deal, according to debtor counsel Paul Linehan of McDonald Hopkins LLC.

Instead of completing the sale with McLaren on April 3, CMS that day closed the doors of its hospital because the company ran out of funds to keep operating. Routine services ceased the same day, and emergency care was diverted to nearby facilities.

McLaren on April 2 notified the debtor that it wouldn't close the deal due to problems with Medicare recertification and licensing, court papers show.

McLaren elected not to close the sale because the Centers for Medicare & Medicaid Services refused to grant a waiver to allow McLaren to immediately operate emergency room and outpatient surgery areas.

According to Linehan, McLaren and CMS have since worked out a deal that will resolve the certification issue.

Under the terms of the April 26 deal, CMH's existing certifications will be in effect until the Michigan Department of Community Health and Michigan Department of Licensing and Regulatory Affairs considers McLaren's application.

McLaren has 30 days after the issuance of an order to apply for the proper certifications, court papers show.

Judge Daniel Opperman of the U.S. Bankruptcy Court for the Eastern District of Michigan in Bay City on April 27 approved the agreement.

Linehan said the McLaren deal will allow the buyer to reopen the hospital in about two weeks. A "significant number" of the hospital's 300 employees will be rehired, Linehan said.

A crowd of more than 2,000 people rallied in front of the closed medical facility, known as Cheboygan Memorial Hospital, on April 23 to protest its shutdown.

"All the parties worked together to work out a deal," Linehan said. "There's been a lot of rallying by all the employees in the community and that may have had some influence, but I can't be certain. I think everybody worked hard to save a hospital, which is a great result for everyone."

CMH's 25-bed critical access facility provided emergency and general medical care, as well as cardiopulmonary, oncology, pediatric and gynecological services. The debtor also operated Larson Hall, an adjacent 50-bed long-term care facility.

Opperman on March 22 approved the private sale of CMH to McLaren, according to minutes of the hearing.

The hospital operator on March 13 had moved to sell the facility to Flint, Mich., nonprofit healthcare provider McLaren. Under terms of the deal, McLaren had also agreed to provide a $2 million debtor-in-possession loan, court papers show. The debtor never won access to the loan, however.

Opperman on March 6 did clear use of some $900,000 in cash collateral so Community Memorial Hospital could pay its operating expenses until it closed a sale of its assets. The judge on March 16 issued a second interim cash collateral order, allowing use of $1.24 million in cash collateral through March 23, and a third order on March 27 giving the debtor access to enough cash to operate its assets through April 3, court papers show.

The hospital operator filed for Chapter 11 on March 1 because of a liquidity crunch due to increasing patient deductibles, aggressive market competition for physicians and years of financial strain, including an operating loss of more than $7 million in 2011.

In court papers, the company said net patient revenue had declined from $50.8 million and $50.3 million in 2009 and 2010, respectively, to $44.1 million in 2011.

The debtor listed $10 million to $50 million in assets and liabilities in court papers.

Counsel to McLaren, Julie Teicher of Erman, Teicher, Miller, Zucker & Freedman PC, didn't return calls seeking comment. Counsel to the official committee of unsecured creditors is Michael McElwee of Varnum LLP.

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