BY SRIANTHI PERERA
With ailing financial health, Gilbert Hospital filed for Chapter 11 bankruptcy in early 2014.
Following restructuring, the successful recovery of the town’s first full-service hospital has garnered national attention.
The Phoenix-based bankruptcy law firm Allen Barnes & Jones, which last year restructured Gilbert Hospital and Florence Hospital in Anthem, was awarded the M&A Turnaround Award recently in the category of Healthcare/Life Sciences Deal of the Year.
The restructuring involved creating a holding company called New Vision Health, which now owns both the hospitals.
The national Turnaround Management Association is also considering it for an award, which is to be announced later.
Dan Garrison of Andante Law, who represented Gilbert Hospital, was one of the lawyers involved in the plan to restructure both hospitals simultaneously.
“The two-sided plan was one reason (for the national attention) and the bigger one, he said. The other feature, according to him, is its full-payment plan.
“All the creditors of both hospitals plan to be paid back in full with modest interest on top of it and Florence, in particular, was in very, very bad shape,” Garrison said. “If they had sold the hospital as they were planning to do, creditors might have received only a very small fraction of the money back and now, because of the structure we put together, they’re going to be able to be paid back in full.”
At the outset, after its opening in 2006, Gilbert Hospital experienced a high volume of patients and was profitable. Later, however, hospital founder and emergency-room physician Dr. Timothy Johns used its funds to prop up Florence Hospital at Anthem, which he also owned. It did not bode well for Gilbert Hospital.
“Florence Hospital had only been open for a year when it filed for Chapter 11 bankruptcy in March 2013. It had never made money. It had been started with some bank loans and with a large infusion of capital from Gilbert Hospital,” said Garrison.
“The shareholders of Gilbert Hospital sued the founder of the hospital for taking money out of Gilbert (Hospital) and loaning it to and investing in another hospital project,” he said.
The lawsuit was settled before Gilbert Hospital filed for bankruptcy.
“But the lawsuit and changing management and shareholder frustration and a number of other things worked together to put Gilbert Hospital in quite a lot of distress, too,” he said. “At the time it filed for bankruptcy, it had run out of cash completely and it had lost some adjacent property to a foreclosure and its landlord had sent a notice of termination of its lease and it was in quite bad shape.”
“Dan and Bryce (Suzuki of Bryan Cave, which represented the lender) came up with the idea of merging both hospitals,” said Hilary Barnes, who represented the two hospitals’ patient-care ombudsman, Jerry Seelig. “When you put the two enterprises together and developed economies of scale, it became a much more successful enterprise, and it has emerged stronger from the bankruptcy.”
When a healthcare facility goes into bankruptcy, to protect the interests of the patients, the bankruptcy court appoints a neutral patient care ombudsman to advocate and monitor for the benefit of the patients and report to the court.
Barnes said that the hospital didn’t close and “maintained a high level of patient care the entire time.”
Operating on the premise of a patient going from “door to doc in 31 minutes,” Gilbert Hospital, located at 5656 S. Power Road, is a full-service acute-care hospital that’s open 24 hours a day, seven days a week and offers a complete array of hospital services.
Florence Hospital at Anthem is also a full-service hospital located in Florence and is the only one in that city. It, too, promises patients service from “door to doc in 31 minutes.”
Garrison said that Gilbert Hospital went from “very, very dire straights to a very solid situation over the course of two years.”
“By the time we confirmed the Chapter 11 plan, Gilbert Hospital not only had this Chapter 11 plan structure in place to reorganize and emerge from bankruptcy, but it had accumulated about $10 million in cash over and above it paying ongoing bills and paying for its attorneys,” he said. “It was a really successful turnaround of the business operations that also started to take place in Florence once Gilbert took over management there.”
Meanwhile, Dr. Johns remains a shareholder and is the chief medical officer of the two hospitals, but is not involved in the financial or operational management of the hospitals. As a result of the litigation, a board of directors was created, and Dr. Johns is a member of the board as well.
The current chief executive officer is Dennis Rutherford.