Tulare hospital dodges bullet in bankruptcy case

Judge denies $5.6 million claim filed after deadline for repayment plan to creditors; vendor payouts totaling $5 million will begin in 2025

TULARE – In an effort to make its vendors as close to whole as possible, the Tulare hospital district objected to one creditor’s request to take most of the money approved in bankruptcy.

On April 27, the United States Bankruptcy Court in California denied a $5.6 million claim requested by the California Department of Healthcare Services (DHCS) for reimbursements paid to Tulare Local Healthcare District (TLHD), which formerly operated the Tulare hospital, for outpatient services rendered to Medi-Cal patients.

U.S. Judge Rene Lastreto II ruled DHCS’s request was “prejudicial” to the district and its creditors because the state agency did not specify the amount of the claim by the time the district’s repayment plan was overwhelmingly supported by 250 other creditors.

“It is not ‘sensible’ or ‘moderate’ to delay filing a claim in a liquidated amount when the information needed from the District was timely provided,” the judge stated in his ruling. “Nor is it ‘fair or proper’ to delay two years after the claim deadline before seeking to amend a claim from ‘undetermined’ to $5.5 million.”

Sandra Ormonde, CEO of the healthcare district, said creditors approved $5 million in pay outs and she testified each would be paid back between 19.2% and 30.3% of what is owed through the Chapter 9 bankruptcy process. If DHCS’ late claim were to be accepted, claims to other creditors would have been forced to take 20% less, dropping them below the minimum agreed upon repayment.

“The ruling means that the DCHS claim will not dilute what other creditors who timely filed their claims will receive under the plan,” Ormonde said.

The decision also means the district will not owe anything to DHCS. TLHD’s bankruptcy attorney Riley Walter of Wanger Jones Helsley in Fresno opposed the request because it missed the deadline to file an amount to be included in the repayment plan. According to court documents, DHCS filed its claim for an unspecified amount on April 6, 2018, two days before the claim deadline but waited another 13 months to submit its actual amount of $5.6 million in May 2019. TLHD objected to the amount in July 2019 and creditors approved the repayment plan on Aug. 16, 2019.

“DHCS could have amended its claim prior to the statutory bar date for government claims,” Jones wrote in a released statement last week. “DHCS did not do so, instead waiting until after the chapter 9 plan was confirmed, and after its effective date had passed before filing its motion for leave to amend.”

Sheila Mendiola, branch chief of provider payments and policy for DHCS, testified the state agency audited 13 years of records with the district dating back to when TLHD began participating in the program in the 2002-2003 fiscal year. Under California’s reimbursement plan, DHCS should annually reconcile TLHD’s cost reports with audited cost reports. After reconciliation, any underpayment or overpayment is to be reflected annually in DHCS’s supplemental payment to the district. Mendiola said DHCS could not meet the deadline because final reconciliations for all of those years were still pending. The judge pointed out TLHD had filed timely annual paperwork to DHCS and that any delays were caused by the state agency. DHCS admitted to the court it “experienced difficulties” during this sixteen-year period due to: “difficulties in extracting [outpatient fee-for service] charges and revenues from MMIS;” “workforce reductions;” and “inefficiencies with workflow logistics, some of which lasted for years.”

“These issues ultimately are not District’s nor its creditors’ responsibility,” the court stated.

Ormonde said the approved $5 million will be paid out to 190 creditors over a five-year period beginning in 2025. There are only a handful of unsettled claims remaining. In anticipation of those payouts, the district has stabilized its finances by selling assets, restructuring debt and taking out revenue bonds to pay off its loan to the city of Tulare and other long-term debt. Ormonde said the longer-term bonds offered a more manageable payment at a lower interest rate to ensure cash flow for the district. Payments on both bonds began in March and will be paid out over 23 years.

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