Changes in the healthcare system have placed enormous financial pressures on hospitals and other healthcare providers in the region.  This has caused a number of healthcare institutions to seek insolvency and restructuring guidance, and in certain instances, resort to protection under Chapter 11 bankruptcy proceedings.

The Cole Schotz Bankruptcy and Restructuring Department, led by its Chairman Michael Sirota and Gerald Gline, has played prominent roles and remain in the forefront of providing bankruptcy and out-of-court restructuring advice to a wide array of  healthcare providers facing financial stress.   

Changes in the landscape of the healthcare system, including shorter hospital stays, a shift to ambulatory rather than inpatient services, competition by ambulatory surgery centers , more advance pharmacology, and a growing number of institutions with technology to perform complicated procedures, has led to a decline in inpatient hospital stays.  These reductions are demonstrated by a drop in inpatient occupancy in many of the region’s hospitals and a resulting excess in capacity.  This drop in volume, combined with increased cost, and a large amount of unreimbursed charity care, has resulted in large operating losses in many of the region’s hospitals. 

Both the New York and New Jersey have formed commissions to look into and make recommendations for hospital closings , consolidations and reconfigurations to address hospital over bedding in the region . In 2005 Congress enacted  the first major over haul of the Bankruptcy Code since 1978 ( “ BAPCPA” )and included a number of provisions specifically designed the address the unique  problems facing heathcare reorganizations.

The Cole Schotz Bankruptcy and Restructuring Department has been involved in many of the region’s most significant healthcare bankruptcies and has extensive experience navigating healthcare providers through the requirements of BAPCPA and the complex web of extensive governmental regulations.  .

In July 2006 Cole Schotz filed a Chapter 11 bankruptcy for Passaic Beth Israel Hospital (“PBI”), a New Jersey nonprofit hospital that operated a 262-bed acute care hospital in Passaic.  In November, PBI was hours away from having to close down due to a lack of operating funds.  Because it appeared that PBI lacked the funds to make payroll, the New Jersey Commissioner of Health closed PBI’s emergency room and ordered a cancellation of certain surgical procedures in anticipation of immediate cessation of its operations.  However, through round-the-clock negotiations, Cole Schotz was able to successfully put together a package of interim financing with a consortium of PBI’s bond holders, New Jersey Healthcare Facility Financing Authority (“NJHCFFA”), concerned board members, doctors, community residents and St. Mary’s, a neighboring hospital that had entered into a contract to purchase PBI.

This financing package enabled PBI to continue to operate while Cole Schotz simultaneously orchestrated the sale and merger of PBI with St. Mary’s, the closure of St. Mary’s existing facility and the consolidation of both hospitals at PBI’s more modern campus.  The transaction was financed through the first-time use of NJHCFFA Hospital Asset Transformation Bonds, which are backed by State of New Jersey credit enhancements.  Cole Schotz led PBI and its board through all aspects of the Chapter 11 bankruptcy, as well as through the state regulatory process.

In April, Bayonne Medical Center  (“BMC”) filed for Chapter 11 bankruptcy relief.  Cole Schotz is currently representing Financial Security Assurance Inc. (“FSA”), the insurer of two bonds issued from NJHCFFA with an outstanding principal balance of $34 million.  While BMC’s Chapter 11 bankruptcy is still in its early stages, Cole Schotz has been actively involved in “shaping” the bankruptcy proceeding in order to protect the interest of the bondholders, while attempting to impose a rational process for BMC to seek a purchaser and/or merger partner in order to avoid closure.

On July 5, 2005, St. Vincent’s Catholic Medical Center of New York and related entities (collectively “St. Vincent’s”) commenced Chapter 11 bankruptcy cases in the United States Bankruptcy Court for the Southern District of New York.  In February, St. Vincent’s filed a Plan of Reorganization.  That Plan involves the sale of St. Vincent’s current downtown Manhattan hospital facility, after St. Vincent’s constructs a new modern facility on adjacent property.  Cole Schotz is providing bankruptcy-related advice to the selected developer of the existing hospital facility to assure the developer of the benefit of its bargain in the context of a complex bankruptcy approval process. 

Cole Schotz’s insolvency team is also presently representing a nuclear medical imaging company in its Chapter 11 case and advising a home healthcare provider through an out-of-court restructuring.  Cole Schotz previously represented United Hospitals in its Chapter 11 bankruptcy proceeding; the Official Unsecured Creditors Committee of PHP Healthcare, a publicly traded managed care company, TNS Nursing Homes and related entities, in Chapter 11 proceedings; and  St. Joseph’s Hospital in the successful out-of-court restructuring of its secured debt.