Those who are familiar with hospital bankruptcy realize that the key to keeping the money flowing is physicians. In fact, one of the warning signs that a hospital is in financial distress is having a poor relationship with its physicians, says Richard Gundling, vice president of Healthcare Financial Management Association (HFMA).

The light at the end of the tunnel
Baran realizes that his hospital’s situation was not typical, especially for upstate New York, which has a bad reputation for bankruptcies and closures, he says.
“Bankruptcy usually means to [upstate New York residents], the company is closing,” says Baran. “The fear in everyone’s mind is, ‘Bankruptcy, I’m going to lose my job.’ That’s the pervasive thought.”

Baran’s most important message to employees, he says, was that no one would close the county’s only hospital. The closest hospital would be 30 miles away in Syracuse.

“I remember saying this [when I met with employees]: ‘Yes, we are filing for Chapter 11, but we are not closing. No, you will not lose pension benefits. You will not lose your job.’”

In July 2008 the hospital reached an agreement with creditors, and the court officially discharged the hospital by November of that year. Generally, it takes a hospital 12 to 18 months to emerge from bankruptcy, says Baran.

While the unsecured vendors — about 500 — lost money, it was in their best interest to continue doing business with the now-thriving health care facility, says Baran.

The hospital lost some of its market to the hospital in Syracuse, not due to the bankruptcy, but to the lack of physicians. This market, including elective surgeries and baby deliveries, has now gone back to the facility, says Baran.

Auburn Memorial is out of the woods except for $1 million it owes to PBGC, which it expects to pay off next year.

“Four years later and we’re still in business, and business is better than ever,” says Baran.

While the situation Baran encountered was rare for the area, it’s not uncommon for a hospital to emerge from bankruptcy.

Hospitals that file for Chapter 11 protection give themselves a chance to reemerge, explains Adam Rogoff, a partner in the corporate restructuring group for the Kramer Levin firm in New York. But those that file for Chapter 7 protection pass the company over to individual management and liquidate, closing its doors.

Facing financial stress
In New Jersey, the recession certainly hasn’t helped already-floundering hospitals, says Kerry McKean-Kelly, spokeswoman for the New Jersey Hospital Association.

In fact, six hospitals have filed for bankruptcy protection since 2007, which is an unprecedented number, McKean-Kelly says.

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