DALLAS - Tri City Health Centre Inc., which restructured $17.9 million of bonds and reorganized in bankruptcy a year ago, on Tuesday announced plans to close its only hospital after Medicare pulled the plug on funding.
Lawyers for the trustee, the Bank of New York, and Dallas-based Tri City, which issued new bonds through the North Central Texas Health Facilities Development Corp., were meeting yesterday to discuss possible remedies or solutions for bondholders, according to officials close to the discussions.
Tri City decided to close the hospital when Medicare suspended payments after an audit determined the hospital had been overpaid. Until that happened, last year's reorganization plan had been working, according to Gavino Sotelo, chairman of Tri City's board. Previous audits had shown the hospital hadn't been overpaid, Sotelo said, so the new audits came as a surprise.
"Unfortunately, Medicare, when it went back and did the audits, found that the hospital had been overpaid by several million dollars," Sotelo said. "Medicare wanted that money back. So they froze all future payments. When they did that, we had no choice but to shut it down."
About 65% of the nonprofit hospital's $40 million or so in annual revenue came from Medicare payments for treating the elderly. Located on the fringe of southern Dallas, the hospital has served elderly and low-income residents since 1957. As of yesterday, the hospital is no longer taking new patients and hopes to have all patients discharged or moved to other hospitals by Friday.
Sotelo said that after Friday the hospital would have no funds left to continue paying hospital employees, though it will maintain the hospital building until the trustee and issuer come to a conclusion about possible remedies for bondholders.
In May 1999 a bankruptcy judge approved a reorganization of Tri City's outstanding debt that let the hospital emerge from Chapter 11 bankruptcy protection with a plan to repay bondholders, who at one point were pressuring the trustee to foreclose. Previously, Tri City had been in technical default under its bond covenants.
Tri City sought bankruptcy protection after the Bank of New York posted a foreclosure notice in July 1998. Though no debt service payments had been missed, the hospital management and bondholders had been fighting over management of the hospital for several months prior to that.
Under the May 1999 restructuring, $17.9 million of new tax-exempt bonds were issued in August. The term of the old bonds was extended by two years and the interest rate was reduced. The hospital was also required to make monthly transfers of interest for two years. The deal also gave bondholders more input into the operations of the hospital.
Sotelo said Tri City had been complying with the terms of the restructuring up to the point that Medicare cut off funding.
An attorney for the Bank of New York had no comment.
