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Hospital nudges state agency by seeking bankruptcy protection

It is not unheard of in Pennsylvania and elsewhere for hospitals and other medical providers to seek debt relief by filing a bankruptcy petition. There are several circumstances that can converge to make it a smart move for a medical provider or other corporate entity. Seeking bankruptcy protection may be a necessary tactic to restructure debt or obtain a breathing spell to hold off creditors while another financing vehicle is created. In one recent case, a large medical center declared bankruptcy to stop pressure by creditors while it puts together a sale to a private corporation under an existing contract of sale.

The medical center announced its bankruptcy filing as a response to over two years of review by state government agencies. The endless reviews have stifled the consummation of the sales contract to a private corporate buyer. The medical center declared that it was "fed up" with the state's delays, which it said have created a "shroud of uncertainty" over the status and operation of the hospital.

The CEO of the St. Michael's Medical Center of Newark claims that the filing was necessary to hold up the center financially until the state will approve the deal. He announced that employees' jobs will be preserved, their pay will continue and the patients will not notice any difference. The New Jersey Department of Health stated that the deal remains "under review." That assurance was likely of little comfort to the contracting parties after two and one-half years of investigations and review.

The filing does at least temporarily freeze the $1.8 million monthly payment that the hospital must make on state-backed bonds. Prime Healthcare, the buyer, issued a press release supporting the bankruptcy filing. The filing is a wake-up call to the state government to expedite a decision that could have a vital impact on public health and welfare. It is also another example of the versatility that businesses of all kinds, both here in Pennsylvania and elsewhere, can obtain from taking advantage of the relief provided by the federal bankruptcy laws.

Source:, "St. Michael's Medical Center files for bankruptcy protection", Kathleen O'Brien, Aug. 10, 2015

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