A judge has approved a deal for Springfield Hospital to exit Chapter 11 bankruptcy.
It marks a tenuous step toward firm financial footing, a year and a half after the hospital filed for bankruptcy protection, too short on money to keep the heat on.
Under the deal approved Wednesday, a creditor, Berkshire Bank, agreed to accept $4 million out of the $9 million it had loaned the hospital. Springfield Hospital and Springfield Medical Care Systems, a group of clinics that split off from the hospital, will pay $2 million apiece later this month.
The hospital, the clinics and their creditors will likely sign the checks and officially end the proceedings before the dawn of 2021.
Chapter 11 protects an organization as it tries to rearrange its finances, under the oversight of a federal bankruptcy judge, and regain a solid footing.
The bankruptcy court’s decision marked “a real achievement, and a benefit to the community — not to mention the 450 people we employ,” said interim CEO Michael Halstead.
He called it “brand new day” for the hospital.
Much of the hard work lies ahead for the cash-strapped health care provider, according to Kevin Mullin, the state’s head health care regulator. “It’s not going to be easy, and there’s no guarantee that they’ll be around in 10 or 15 or 20 years,” he said. “But at least now they have a chance.”
The hospital will leave bankruptcy with about $9 million in remaining debt to the state and federal governments. The hospital nevertheless is in better financial position than it has been “in three or four years,” Halstead said.
The debt includes $4 million to Centers for Medicaid and Medicare Services. The federal agency had overpaid the hospital about $4.6 million in 2019, but agreed to accept $4 million over the next four years as part of the deal.
The hospital will also pay $5 million to the Vermont state government. The state has loaned Springfield about $13 million since the hospital declared bankruptcy, and has forgiven the majority of that total.
Springfield Medical Care Systems will also pay patients $111,000 it owes in refunds over the coming months and about $91,000 to People’s United Bank.
But leaving bankruptcy will save money as well; the process cost the hospital more than $100,000 a month in legal and court fees, Halstead said.
‘Absolutely necessary’ medical care
The 25-bed hospital entered bankruptcy in June 2019, saddled with $20 million of debt owed to vendors and the bank.
Later that year, the hospital and the clinics announced that they would part ways, and form two separate organizations. That division “clarifies the roles, and that will be very helpful. Everyone knows what’s expected,” said Tom Huebner, former CEO of Rutland Regional Medical Center who was hired by Gov. Phil Scott to monitor the process.
Huebner lobbied the governor to bail out the hospital, arguing it would be able to survive financially and continue to provide much-needed health care to the Springfield area.
Scott obliged, and the state provided $800,000 in late 2019 to keep the hospital afloat. It has written off millions in taxes and, most recently, provided $2 million to help finance the deal with Berkshire.
The state will also provide $2 million to Springfield Medical Care Systems, which has health centers in Ludlow, Chester, Bellows Falls, Londonderry and Springfield in Vermont, and across the river in Charlestown, NH.
Even with the support, the hospital’s future is far from certain. Rural hospitals around the country have faced challenges of fewer patients and high overhead costs.
Springfield has a high proportion of Medicaid patients, and the federal insurance program for lower-income Americans reimburses at a lower rate than private insurers. The pandemic has further weakened health care providers, as hospitals across the state canceled most appointments and elective surgeries for two months this spring. Elective surgeries are money-makers.
Springfield Hospital will also have to justify its existence to regulators. The Green Mountain Care Board has asked all Vermont hospitals to provide sustainability plans to show whether all 14 provide needed services.
The care Springfield provides is “absolutely necessary,” Huebner said. Patients “require primary care, emergency services, [and] the hospital has 15,000 (emergency department) visits a year.”
The hospital has already closed its birthing center and trimmed other expenses, Halstead said. An obstetrician from Brattleboro Memorial Hospital makes the trip to Springfield each week to provide care.
Ultimately, the hospital’s future depends on whether Springfield residents commit to getting their care locally, rather than at nearby Mount Ascutney or Dartmouth-Hitchcock Medical Center, Halstead said. “It’s that adage, if you don’t use it, they’re going to lose it,” he said.
Hospital administrators also need to be able to balance the budget, and “without the community support in coming to us, it’s going to be very difficult to stay viable.”
Halstead won’t be the one to take on that challenge. He said he expects Springfield to hire a permanent CEO by March or April.
In spite of the challenges that remain, Mullin, from the Green Mountain Care Board, praised the hospital, the banks, and state officials for hashing out a deal.
“It’s in everybody’s best interest for Springfield to be a success,” he said.
