Walker County Hospital Corporation (d/b/a Huntsville Memorial Hospital)

November 11, 2019

Walker County Hospital Corporation (“WCHC,” d/b/a Huntsville Memorial Hospital) is the latest in a recent string of healthcare bankruptcies. Why?

Per the debtor:

“While the Hospital has outpaced market trends in the region for admissions and revenue, and has little outstanding long-term debt, as a standalone hospital operator, the Debtor faces significant challenges in acquiring competitive pricing for necessary goods and services and favorable managed care contracts as compared to multi-hospital systems.”

If you’re wondering about why private equity firms are rolling-up hospital systems, this ⬆️ ought to give you some perspective.

“As a result, the Hospital has significantly above average operating costs that exceed its revenue generation.”

That, ladies and gentlemen, is what you call a lack of economies of scale.

“In addition, the Debtor’s over-extension into rural healthcare clinics and a failed lab venture and ambulatory surgery center, among other issues, have resulted in an unsustainable balance sheet and liquidity.”

So, uh, that all sucks.

Interestingly, the State of Texas helped bury the debtor:

In 2018, the State of Texas shifted its health insurance coverage for state employees from United Healthcare to Blue Cross Blue Shield. This shift materially impacted the Debtor’s revenue, as the Debtor’s contract with Blue Cross Blue Shield has less favorable reimbursement rates and a large portion of the Hospital’s patient population is employed by the State. The Debtor has been in negotiations with Blue Cross Blue Shield since 2016, in an attempt to obtain a managed care contract with the insurer at a fair market rate, but efforts thus far have remained unsuccessful.

Because of this and other issues, the debtor’s revenue dipped and it tripped covenants in its pre-petition credit facility AND defaulted under its operating agreements with the Walker County Hospital District. The debtor has been operating under forbearance agreements with both for some time now while it sought to find a buyer. It failed. This bankruptcy is intended to provide one chance for such a sale: the debtor already has a sale process motion on the docket. It does not have a stalking horse purchaser, it does have some hope that the District will be a participant in an auction. To allow that process to play out, the debtor obtained a $5mm DIP credit facility commitment from its pre-petition (direct) lender, MidCap Financial Trust.

• Jurisdiction: S.D. of Texas (Judge Jones)

• Capital Structure: $2mm RCF (MidCap Financial Trust)

• Professionals:

  • Legal: Waller Lansden Dortch & Davis, LLP (Ryan Cochran, Blake Roth, Tyler Layne, Andrea Cunha, Evan Atkinson)

  • Financial Advisor: Healthcare Management Partners LLC (Steven Smith)

  • Claims Agent: Epiq Corporate Restructuring LLC (*click on the link above for free docket access)

• Other Parties in Interest:

  • DIP Lender: MidCap Financial Trust

    • Legal: Vedder Price P.C. (Michael Eidelman, David Kane) & Porter Hodges LLP (John Higgins, Kiran Vakamudi)