Doctors Hospital files Chapter 11 to keep doors open

Saddled with more than $8 million in secured and unsecured debt, the physician-owned Doctors Hospital of Springfield filed for reorganization Aug. 23 under Chapter 11 of the bankruptcy code.

Doctors Hospital is a 100,000, square-foot facility situated on 22 acres at 2828 N. National Ave. and has approximately 250 employees. Its 19 physician-owners have stakes in its operation ranging from about 0.25 percent to 13 percent, according to David Schroeder of David E. Schroeder Law Offices, the attorney representing the hospital.

Rising debt

Debt totals, according to the bankruptcy filing, are $2.2 million for tax debt, including personal property taxes, real estate taxes, 940 and 941 taxes and Missouri withholding. Secured claims total more than $4.8 million, while unsecured claims come in at $1.1 million.

A recent appraisal of real estate and property is set at $6.1 million when not in use, and at $7.75 million when the hospital is in operation, said Paul Taylor, chief executive officer for the facility. "The bottom line is the assets are worth far more than what the debt is. That's why it's appropriate to do a restructuring here."

Total assets for both real estate and other real property are more than $9.3 million. There are two mortgages against the property the first valued at $3.17 million and the second at $300,000, Schroeder said.

Operational costs

SGOH Acquisition Inc. dba as Doctors Hospital of Springfield opened Jan. 1, 2000. The business had $2.5 million in expenses to get facilities running after a 2 1/2 year hiatus in operations, said Paul Taylor, chief executive officer for the hospital.

An additional loss of nearly the same amount was incurred during its first business year while patients were rediscovering the facility, he said.

While gross patient charges have increased from $7.5 million in 2000 to a forecasted $25 million for 2002, losses and debt loads sustained early on have hampered its fiscal operations, Taylor said. To rectify the problem, he felt he could get better terms and handle it more rationally by filing a Chapter 11.

Taylor said a 35 percent annual occupancy rate for the hospital's 45 beds is about typical. "If we ever get to 30 beds out of those 45, we're pretty close to capacity," he said.

State cutbacks

While the hospital was managing to stay current with its obligations, Taylor said, it was the state's cut back in Medicaid payments this summer that most directly precipitated the ownership's decision to reorganize.

Doctors Hospital is sustained in large measure by government-paid medical reimbursement. About "80 percent of its revenues are the combination of Medicare and Medicaid," said Schroeder.

Who gets what when

The hospital's restructuring strategy calls first for paying down the tax debt over a six-year period., Schroeder said. This will be done concurrently with making payments to unsecured creditors over a three-year time frame, as well as continuing to make modified payments to secured creditors. The reorganization plan is to be filed by Dec. 20, Schroeder said, but he hoped to have it submitted by Nov. 1.

"If the plan's approved, it becomes the new payment arrangement with all the creditors," Schroeder said, establishing "the new payments to the secured creditors and the new amortization payment to the tax authorities and the pro rata payment to the unsecured class."