Forest Park Medical Center in Frisco filed for Chapter 11 bankruptcy Sept. 22 after months of experiencing financial issues.
On Sept. 23 a bankruptcy court judge approved interim financing for the hospital to continue operations and gave interim approval for the hospital to move forward with restructuring plans, effective immediately.
The approvals are only interim until a final court hearing in October.
FPMC will receive up to $18.5 million in interim financing from Sabra Health Care REIT Inc., the landlord for the hospital, to continue operations.
The hospital has also hired Michael Miller of Delloite Corporate Restructuring Group as its chief restructuring officer. Miller may work with FPMC to manage and oversee the sale of any hospital assets, oversee the reorganization process and assist with the bankruptcy case.
Sabra also announced Sept. 23 that it had sent a notice to FPMC in August saying the hospital may default on its lease because of unpaid rent. Court documents confirmed that FPMC had defaulted on its lease.
Sabra reduced FPMC’s monthly rent payments in July and allowed deferred rent payment to be paid off over time, according to Sabra’s quarterly earnings report in August. However, Sabra states the amended lease agreement is no longer effective because FPMC could not obtain the required financing required under the amended lease.
A statement from FPMC says the bankruptcy filing will not affect other hospitals in the Forest Park system.
“The Board of Forest Park Medical Center Frisco LLC has made the strategic decision to reorganize the business under Chapter 11 of the Bankruptcy Code,” the statement says. “This is the same process implemented by many other major Dallas-based companies, most notably American Airlines, and Forest Park Frisco aims to achieve a similar level of restructuring success. Under Chapter 11, the hospital will continue to operate while developing a plan to restructure its finances and operations. ...
“Forest Park Frisco is choosing to make a voluntary effort to restructure in order to transition to a healthy business foundation after facing a number of challenges since opening in 2012,” the statement said. “These challenges, from unprecedented change in the health care market to other external factors, made it clear that action had to be taken, and Forest Park Frisco has chosen the proactive approach to return the business to a healthy, viable state.”
According to court documents, the bankruptcy filing would allow FPMC to assess whether reorganizing business operations or selling the hospital’s assets would be the best course of action.
In August, Sabra reported that FPMC became unable to pay its rent in January.
Court documents detail that FPMC’s monthly revenue totals about $3.4 million, but its monthly operational expenses total more than $4 million.
Many of the financial issues stem from Texas Capital Bank not renewing a loan to FPMC and from the hospital changing its operations from an out-of-network model to an in-network model, resulting in reduced reimbursement rates from insurance providers. FPMC is also in debt to TCB for equipment financing. In total, FPMC owes TCB about $6 million.
FPMC used to operate solely as an out-of-network facility but determined that it could not sustain enough revenue by just operating out of network, according to court documents. By switching to an in-network model, the hospital hoped to increase its case volume. However, the reimbursement rates were too low for the hospital to schedule enough procedures to reap the financial benefits of the move.
In a statement, Sabra CEO and Chairman Rick Matros said he expects the end result to be either Sabra selling the hospital’s real estate or creating a lease with a viable management company.
Sabra reported that FPMC had retained a firm to advertise the hospital’s assets for sale. If a purchaser makes an offer to buy the hospital’s land, the offer would have to be approved by Sabra. Several potential purchasers have expressed interest in the hospital and one made an offer, which Sabra declined.