Indiana Hospital Files for Chapter 11

Saint Catherine Regional Hospital in Charlestown, IN has filed for Chapter 11. A request to incur secured debt of $1.5 million from a credit corporation to continue hospital operations notes that a potential buyer has been identified for the 60-bed hospital, which will be sold as a going concern.

The Indiana hospital is the sister facility to Saint Catherine Medical Center in Ashland, PA, which closed and filed for Chapter 7 bankruptcy in April 2012. Both hospitals are operated by Saint Catherine Healthcare, LLC.

The financial petition was filed last week in US Bankruptcy Court for the Southern District of Indiana. According to court documents, the hospital owes an estimated $8.3 million in unsecured claims to its 20 largest creditors, including:

• $2.5 million to Saint Catherine Healthcare LLC
• $771,816 to Capital Blue Cross
• $399,833 to Indiana Emergency Physicians
• $186,650 to Sefton Anesthesia Service
• $105,856 to the IRS

Court documents state that the between May 2011 and April 2012, the hospital, which has around 280 employees, posted a net operating loss of $1.3 million.

The Chapter 11 filing is the latest in a series of court petitions that bear some relationship to the two hospitals.

In May, Merlyn Knapp, the current CEO of the Indiana facility and former CEO of the Pennsylvania facility, was named a co-defendant in a suit filed by the Chapter 7 trustee. The suit charges Knapp and the hospital’s management company, Specialty Health LLC, with "breach of fiduciary duty of care."

A transfer of $300,000 from the Pennsylvania medical center to the Indiana hospital has come under scrutiny. The suit contends that Knapp, who is employed by Specialty Health, "knew or reasonably should have known" that the medical center was "insolvent or on the verge of insolvency."

The lawsuit asks for several claims of relief suggesting that Knapp "acted with a purpose other than advancing" the (Pennsylvania) medical center's best interests. "In fact, Knapp's actions were for the benefit of the Indiana hospital" and "operated to the detriment" of the Pennsylvania medical center, the suit alleges.

The Chapter 7 trustee filed in May an "adversary proceeding" against Saint Catherine Regional Hospital to recover the $300,000. In court documents the regional hospital contends that "this action, combined with the debtor’s previous operational losses, forced the debtor to seek Chapter 11 relief."

Court papers list Specialty Health LLC, Saint Catherine Hospital of Pennsylvania, and Saint Catherine Hospital of Indiana LLC as unsecured creditors but attach no dollar amounts to the claims.

Saint Catherine Regional Hospital remains a fully licensed and operating hospital facility. The state hasn’t imposed any restrictions on the hospital, Terry Whitson, an assistant commissioner in the Indiana Department of Health told HealthLeaders Media in an e-mail exchange.

See Also:
PA Medical Center Files for Chapter 11
PA Hospital's Deficiencies Detailed in CAP