DCHS headed for bankruptcy?

Attorney favors Chapter 11; county board resists calls to oust CEO

IRON MOUNTAIN — As a beleaguered Dickinson County Healthcare System tries to remain open through bankruptcy, the county board will hire its own consulting lawyer and — by a one-vote margin — will not seek removal of hospital CEO-Administrator John Schon.

An audience of nearly 100 spilled into a courthouse hallway during a county board meeting Monday and several citizens drew applause as they called for Schon’s ouster.

“John Schon should have been gone a long time ago,” said Dale Alessandrini of Iron Mountain, a Democratic candidate for the District 3 seat on the county board in November.

Alessandrini and Kevin Pirlot of Iron Mountain, a Democratic candidate in District 2, encouraged the board to hold off on accepting a bankruptcy path, saying it’s premature.

DCHS legal counsel Michael P. Celello said earlier Monday he would recommend today the hospital board pursue a Chapter 11 filing, with the goal of keeping the facility open during a restructuring.

“Attempts at being acquired have fallen short and it is my opinion that a business reorganization is in the best interest of the financial future of the hospital,” Celello said in a statement Monday. “Reorganization also offers the greatest chance for DCHS to maintain services and the staffing required to provide said services.”

At least some in the county are unconvinced.

“You’ve got to stop listening to these people,” Pirlot told the county board Monday night. “It’s failed, it’s failed, it’s failed.”

Commissioner John Degenaer Jr. made a motion calling on the hospital board to fire Schon and immediately resign. Commissioner Barbara Kramer, the incumbent Republican in District 3, voted in favor, while Chairman Henry Wender and commissioners Joe Stevens and Ann Martin voted no.

Stevens said removing the hospital board and Schon might be appropriate later but is ill-advised at this time. Also, it would have to be done “correctly and legally,” as the hospital operates as a Michigan municipal health facility corporation under Public Act 230, he said.

Martin, the incumbent Republican in District 2, said dismissing Schon and the board and then resisting bankruptcy seems contrary to the goal of keeping DCHS open.

“Who will take care of the business of the hospital?” she asked. “What are you going to do? Print money? You have to be realistic.”

A Chapter 11 filing allows an organization protection from creditors as it reorganizes, but the process is bound to be complicated — and likely contentious, as the court must adjust millions of dollars of debt among competing interests.

Degenaer suggested the county retain a financial counselor and sell off auxiliary hospital properties to keep the system afloat without bankruptcy.

Kramer, meanwhile, said she had “no confidence” in the current hospital administration and urged DCHS board members to resign.

She said citizens can support DCHS employees and retirees by using the hospital’s services whenever possible. Employees face the “most uncertainty and will suffer the most” in the days and months ahead, she said.

A bankruptcy plan would first have to be approved by the hospital board, which was meeting at noon today, and then the county board, which is tentatively scheduled to meet at 6 p.m. Thursday.

The move comes after hospital officials announced Sept. 18 that a sale to Marquette-based UP Health System no longer was being pursued. The organizations said they had terminated a non-binding letter of intent signed in July, citing “an inability to reach agreement on the terms of an acquisition.”

DCHS began talks with UP Health after a proposed deal with Bellin Health of Green Bay, Wis., fell through in May. Bellin withdrew from an acquisition agreement that was estimated at $61 million, all of which would have gone to pay the hospital’s long-term debt and unfunded pension liabilities.

Despite reducing expenses — saving nearly $5 million this year compared to 2017 — financial struggles continue due to an unprecedented decline in patients, hospital officials said Monday.

“It is unfortunate that it has come to this, but the hospital board will continue to make the difficult decisions necessary to preserve the provision of quality care in this community,” DCHS Board Chairman Bill Edberg said.

The county board voted unanimously to hire a bankruptcy attorney for advice at the request of Controller Brian Bousley.

Kramer said an opinion is needed “on what we can do and what protections we have.”

Added Stevens, “I want to hear what our counsel says before we make a decision on what Mike Celello says.”

Many questions remain unanswered, including whether DCHS can avoid closure.

“We’re in a whole lot of trouble here and don’t even know if we’re going to get paid Friday,” DCHS employee Terry Testolin told the county board.

Retiree Susan Khoury was among several who questioned the status of the pension plan, claiming Schon was part of a group able to take payouts while others were denied.

Alessandrini said the county board should accept some responsibility for the hospital’s troubles.

“It’s time that you get some younger people in here,” he said. “I don’t think that bankruptcy is the way to go.”

The hospital and county boards met at 7:15 a.m. Monday at the hospital, where Celello outlined plans for a bankruptcy recommendation. The Daily News was not informed of that meeting by either party. The session was well-attended as a result of social media alerts after a notice was posted at the courthouse.

To remain open, the hospital likely would need a partner in bankruptcy proceedings and a means to viability. Those talks have yet to take place in detail. Also, the filing would be done through a law firm specializing in bankruptcies.

DCHS is owned by the county but receives no direct county appropriations or taxpayer support and has been self-sustaining since moving to its U.S. 2 facility in 1996. Hospital board members are compensated for meetings but receive no salary.

DCHS is a 49-bed hospital with more than 80 active physicians.

Jim Anderson can be reached at 906-774-3500, ext. 26, or janderson@ironmountaindailynews.com.