DCHS takes first step toward Chapter 11 reorganization

IRON MOUNTAIN — The goal is to maintain full services at Dickinson County Healthcare System and eventually satisfy all financial obligations, including pensions, even as the hospital flirts with insolvency.

Whether that can all be achieved and closure bypassed is anyone’s guess, but the DCHS Board took a dramatic step Tuesday by authorizing attorney Michael Celello to recruit a bankruptcy counsel to guide the hospital through a Chapter 11 filing.

“This is a reorganization process, it’s not a liquidation,” Celello said during a meeting held in a DCHS conference room overflowing with dozens of employees, retirees, doctors, citizens and county officials.

Legal firms from across the country have expressed interest, Celello continued, explaining the process will include negotiations with a still-to-be-determined partner that may likely be the hospital’s end purchaser. That partner, or “stalking horse,” could stake DCHS until its crisis is resolved, he said.

In the meantime, the hospital could obtain a debt loan, at high interest, but sufficient to stay afloat, Celello said.

As for the current cash flow, DCHS Board Chairman Bill Edberg said there’s enough to last to the end of October, as well as potential access to $2 million held in escrow by Fifth Third Bank. That money was set aside by the Cincinnati-based lender during acquisition talks with Marquette-based U.P. Health System — a deal that collapsed last week and set the hospital on its course toward Chapter 11.

“Our only goal is to sustain this hospital,” Edberg said, adding he’d be willing to step aside “for a better idea.”

Celello is expected to make a recommendation on a reorganization counsel as early as the end of the week.

County Commissioner Joe Stevens, a liaison to the hospital board, said preventing a closure has to be the main focus. “We have to keep this place open no matter what,” he said.

Tuesday’s near two-hour session included numerous queries about the performance of CEO-Administrator John Schon, leading Ann Martin of Iron Mountain to conclude the board should consider firing him.

Martin, a county commissioner, opposed a motion Monday night that sought to do just that, allowing it to fail by a 3-2 vote. On Tuesday, she spoke as a citizen concerned by “so much distrust and anger” — particularly over a $1.3 million payout to Schon from the pension plan.

Edberg came to Schon’s defense, saying he was “basically responsible” for the DCHS opening its facility on U.S. 2 in 1996. As the hospital pursues reorganization “we’re in a much better position” with Schon, he said.

Edberg said the pension payment to Schon was legal and no different, in concept, from what many others received as DCHS offered lump sum distributions to “de-risk” the plan. The action was taken in anticipation of a sale to Green Bay-based Bellin Health earlier this year, which also fell through.

With confusion reigning over who was eligible for payouts, the hospital will provide a written, detailed explanation through its human resources department. What that document won’t provide, however, is assurances that all pensions will be fully paid into the future.

“We don’t know,” Edberg admitted. “I don’t know how much money is going to be available.”

A Chapter 11 filing allows an organization protection from creditors as it reorganizes. Eventually, the court must adjust millions of dollars of debt among competing interests.

Addressing the board, Tina Mott said the lump sum payouts to others are an emotional sore point for retirees who face the prospect of seeing their incomes reduced. “They need those pensions to sustain their lives,” she said.

Another hospital board meeting will be scheduled when Celello is ready to make his recommendation, said DCHS Public Relations Manger Joe Rizzo. An announcement will posted on the DCHS website, www.DCHS.org.

“Although (reorganization) is an option that DCHS may be forced to explore, DCHS is still paying its bills, it is very much functioning and open for business and is still providing health care to our community,” Rizzo said.

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. It includes a 49-bed hospital and more than 80 active physicians. It operates as a Michigan municipal health facility corporation under Public Act 230.

A bankruptcy plan would first have to be approved by the hospital board, and then the county board, which decided Monday to hire its own counsel for advice on the reorganization. The county board was tentatively set to meet at 6 p.m. Thursday, but that session has been canceled because there is yet no firm plan from DCHS, said Board Chairman Henry Wender.

The hospital board, meanwhile, continues to seek applications for two vacancies on the nine-member panel.

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