Edmund Wall
The Authority’s trustees oversee the three counties’ ownership and 40-year lease of Hutcheson Medical Center to the nonprofit HMC Inc., which operates the hospital.
Trustees and other stakeholders in the hospital’s future have been expressing concern for some time about Hutcheson’s financial picture.
Concerns peaked after the disclosure that the hospital had suffered a $7.3 million loss in the 2009 budget year – a situation that has Hutcheson now seeking partnership with Erlanger Medical Center of Chattanooga.
“We want to be sure everyone is on the same page about where our hospital is financially, and that our questions get answered,” said Hospital Authority chairman Dr. T. Darrell Weldon after the meeting.
The closed executive session was called because Hutcheson president and CEO Charles Stewart and Glenn Thomson, an Atlanta attorney representing HMC Inc., wanted to address what they felt were sensitive issues pertaining to HMC’s investments.
After the closed session it was revealed that HMC Inc. has agreed to provide unaudited financial records to officials of the three counties by Dec. 1.
Among non-board members allowed to stay in the executive session were Catoosa County commission chairman Keith Greene, Walker County sole commissioner Bebe Heiskell, and Walker County attorney and former Hospital Authority trustee Don Oliver.
Greene said he learned quite a bit from the three-hour session but still doesn’t fully understand Hutcheson’s complicated financial situation.
“We need an extensive review to make sure we know the condition of the hospital,” Greene said in a phone call Tuesday. “I’d love to see a partnership with Erlanger but we need Hutcheson regardless, so the trustees need to have a contingency plan that all three counties can agree on. We’re in this together.”
New business
Oliver resigned his trustee position at the Hospital Authority’s regular quarterly meeting Oct. 28, and he was appointed as its legal counsel in open session Monday.
David Ashburn was unanimously approved to replace Oliver as one of four trustees representing Walker County.
Ashburn, whose duties as Walker County coordinator include heading up the emergency medical service and 911 dispatch, has extensive medical experience.
“I’ve been in this field my whole life, from work in emergency rooms and as a paramedic to consulting and EMS education,” he said.
Ashburn said he is looking forward to reviewing Hutcheson’s financial records for a clearer picture of the situation as well as developing a backup plan should the Erlanger deal fall through.
“I hope the due diligence by Erlanger officials results in approval of a partnership, but as trustees we’re here to protect the investments that our citizens have made in this hospital,” he said. “We don’t want a big mess to cleanup.”
Due diligence
Also among the public business conducted Monday was a motion to submit a letter of intent to the Raymond James investment firm in Atlanta for financial advisory services, which the trustees approved.
Advisor Edmund Wall of that firm says he was previously retained by the trustees two weeks ago after being approached earlier for advice by some of them.
Wall said he contacted an official with Regions Bank, whose subsidiary Morgan Keegan provided a $35.5 million bond issue for HMC Inc. in 2008.
Records show that the bond issue involved derivative swaps, a type of alternative investment that can reap larger returns but that also presents more risk than traditional investments.
CEO Stewart says the bond was financed using standard practices.
The economic downturn of the past few years may have taken its toll on Hutcheson’s investments: Wall said according to Regions Bank, $10 million of the bond issue is frozen because HMC Inc. did not meet certain agreements known as bond covenants.
“Between the very low interest the hospital earns on those frozen assets and the interest it must pay out to investors who bought the bonds, a lot of money is being lost,” Wall said.
He said that as a broker-dealer he inquired about purchasing the bonds in order to restructure the debt and stop the downward spiral.
“I don’t like derivatives,” Wall said. “You’re dealing with someone else’s tricks.”
But Wall was in the process of changing employers, and said that even after he presented Regions Bank a letter of determination from the Hutcheson trustees the bank declined further communication.
On Nov. 9 Wall, stating that his then-employer Sterne Agee and Leach Inc. was acting as investment banker for the Hospital Authority, sent Stewart a detailed request for HMC Inc. records pertaining to finances, contracts and hospital personnel.
Stewart responded with a letter stating that “the estimated cost to search, retrieve and supervise access to these records is $1,000” and that estimated copying charges would be an additional $62.50.
Stewart said the fees were assessed as would normally be done for an open records request.
He said they treated it as such because at the time they could not confirm that Wall was officially designated by the trustees.
Wall said he has not spoken with any Erlanger officials, and that he’s not out to impede any proposal by them.
“We all should be able to get together and work this thing out for the good,” Wall said. “I don’t think I’m asking for anything that Erlanger isn’t going to also want to know.”
An independent audit that Stewart initially said he expected to be complete in early November has been postponed until after Erlanger’s 60-day due diligence period, which ends Dec. 30.
“We had talked to the bank about relaxing some of the bond covenants in order to get a clean audit,” Stewart said, “but now that we’re engaged in this process with Erlanger, which could have a result on how the bank views everything, we’re not pushing the issue of completing the audit.”
Attorney Thomson said that Erlanger accountants have all the Hutcheson financial information, just without a letter of audit. “I’m confident they have everything they need for their due diligence.”
Two months prior to announcing that Hutcheson EMS was closing, Charles Stewart stated to the all employee staff meeting that EMS was one of three departments that had actually made money for the hospital over the previous year and up to that point in 2008.
Charles Stewart borrowed the $30,000,000 from Regions, and was conditioned that the hospital had to show the ability to pay it back. The money was loaned in three installments, the first delivered immediately, with the following two installments after the first and second year.(Very smart on Region's part!) Upon receiving the first installment, Charles immediately hired his mistress (an obvious conflict of interest) to redesign the front reception area of the hospital at a grand total of $1,000,000 dollars. (have you seen the lobby? Certainly not a million dollars worth of improvement!) He then in order to show the ability to meet the terms, withheld the billing of the EMS department, all the while blowing smoke and sunshine toward the director telling him there was no "iceberg ahead of the titanic." He makes his announcement that EMS is not profitable to the public, in direct conflict to what he had just two months earlier told the entire hospital, and decides to shut the doors on 30 years of dedicated service to the citizen's Walker, Catoosa, and Dade Counties. In doing so, he closed the biggest department of the hospital. Now, he has the ability to collect on all of that billing, which gives the hospital the capital, and he can withdraw the budget of EMS employee salaries, and equipment costs, making for a real nice chunk of change on the spread sheet, showing the ability to meet the requirements to pay back the hospital debt so it can receive the next installment of the loan. He gets the second installment in good faith from the bank, knowing full well that he will now have to default on the third installment.
I was once told by an administrator that the hospital required 80 patients to be admitted daily, just to meet operational costs... I know for a fact that there were times when the census was less than 20 people admitted, and less than 10 a couple of times during 2009. This is when he goes into negotiations with Erlanger and Memorial to "partner up" with HMC. By partnering up, he keeps his job, while an outright sale of the hospital would likely result in him losing his job and having to look for another place of employment.
If the counties truly want to find out what has happened, all you have to do is follow the money!!!
But I’m afraid I’m not getting the math here. First, the copies - a nonprofit hospital corporation is subject to the same open records retrieval and copying fees as, say, a county prosecutor’s office, so they could charge the maximum 25 cents per page (let’s assume Charles Stewart would not cut Mr. Wall any slack on this). At $62.50, that means Hutcheson is agreeing to provide 250 pages of documents. Mr. Wall requested “records pertaining to finances, contracts and hospital personnel,” which seems doubtful could be contained in that many pages.
As for retrieval costs, by law Hutcheson can charge the equivalent of the salary of the lowest paid full-time employee “who, in the discretion of the custodian of the records, has the necessary skill and training to perform the request.” They also cannot charge for the first 15 minutes of the task. Let’s be generous and say that the aforementioned employee makes $15 per hour (not bad for a mid-level clerk). Are we to believe that it will take more than 66 hours for them to compile 250 pages?! That’s about a page every 15 minutes, so I guess it’s buy 249, get one free. With deals like that, sign ME up for some of them there bonds!
Good thing Mr. Wall is now under the aegis of the hospital authority – Hutcheson administrators wouldn’t charge one of their own boards $1,062.50, now would they? Well, they’ve got make up their losses somehow.
Suprised Catwalkchatt.com has not reported on Bebe's idea that a "hotel" in Canyon Ridge golf course is about to take place. Even though the course has foreclosure all over the place, the golf course has been in the paper for foreclosure, the developer is being foreclosed on AND at every community meeting the residents have told Bebe they are against the idea.
Derivatives are deadly and if anyone thinks they can out smart some of those guys like Warren Buffet they are crazy. By the way he was calling them wepons of financial mass destruction about 6 years ago. At the same time he was betting on them. That is he was betting on them collapsing.
If Hutcheson has a complicated financial situation that tells us everything we need to know. They are not big enough to have somplicated financial dealings.
1) Unaudited financial statements. Any business that tried to sneak this past the owners would be suspened from trading-Fast.If there were no other issues mentioned in this article,this one should be a flashing master alarm that something is not right.
2) Derivative swaps.Your hillbilly hospital board is about to get skinned by the sharpies on Wall Street.Derivative swaps are poison. They are what have destroyed Jefferson County , Alabama and made them a candidate for bankruptcy. Don't take my word for it- Google it.
3) Keith Greene said that he doesn't understand HMC's complicated financial situation. That is by design. See number 2 above.
The swami sez - If you are reading this in the year 2020, here is where the beginning of the end started for HMC.