Tennessee health system lands in bankruptcy after acquiring 3 hospitals from CHS

Knoxville, Tenn.-based Curae Health and its three hospitals in Mississippi filed for Chapter 11 bankruptcy Aug. 24, and Curae President and CEO Stephen Clapp outlined the factors that led the system to enter bankruptcy in recently filed court documents.

Curae acquired the three Mississippi hospitals included in the bankruptcy case from Franklin, Tenn.-based Community Health Systems in September 2016. Mr. Clapp said the facilities' purchase price of $51 million was based on industry multiples of net revenue and EBITDA for 2013 through the first quarter of 2016.

"At the time, the facilities had positive EBITDA sufficient enough to support the purchase price and corresponding debt," Mr. Clapp said in court documents. "Moreover, the transition to the Curae operating model would improve financial performance by reducing operating expenses by 1-3 percent."

However, a dramatic decline in revenue after the transaction closed more than offset the expense savings that were realized. Mr. Clapp said net revenues dropped $23 million between 2013 and 2018.

In addition to the decline in net revenues, Curae incurred higher-than-projected information systems costs. "This was a result of using CHS information systems longer than anticipated and the inability to secure permanent information system financing," Mr. Clapp said.

These factors created a cash crunch, with vendors demanding payment for past-due bills. Due to Curae's lagging payments, some vendors began requiring payment before they would provide services or deliver supplies, according to Mr. Clapp.

Curae filed for bankruptcy protection to ensure the three hospitals and their affiliated physician practices could continue to operate. As part of the bankruptcy case, Curae proposed selling the three Mississippi hospitals and their physician practices. The hospitals have attracted the interest of various parties, and Curae will likely file a motion with the court in the near future to authorize the sale of the facilities, Mr. Clapp said.  

Filings in the bankruptcy case show Curae and the three hospitals have $3.4 million in cash and cash equivalents and $96 million in liabilities.

More articles on healthcare finance:

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Mississippi hospital files for bankruptcy



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