Hutcheson Hospital Files Counterclaims Against Erlanger For "Mismanagement"

Thursday, June 26, 2014

Attorneys representing Hutcheson Medical Center said they have responded to a federal lawsuit by filing a counterclaim and a procedural motion "to protect public funds against the lawsuit filed by its former managing hospital Erlanger Health System."

Hutcheson officials said, "The hospitals were in the process of mediating the dispute over Erlanger’s management of Hutcheson when Erlanger surprised Hutcheson with a lawsuit for $550,000 in January and a second suit seeking more than $21 million in February.

The lawsuits were put on hold in an effort to continue negotiations over the dispute and avoid costly litigation." 

Hutcheson CEO Farrell Hayes said, “Under its  new management, Hutcheson is experiencing positive growth in many areas including daily census, emergency room visits and ambulance volume, and is making investments in medical equipment for long-term service in the tri-county area.

“We were in active negotiations with Erlanger and hoped that a settlement would be part of our positive trajectory, but Erlanger refused to respond in time to prevent Hutcheson from having to file defensive pleadings and counterclaims by the court deadline.”

He added, “We were surprised that Erlanger repeatedly refused to negotiate with us before they filed the lawsuits. We are even more shocked and disappointed that Erlanger, the ninth largest public hospital in the U.S., would take actions that, if successful, would result in severe damage to our small community hospital."

Hutcheson’s procedural motion "seeks to protect the public purse of Walker and Catoosa Counties, who may be ultimately responsible for the debts Erlanger incurred while it was managing Hutcheson. The disputed $21 million is backed by hospital property as collateral and a $10 million guarantee from each county," Hutcheson officials said .

Hutcheson’s counterclaims "seek to recover millions of dollars in damages as a result of Erlanger’s contract breaches under the Management Agreement. Hutcheson contends that Erlanger mismanaged the hospital from the beginning by failing to hire an appropriate executive team, treating Hutcheson as a “transfer facility,” siphoning away its paying patients and Georgia tax dollars and a failing to hire any physician specialists to meet the needs of the community. Additionally, the counterclaims contend that Erlanger improperly billed Medicare and Medicaid – resulting in overpayments that Hutcheson now has to repay. The suit also asserts that Erlanger’s breaches nearly shuttered the hospital it was supposed to manage and revitalize, all while running up a crushing debt burden."

Bebe Heiskell, Walker County Sole Commissioner, said, “For more than 65 years, Hutcheson has been a socioeconomic cornerstone in the north Georgia tri-county area, providing thousands of jobs and caring for generations of families. Hutcheson employs approximately 900 employees and has an economic impact amounting to over $870 million, with over $29 million in annual payroll. The hospital is proving it will succeed in spite of Erlanger’s past management performance.”

Corky Jewell, chairman of Hutcheson Medical Center’s board of directors. said, "The management agreement was designed to use the resources of Erlanger to strengthen Hutcheson with an infusion of physicians’ services and economies of scale. Unfortunately, Erlanger failed to perform as contracted and we notified them as early as August 2012 of these breaches. We had no choice but to end the contract when they still had not cured the breaches a year later and were leading Hutcheson ever deeper in debt.”

Hutcheson claims that Erlanger "committed many management contract breaches, including that Erlanger failed to manage the hospital’s financial services, thereby increasing the hospital’s debt and putting the hospital’s non-profit status at risk."  


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