Erlanger Files Notice To Foreclose On Hutcheson Medical Center Property, Recoup $20+Million; Hutcheson Calls Move "Shameful"

Thursday, July 3, 2014

Officials with the Erlanger Health System have initiated formal foreclosure proceedings against Hutcheson Medical Center "as part of the effort to recoup moneys owed to Erlanger pursuant to the management agreement signed three years ago between the two healthcare providers."

Farrell Hayes, president and CEO of Hutcheson Medical Center, responded, “In negotiating a settlement over the management contract, Hutcheson made an offer that would have allowed for full repayment of the $20 million loan to Erlanger. It is shameful that Erlanger, which just posted a huge profit this week, would refuse that offer and instead seek to close a small community hospital.”

Hutcheson board members received notification of Erlanger’s intentions to foreclose on Hutcheson property on Thursday, along with a copy of public Notice of Sale submitted to Catoosa and Walker County legal publications. The sale under the security deed is scheduled for the first Tuesday in August on the steps of the Catoosa County Courthouse in Ringgold.

Under the terms of the management agreement, signed April 25, 2011, Erlanger agreed to provide management services to Hutcheson and, in addition thereto, issued a line of credit for $20 million in an effort to save the failing facility, officials said.  

Erlanger’s $20 million line of credit was secured by the real property and improvements on Hutcheson’s main campus in Fort Oglethorpe and further guaranteed by Walker and Catoosa Counties, up to $10 million per county, it was stated. At the time Erlanger signed this agreement, Hutcheson was losing $1.5 million a month.

Erlanger officials said, "In May 2013 Erlanger loaned Hutcheson an additional $550,000 to further assist the hospital in meeting payroll obligations.  In November of 2013, Hutcheson terminated the management agreement with Erlanger.  Since that time Erlanger has attempted on numerous occasions to come to a mutual agreement as to an effective termination and timely repayment of all moneys owed by Hutcheson to Erlanger.  Erlanger is willing to continue to have further dialogue with Hutcheson to resolve this issue in an amicable manner."   

“Erlanger dedicated well over $20 million and other invaluable resources to Hutcheson to ensure it would continue to meet the healthcare needs of the northwest Georgia community,” said Erlanger President and CEO Kevin M. Spiegel, FACHE.  “Without exception, Erlanger met its obligations to Hutcheson under the management agreement.”

Erlanger officials said, "Despite Hutcheson’s repeated threats to terminate the agreement, Erlanger continued to work with Hutcheson in exploring the feasibility of continuing its relationship through a long-term lease agreement, including a submission of a response to Hutcheson’s request for proposals, said officials."

“We were the only qualified bid responder to Hutcheson’s RFP for a long-term lease agreement,” said Erlanger’s Chief Financial Officer Britt Tabor.

Erlanger’s Board Chairman Donnie Hutcherson said, “We have acted in good faith with regards to Hutcheson, but the time has come to expect repayment. As a responsible health care provider, an organization that fulfills its mission and conducts business in an orderly fashion, Erlanger must enforce its rights to full recovery of this loan.”

Erlanger officials stated, "Foreclosure does not necessarily mean that Hutcheson will cease operations as the community’s hospital.  On the contrary, the purchaser at the foreclosure sale will make the decision as to whether the facility remains or does not remain as Hutcheson Medical Center.  Regardless, Erlanger remains committed to meeting its longstanding and continued support of the health care needs of northwest Georgia."

"Erlanger is fully entitled to recover our $20.5+ million in loans to Hutcheson,” Mr. Spiegel said.  “Our employees and their families, our medical staff, the community we serve and our bondholders would expect nothing less.”

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