HHCA files for bankruptcy
By KAREN PIHL-CAREY
HHBR Staff Writer
Home Health Corp. of America (HHCA; King of Prussia, PA) filed for bankruptcy last week, one day after announcing an anticipated 2Q99 loss of between $40 million and $60 million dollars.
The company, which includes 44 locations in nine states, filed voluntary petitions for reorganization with the Delaware district bankruptcy court under Chapter 11. Business will continue as usual while officials develop a plan to reduce debt and strengthen the company’s financial position.
The bankruptcy will put about 300 employees 10% of the total out of work. Most of the dismissals have already occurred in Florida and Texas. While services to most patients will continue, a total of 28 children in the Philadelphia area will lose their home care services, reported The Philadelphia Inquirer.
"The major cause of this Chapter 11 really was two factors," President/CEO Bruce Feldman told HHBR. "One was the exposure we had to the interim payment system (IPS), which was a lot worse than we expected it to be. But the real problem was the slow payment or the no payment of managed care (business). We were able to dodge one bullet, but not two."
The company said it will no longer take new patients from managed care companies that owe money, such as Aetna U.S. Healthcare and Keystone Health Plan East.
"We have made a strategical position to exit most managed care business; not all of it, but most of it," Feldman said. "We will take extreme measures to collect the money owed." The company wrote off about $30 million of receivables.
Nasdaq halted trading on Feb. 18, the same day the company filed bankruptcy, in order to request additional information. HHCA stock closed at 25 cents that day.
In addition to IPS and the denial of payments from managed care companies, the company is making retroactive adjustments to Medicare for overpayments made in previous years.
Losses in 1Q99 ended Sept. 30 amounted to $22 million. In November, the company suspended interest payments on its senior credit facility.
HHCA is currently reimbursing Medicare for overpayments under a three- to 12-month plan. A charge of $4.1 million for retroactive cost report adjustments has contributed to the 2Q99 loss estimates. The loss is also comprised of a writedown of goodwill related to a previous acquisition, the amount of which has not been determined, and an aggregate pre-tax operating loss of $3.6 million generated by the company’s Medicare cost-reimbursed nursing agencies during the quarter.
With the resignation of PricewaterhouseCoopers (Atlanta) as HHCA’s independent accountants, the company filed a form 8-K on Feb. 9. It said last week that it would delay the filing of its form 10-Q because the company had not hired a new independent accountant.
A report filed with the Securities and Exchange Commission (Washington) this month showed that HHCA had disagreed with Pricewaterhouse about its ability to renegotiate $83 million in long-term debt, reported The Philadelphia Inquirer. The company said it was notified in November that it was in default on $4.4 million in debt. In a separate SEC filing, the company said that its board of directors did not recommend or approve the accountants’ resignation. Pricewaterhouse told the Inquirer that policy forbids it from commenting.
Feldman said that HHCA owes $85 million to its largest creditor, First Union Corp. The company has about $85 million in assets and $125 million in liabilities, CFO David Gelman said. The company took on heavy debt to finance recent acquisitions, not anticipating the big cuts in Medicare payments.
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