- The Washington Times - Monday, December 8, 2003

Lawyers and consultants for the Arizona-based company that owns Greater Southeast Community Hospital have earned millions of dollars since the firm filed for bankruptcy last fall, even as the 445-bed facility continues to post huge monthly deficits that threaten its closure.

U.S. Bankruptcy Court records show that the Doctors Community Healthcare Corp. (DCHC) in September paid an estimated $1.2 million to lawyers, investment advisers and other consultants involved in the company’s ongoing legal proceedings.

That month, DCHC also paid $5.4 million in salaries and benefits for its more than 1,000 employees at Greater Southeast, while the hospital posted a deficit of more than $2.5 million, according to company financial documents.

In all, DCHC paid an estimated $14 million to lawyers, advisers and other consultants since the company filed for bankruptcy in November 2002. Since then, the hospital has been losing as much as $2 million each month.

The U.S. Bankruptcy Court approved the expenditures, which sparked concern among D.C. government officials as they considered a request to increase public funding for Greater Southeast. Last year, the hospital received more than $12 million in D.C. taxpayer funds.

“The [D.C.] Health Department had expressed some concern … with so many consultants getting so much money,” said Ed Reiskin, chief of staff for D.C. City Administrator Robert Bobb, who met with hospital officials during the past month.

Despite the hospital’s requests for additional funding, Mr. Reiskin said, city officials no longer are contemplating a bailout package for Greater Southeast.

“There is no bailout. We’re supportive of a hospital being there [in Southeast],” Mr. Reiskin said. “We are hopeful that somebody steps in and gets it back to being a financially viable hospital.”

Industry analysts say the high salaries paid to Greater Southeast bankruptcy professionals aren’t unusual. They say bankruptcy in the corporate health care industry requires a lot of money.

“The challenge in bankruptcy is doing things properly, legally and making sure that all of the key stakeholders are recognized,” said Samuel A. Friede, a professor at the University of Pittsburgh’s Health Policy Institute. “It takes a lot of time and money to get these outside firms involved.

“My initial reaction is that the overall costs do not seem far out of line,” Mr. Friede said, referring to funds paid to Greater Southeast’s bankruptcy professionals.

“But that’s unfortunate,” Mr. Friede added. “I’m sure that the money would have been better spent on community health care initiatives.”

Last week, U.S. Bankruptcy Court Judge S. Martin Teel Jr. approved a plan for DCHC executives to retain control of Greater Southeast by borrowing tens of millions of dollars and setting up several smaller subsidiary corporations.

Meanwhile, bankruptcy professionals continue to earn high salaries as proceedings continue. DCHC’s attorneys have taken home the most money since the company filed for bankruptcy, court records show.

The New York-based law firm Weil, Gotshal & Manges LLP, which represents DCHC, received $4.8 million in fees and another $311,000 in expenses from November 2002 through September for a total of $5.1 million.

DCHC financial advisers Chicago-based Huron Consulting Group took in $2.3 million in fees plus $301,000 in expenses. Boston-based Cain Brothers LLC, which is handling the sale of DCHC assets, received $2.8 million in fees and expenses.

D.C.-based law firm Akin, Gump Straus, Hauer & Feld LLP, which represents the creditors committee in the case, have been paid $1.5 million in fees, or about one-fourth of the compensation that DCHC attorneys received.

Thomas Reardon, the court-appointed chief restructuring officer for DCHC, has received $940,000 since he was hired in July to oversee the auction of company’s assets.

Some creditors say they are concerned about whether they will recover their money when bankruptcy proceedings end next month.

“It’s ridiculous when you look at how much these people are getting,” said a creditor involved in the bankruptcy case who did not want to be identified.

Greater Southeast’s financial outlook will improve if it passes inspections on Dec. 15 by the Joint Commission on Accreditation of Healthcare Organizations.

Greater Southeast lost its accreditation during the summer because of staffing shortages and management problems. Because of that, several private health plans stopped paying for services at the hospital.

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