- The Washington Times - Thursday, March 25, 2004

A bankruptcy trustee with the U.S. Justice Department said Greater Southeast Community Hospital’s owners are trying to violate federal law by seeking to shield themselves from liability lawsuits in their bid to retain the bankrupt facility.

Greater Southeast — the District’s primary hospital for the poor — has received more than $30 million from the D.C. government since 2001, according to city records. The hospital’s owners — Doctors Community Healthcare Corp. of Scottsdale, Ariz. — filed for bankruptcy in 2002 and bid about $150 million in an auction in December to keep the facility.

A federal judge is scheduled to rule on the bankruptcy plan next week.

In court papers filed Tuesday, U.S. Bankruptcy Trustee Clarkson McDow Jr. said the hospital owners’ plan violates federal bankruptcy law by attempting to shield themselves, lawyers, investment bankers and other consultants from liability lawsuits.

“Nowhere does such a provision find sanction under bankruptcy code,” Mr. McDow said in court papers. “Rather, it is an invention to protect insider parties and insulate those who have been entrusted with a fiduciary obligation to safeguard the estate and protect the interests of creditors.”

Mr. McDow, who is employed by the Justice Department to monitor the case, filed the objection in an attempt to block a group led by Paul R. Tuft from buying Greater Southeast and Hadley Memorial Hospital in the District and two other hospitals in Chicago and California out of bankruptcy next week.

Mr. Tuft is the chief executive officer of Doctors Community Healthcare Corp. The company, which owns Greater Southeast and Hadley, went bankrupt in November 2002. Doctors Community still operates the facilities under court supervision.

Mr. Tuft’s company won a lucrative contract to provide care for the city’s poor under the city-funded D.C. Healthcare Alliance after D.C. General Hospital closed in 2001, spending hundreds of thousands of dollars to influence city politicians through lobbying expenses and campaign contributions.

However, Greater Southeast nearly closed last year after repeatedly failing inspections and experiencing emergency-room staffing shortages. The city’s only hospital east of the Anacostia River, Greater Southeast since has regained its full license and accreditation.

Despite the mounting problems at Greater Southeast in 2002, Doctors Community executives still were receiving millions of dollars in salary, advances and travel expenses before declaring bankruptcy, court records show.

The company’s financial problems also have been linked to its borrowing practices. Doctors Community filed for bankruptcy just two days after the FBI raided the offices of its primary lender, Ohio-based National Century Financial Enterprises, when company officials were unable to account for hundreds of millions of dollars.

Under Mr. Tuft’s plan to buy back Greater Southeast and Hadley, he and other corporate insiders would be covered under a provision that gives liability releases to individuals involved in the “commencement and administration” of the bankruptcy case, according to Mr. McDow’s legal filing.

Mr. McDow said the provision “extends blanket protection to a variety of entities and individuals, insulating them from any negligent behavior.”

He said, “Releasing or exculpating attorneys and professional persons runs counter to prevailing case law and ethical standards.”

Lawyers for Mr. Tuft’s group did not return phone calls yesterday.

Mr. McDow isn’t the only one objecting to Mr. Tuft’s plan.

The U.S. Department of Health and Human Services on Monday filed a separate objection, saying Mr. Tuft’s plan fails to say how the executives plan to repay the federal government $1.5 million in Medicare overpayments to Greater Southeast.

The complaint, signed by U.S. Attorney Roscoe C. Howard Jr., says U.S. Bankruptcy Judge S. Martin Teel should reject the plan until Mr. Tuft’s group details how it plans to reimburse the outstanding Medicare overpayments.

Several other health care companies have filed objections in recent weeks.

Hospital Holding Corp. and Specialty Hospitals of America say in court records that the December auction for the hospitals under Doctors Community was “an orchestrated charade.”

However, lawyers representing Doctors Community say in court papers that the legal challenges come from “disgruntled” bidders and that the U.S. Bankruptcy Court should approve Mr. Tuft’s reorganization plan.

Meanwhile, Greater Southeast continues to lose money. The hospital earlier this year laid off 62 employees, including 30 contract nurses. Court records show the hospital lost $2.5 million in January.

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