Digging out of debt: RVHS leaves piles of bills
Published 12:00 am Saturday, February 7, 2004
Two filing cabinets, a stack of boxes and crates of correspondence fill the corner of Robert Payne’s South Point office.
That, a shell of a building on South Eighth Street and memories, are all that remain of the former River Valley Health System.
As a Certified Public Accountant, Payne is accustomed to piles of paperwork, but this mess was years in the making - and it will take years to clean it up.
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Big bad debt
Shortly after the hospital closed in January 2001, the Lawrence County Common Pleas Court appointed Payne as the hospital’s receiver and the Lawrence County Commission then transferred day-to-day operations of the hospital to him. Sorting out the financial mess that ended the hospital’s 64-year tenure became his responsibility.
That included paying River Valley’s bills and collecting money still owed to what was once the county’s only hospital.
When the hospital first closed, creditors were instructed to notify the receivership as to the amount they were owed. The total claims filed amounted to $20 million.
"We denied $7 million of that," Payne said. "We just said we’re not paying it. A lot of it was for future contracts, interest and penalties, severance pay for employees."
After denying the $7 million in claims, the amount owed then stood at $13.8 million, much of which was owed to various agencies of the federal and state governments. The pile of bills was still ominously high.
Settling the score with Big Brother
One of the most pressing concerns Payne had to contend with was the federal bonds from the United States Department of Agriculture that were obtained to pay for construction of a new laboratory and other projects at the hospital. Uncle Sam clearly wanted his money first - and what Uncle Sam wants, Uncle Sam usually gets.
"The first meeting, we had to go to Columbus to the Attorney General’s Office and talk (to the USDA officials) and they wanted the county to just write them a check," Payne said. "They were thinking they were dealing with a county like Franklin or Cuyahoga County where $4 million is just nothing. And we had to say ‘wait a minute, this is Appalachia.’"
Payne said coming to a timely agreement with the feds was paramount.
"We were to the point that if we could not come up with an agreement they would have assessed us treble damages," he said. "The $3.9 million would have become about $14 million."
The local officials and the federal government agreed to a three-year payment plan: $850,000 up front, and three payments of roughly $1,023,000 annually for the next three years.
The money to pay the feds came from the sale of the RVHS facility to Our Lady of Bellefonte Hospital in October 2002. The payment arrangement with the feds allowed the receivership to build up some interest by taking the money from the sale of the hospital and putting that money into CDs until it was time to make a payment to the USDA.
Another federal hurdle to navigate was the money owed to Medicare.
During the hospital’s last days, a Medicare audit revealed that the hospital had been overpaid. This happened because the federal agency normally estimates the amount it owes a hospital and then once the yearly audit is conducted, the actual amount is determined and efforts are made then to clean the slate.
Since RVHS had a dwindling patient census in its last year of operation, the hospital received too much money from Medicare.
"That was probably one of the last great nails in its coffin," Payne said.
Right now the hospital still owes $1.4 million and Payne said efforts continue to resolve the matter.
The state came calling
State agencies also lined up to get a piece of the defunct hospital’s pie:
The Ohio Department of Jobs and Family Services sent a bill for $1.4 million. This was what the hospital owed for unemployment benefits.
Most of the benefits were paid to the 415 people who were employed at the time the hospital closed. Payne said ODJFS eventually settled with the receivership for $300,000.
One of the last big-ticket items involving a state agency is the Bureau of Workers Compensation. Payne said the hospital owes that entity nearly $800,000 and negotiations continue to whittle down that amount.
In addition to the government agencies that were owed money, former employees and local and national vendors also stood in line to collect money. The names of creditors in this category filled more than 17 pages when the list was compiled in June 2001. The list included area banks, newspapers and radio stations, scientific equipment vendors, CPAs, computer companies, health labs, soft drink distributors and even other hospitals.
Former River Valley employees filed a class action suit seeking accrued vacation, sick time and other benefits that were owed to them at the time the hospital closed. In April 2003, Lawrence County Common Pleas Judge Frank McCown ordered that employees be given priority status in collecting what was owed them. In a settlement reached with the employees, the former workers were paid all of their accrued holiday and vacation pay and one-fourth of their sick pay, At that time, Payne estimated the payout to employees to be $1.29 million.
In August 2003, Payne began offering many creditors a buyout plan that amounted to 25 percent of what they were owed, an offer that he estimates has saved the hospital $3 million.
"Even though this isn’t a bankruptcy, most people understand that it’s really what this is," Payne said. "In bankruptcies, typically people get 8 to 15 cents on the dollar and we’re approaching 25 cents.Once we got over 10 percent, most people were happy about that."
More than $2.5 million in claims have been settled with the buyout offer.
The stack of invoices
In addition to paying bills the hospital owed, it was left to Payne to try and collect some of the money owed to the hospital. By many accounts, the hospital had more than $1 million in invoices that were never sent out, in addition to invoices that had been mailed but had not been paid.
Payne said although delays in billing are common at hospitals, he thinks the delays in billing at River Valley was unusual in their length.
Payne said he eventually hired a professional debt collection service to handle the backlog of bills owed to the hospital. Payne said the collection service agreed to work on the hospital’s debt collection in exchange for 25 percent of whatever amount the agency collected.
"There is still in excess of $2 million (owed to the hospital) that we’re still trying to collect. Some will probably never be collected," Payne said.
The pile of bills left to be paid (by the hospital) now totals approximately $5.3 million, Payne said.
Of that amount, $2.46 million is due the federal government. The receivership has on hand $2.4 million to pay these bills. The negotiations continue to stretch what’s left of River Valley’s assets far enough to cover the remaining bills.
"I think things have gone about as best as they can," Payne said. "I wish we could have done more, but there’s only so much blood you can get out of a turnip."