Bankruptcy judge expected to approve sale of Wadley Regional Medical Center in Hope

A Google Street View image of Wadley Regional Medical Center in Hope in 2013 (© Google)

Hempstead County authorities expect the sale of Wadley Regional Medical Center in Hope to be approved by a bankruptcy judge on Tuesday, putting the hospital’s operations under local control.

“There’s a lot of work that needs to be done on the facility,” said Anna Lee Powell, president of the Hempstead County Economic Development Agency. “And we need our state government and our local elected officials to get emergency funding to help us through this process.”

Hempstead County and the city of Hope have each committed $1 million to purchase the hospital’s real estate from Medical Properties Trust Inc. of Vestavia Hills, Alabama, Powell said. Hempstead County Economic Development is also a partner in the project, she said.

Hope-based Pafford Medical Services Inc., an ambulance and health care provider, has agreed to buy the 79-bed hospital. Pafford, through its subsidiary Pafford Health Systems Inc., will pay $200,000 and assume some liabilities to acquire the hospital from its parent company, Steward Health Care System LLC of Dallas, which filed for Chapter 11 bankruptcy on May 6.

“So you’re talking about the health license on the one hand and the real estate on the other,” Powell said. “The two are interdependent.”

The U.S. Bankruptcy Court for the Southern District of Texas was scheduled to approve Steward’s sale to Pafford on July 31, but the hearing was postponed until August 13.

After the bankruptcy judge approves the sale, Wadley Regional would be operated by the newly created Southwest Arkansas Healthcare Authority and the hospital would be renamed Southwest Arkansas Regional Medical Center.

Steward, one of the nation’s largest private, physician-led health care networks, has 31 hospitals and more than 400 locations across the country. It also operates Wadley Regional Medical Center in Texarkana, Texas. Steward recently received approval for a $225 million loan to keep its hospitals open during bankruptcy proceedings.

Steward said in bankruptcy filings in the Southern District of Texas that the company has about $1.2 billion in debt and about $6.6 billion in long-term lease obligations. Steward’s estimated net worth is between $1 billion and $10 billion.

Steward said the hospital, like several other hospitals across the country, is experiencing financial difficulties for several reasons, including rising material and labor costs and reimbursement rates that are not keeping pace with inflation.

Wadley Regional Medical Center also faced financial challenges, reporting a loss of $4.25 million for the fiscal year ended Sept. 30. It had reported a loss of $2.9 million the previous year. At the same time, Wadley Regional’s net revenue from a patient perspective declined, falling from $13.1 million in fiscal 2022 to $10.6 million a year later.

Wadley Regional Medical Center in Hope

(Fiscal year ended September 30)

Source: Medicare cost reports (most unaudited) filed with the Centers for Medicare & Medicaid Services. Audited and unaudited net profit can differ significantly because hospitals deduct Medicare-recognized eligible costs from operating expenses before determining final net profit.

Powell said “a lot” of money is needed for Wadley Regional. “This is an emergency situation for our community,” she said. “And we’ve handled it well, … but we also know that help is needed.”

Pafford is considering long-term improvements to the hospital and its facilities, but for now the company and local stakeholders are focused on completing the contract with Steward, said Clay Hobbs, Pafford’s chief operating officer. Arkansas Business last month.

For this county of about 21,000 residents and the surrounding counties that do not have a hospital, keeping hospital doors open was vital.

Closing the hospital would not only impact local residents but also businesses that operate factories in the area, said Hempstead County Judge Jerry Crane. Some manufacturers have agreed to come to the county because of the hospital, Crane said.

“If someone gets injured at a plant or elsewhere, we want to be sure we can get them straight to the hospital and not have to drive 45 minutes to get someone to help somewhere,” he said.

Pafford Medical Services chose to purchase the hospital because it is located in southwest Arkansas, Hobbs said. Arkansas Business recently.

“And we just wanted to work with our county and our city to strengthen health care in the community and in the region,” he said. “Our surrounding counties don’t have hospitals, which I think makes our hospital even more important to the viability of Southwest Arkansas.”

He said it made sense for Pafford to buy the hospital to stabilize health care in the community. Hobbs will sit on the board of the Arkansas Health Care Authority.

Snowball effect

Wadley Regional was founded in 1955 as Hempstead County Memorial Hospital. It was acquired by Steward in 2017.

Steward was founded in 2010 after purchasing a struggling hospital group with six hospitals in Massachusetts. Over time, the company grew into a large healthcare network.

However, in the wake of COVID, Steward has “struggled with a number of operational challenges and negative market trends that have eroded its earnings and liquidity over the past few years,” said John Castellano, Steward’s chief restructuring officer, in a bankruptcy filing in May.

Those problems included falling reimbursement rates, declining patient volumes and revenues, rising labor costs, inflation and “more recently, regulatory and political pressures,” he wrote.

This pressure “exacerbated Steward’s liquidity problems,” Castellano said. “It led to pressure from suppliers and creditors, limited access to supplies and equipment, further reduced revenues and triggered a snowball effect that resulted in significant trade claims and required the debtors to seek a series of emergency bridge loans and other financial concessions from their existing secured lenders and their landlord … to finance operations.”

Congress also took notice of Steward’s bankruptcy. The Senate Health Committee announced last month that it would launch an investigation into Steward’s bankruptcy. Committee members accused the company’s executives of enriching themselves at the expense of the hospital system.