Powell Valley Healthcare coming out of bankruptcy

Posted 3/6/18

While some final steps are still pending, leaders of the organization say they’re glad the case is generally over.

“... The best part is that we get to move forward now positively and do some things that will just be better for the hospital, …

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Powell Valley Healthcare coming out of bankruptcy


After roughly one year and nine months, Powell Valley Healthcare is effectively out of bankruptcy.

A judge recently approved a plan of reorganization which resolves a litany of medical malpractice lawsuits that prompted Powell Valley Healthcare to declare Chapter 11 bankruptcy in May 2016. The plan went into effect on Thursday.

While some final steps are still pending, leaders of the organization say they’re glad the case is generally over.

“... The best part is that we get to move forward now positively and do some things that will just be better for the hospital, for patients — do some good stuff now,” Deb Kleinfeldt, vice president of the Powell Valley Healthcare board of trustees, said last month.

“We’re moving forward,” added CEO Terry Odom. “We’re doing some good things.”

Roughly 20 patients sued the organization and its leadership over what they say was substandard care provided by former PVHC surgeon Jeff Hansen. Dr. Hansen resigned in early 2014 after being accused of botching multiple surgeries — including ones that he allegedly should not have attempted — and jeopardizing the safety of patients; Hansen has denied any wrongdoing.

For the patients who filed claims against PVHC, the bankruptcy plan calls for them to receive upwards of $6.12 million.

Powell Valley Healthcare itself will pay out $3 million over the next eight years. The money will come from the taxpayer-owned Powell Hospital District, which owns PVHC’s buildings, in the form of refunded and reduced rent.

UMIA Insurance also agreed to pay $3 million. The company had provided medical malpractice insurance to PVHC from August 2014 through August 2016, when most of the suits were filed.

Finally, HealthTech Management Services, which helped manage PVHC while Hansen was employed there, will pay out $127,500 over the next two years.

Each patient’s share of the proceeds will be determined through mediation at a later date.

The patients could receive additional compensation, as the plan allows their representative — known as the personal injury trustee — to pursue claims against other entities, including two of PVHC’s other insurers.

Kansas City attorney Scott Goldstein, who represented the interests of the patients and other unsecured creditors in the bankruptcy case, will serve as the trustee. Goldstein said at an October hearing that PVHC’s plan was a “good resolution.”

“It has been a long process, and it’s been a fair process,” he said.

After many months of difficult negotiations, everyone involved in the case agreed to sign off on the plan.

The stakes were high for Powell Valley Healthcare: The lawsuits had “threatened the continued operations” of the hospital, said one of the organization’s bankruptcy attorneys, Brad Hunsicker. He’d also warned that, with the bankruptcy case dragging on and legal fees nearing the $1 million mark, “we’re going to end up reaching a point where the debtor [PVHC] just can’t afford to do it anymore.”

Hunsicker made those remarks in October as Powell Valley Healthcare’s insurers fought against allowing the plan of reorganization go out for a vote. However, the parties hammered out changes over the next few months that resolved those concerns.

“It’s my belief that the compromises that we were able to make along the way were the result of everybody at least agreeing on one thing — and that was that the health and safety of the [Powell area] community that was at-risk. Nobody forgot that particular point,” Hunsicker said at the Jan. 23 confirmation hearing. “That kept people going back to their clients, back to the table to try to get a resolution.”

Bankruptcy Judge Cathleen Parker echoed that sentiment in praising the work that went into the plan of reorganization.

“I know that these parties, even though they had clients to represent, they really did hold the interests of the hospital and of that community at its highest priority to get it here,” Parker said before approving the plan. “And only these people sitting in this courtroom can fully appreciate the work that went into that, that this was complex, a lot of moving figures, a lot of probably very upset people given their circumstances.”

Billings attorney Jon Moyers, who sued on behalf of a couple patients, said in October that the $3 million agreed to by PVHC “we understand, is the best that Powell Valley can pay and yet it is a fraction of the total damages suffered by our clients.”

In their lawsuits, Hansen’s former patients described suffering damage and pain from surgeries that they contend were unnecessary or botched, with some suffering infections. Many patients say they had to seek care from other doctors, in some cases needing to have surgeries redone. One Lovell man says he had to have his foot amputated after Hansen attempted an ankle procedure that, the suit alleges, the surgeon was not qualified to perform.

Hansen has denied the patients’ allegations.

Most of the people are from Powell or other parts of the Big Horn Basin.

“These individuals are persons who have lost their employment, they’ve sustained substantial medical care and remain in persistent pain as a result of the malpractices in the underlying cases,” Moyers said in October — adding that the patients will continue to suffer long after the bankruptcy case has ended.

With UMIA insurance having settled with the patients, Goldstein will need to deal with the two other companies that provided malpractice insurance during the time period in question. They are Homeland Insurance, which issued a policy to PVHC from August 2013 to August 2014, and Lexington Insurance, which covered August 2012 to August 2013.

Homeland has contended in a lawsuit that it should be allowed to rescind its policy, arguing that PVHC failed to disclose the troubles with Hansen and that the suits stem from issues that were brought to light while Lexington was insuring PVHC.

Lexington has denied that. The company previously paid several million dollars to settle two suits that were brought against Hansen and PVHC before the 20 that were part of the bankruptcy case.

That legal fight over insurance coverage will now be taken up by Goldstein, as PVHC assigned its rights and other potential causes of action to the personal injury trust.

The fight with the insurers played a large role in PVHC deciding to file bankruptcy.

“The filing of this case was precipitated by an onslaught of litigation,” Hunsicker said in October, referring to the suits and claims regarding Dr. Hansen’s care. “But what made that litigation unmanageable was the fact that these three insurance companies [Lexington, Homeland and UMIA] refused to cover the underlying claims and, ultimately, they sued the debtor to avoid coverage.”

PVHC leaders came to believe that bankruptcy was the most cost-effective and efficient way to resolve the disputes.

Organization leaders had hoped the Chapter 11 process would take roughly a year, though it wound up taking closer to two. In total, the legal fees connected to the bankruptcy case cost PVHC around $1.1 million, CEO Odom said. Requirements of the bankruptcy case meant that, not only did PVHC need to hire its own attorneys, it needed to pay Goldstein’s firm to represent the patients and other unsecured creditors.

Odom believes the cost and length of the 21-month bankruptcy process pales in comparison to what would have happened if PVHC had simply dealt with the various cases in court.

“It would have been probably, according to the attorneys, about 10-plus years of litigation,” she said of that approach. “And so you can make the case that it would have been a lot more money.”

To ensure that the legal troubles were truly put in the past, PVHC leaders reached out to roughly 3,300 people that could conceivably assert a claim against the organization — including all the past patients of Dr. Hansen — and notified them of the bankruptcy case. Odom said that was expensive, “but still the right thing to do.”

The reorganization plan also resolved a few additional claims from patients who contend they received poor care from other physicians at PVHC; however, Odom said that, had it not been for the bankruptcy, the organization would have simply dealt with those claims in court.

PVHC leaders have emphasized that, if not for the claims related to Hansen, the organization would not have declared bankruptcy.

In a declaration filed with the court, Odom said the plan allows Powell Valley Healthcare to move forward “with a stronger balance sheet and a fresh start, free from the burdens of costly, time consuming and uncertain litigation.” She said it will allow PVHC “to proceed forward with fulfilling its primary mission of serving the healthcare needs” of people in the Powell area.